With Cash in Hand, Novartis Could Seek Deal to Bolster Drug Pipeline

Following an agreement to sell its share of a consumer health business unit to GlaxoSmithKline for $13 billion new Novartis Chief Executive Officer Vasant Narasimhan has some excess cash to use to shape the company in the coming years.

The sale of the consumer health product business is a signal that the company intends to focus its resources on drug development. But what could that look like. Writing in Bloomberg columnist Max Nisen suggests that Novartis could be gearing up to flex its M&A muscle. During the tenure of former CEO Joe Jimenez, Nisen said Novartis only made two "major deals" – the $12.2 billion acquisition of Alcon and the $14.5 billion asset swap with GlaxoSmithKline that included the consumer health business that Novartis finally divested this week. The remaining deals during the Jimenez years were on the smaller side, Nisen noted.

If Narasimhan can use some of the funds from the GSK deal for M&A purposes, as well as any possible monies it could raise from selling off Alcon, it could provide Novartis with a stronger grip on certain markets. Nisen pointed out that several of the company’s key driver drugs, including Cosentyx, Aimovig, and recently approved Kisquali, have competition. He added that heart drug Entresto may not become the "mega-blockbuster" that Novartis hoped for.

"Gaining or retaining market share will be a bruising fight for these drugs," Nisen wrote.

While Novartis does have a promising pipeline of drugs, including treatments for macular degeneration and multiple sclerosis, Nisen said the company is also facing patent loss for many of its drugs, which means increased generic competition. With the backdrop he laid out in the column, Nisen said Narasimhan "should invest in some extra insurance against a competitive environment and the chance of pipeline disappointment."

Although Nisen called for Novartis to actively engage in a large M&A program, he did not offer suggestions of assets the company could target. Nisen only suggests that the extra income from the GSK deal provides Narasimhan with some "extra wiggle room" that he should not waste. If, or when, the company sells off Alcon, the company could have another $20 billion in its accounts. Following the announcement of the GSK deal Tuesday, Narasimhan reconfirmed the company will not make a decision regarding Alcon until 2019.

One area that Narasimhan could invest in is through an increase of digital technology in clinical trials. Last fall before taking over the reins of the company, Narasimhan told Swiss Info that more efficient use of digital technology could save the company millions of dollars when it comes to clinical trials. Novartis has approximately 500 ongoing trials and 200 drug development projects in the works. If the company can implement greater efficiency that could save the company massive amount of money, he said.

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