Posted on July 19, 2019 by Admin
When Vas Narasimhan started as the new CEO of the Swiss drug giant Novartis, he began refocusing the company on a key business area: prescription medicines. Until recently, alongside top-selling psoriasis, multiple sclerosis, and vision-loss drugs, Novartis was also making contact lenses and skin products, and it even had a hand in consumer-health products like…
When Vas Narasimhan started as the new CEO of the Swiss drug giant Novartis, he began refocusing the company on a key business area: prescription medicines.
Until recently, alongside top-selling psoriasis, multiple sclerosis, and vision-loss drugs, Novartis was also making contact lenses and skin products, and it even had a hand in consumer-health products like toothpaste.
Narasimhan still wanted Novartis to be diversified, but across different diseases and types of technology instead of across types of healthcare products. The drugmaker began getting out of those businesses and into new ones like gene therapy, acquiring the biotech AveXis for $9 billion last year.
The new CEO has led more than $60 billion in deals over about 18 months, with more to come. In an interview, Narasimhan said his company planned to devote roughly $12 billion to deals, and he identified two key areas of focus.
"I aspire for us to target on the order of 5% of our market cap in M&A, focused in either building therapeutic area depth or building out new technology platforms," Narasimhan told Business Insider on Thursday.
Novartis has a market valuation of nearly $240 billion, and the stock has advanced about 25% this year.
Narasimhan started as CEO of Novartis, one of the world's biggest pharmaceutical companies, in February 2018. The 43-year-old is the youngest CEO of a major drugmaker. A Harvard-trained physician, he had previously led Novartis' drug development around the world and been chief medical officer.
After Novartis reported second-quarter earnings on Thursday, increasing its 2019 sales expectations and reporting growth in its core operating income, the stock advanced.
Some of the key drugs Novartis makes are for cardiovascular disease, cancer, and eye and vision care. Novartis will need a "deep-enough" stake in those and other areas it's already working in as well as "the right cutting-edge technologies," Narasimhan said.
When it comes to dealmaking, the Swiss drugmaker also isn't backing away from a focus on acquiring smaller, riskier biotech companies.
Most biotech companies don't yet sell a product, so investors instead bet on factors like the promise of their science or the expertise of their leadership team. As these startups release scientific data from research trials of their drugs, positive results tend to propel their market valuations upward.
For a pharmaceutical company on the hunt for cutting-edge new medicines, that can make further-along biotechs both a better bet and, at the same time, less of a good deal.
Also, with a spate of acquisitions lately for companies worth $5 billion to $15 billion, "there's not that many left, and many of them either have significant valuations or significant expectations for M&A," Narasimhan said.
"And so we've been focusing much more at the lower end of that spectrum, also trying to be comfortable with going earlier into companies with lower valuations, understanding there's more risk associated with that."