Novartis envisions getting costs under control starting this year to improve margins over the coming year, while growing its three strongest divisions through “bolt-on” acquisitions in the $3 billion to $5 billion range, CEO Joe Jimenez told analysts earlier today, while fleshing out few details about what the company will do about its weaker units.
“You’re going to see pressure on costs at Novartis,” Jimenez said during a question-and-answer session with analysts at the JP Morgan Healthcare Conference, held here at the Westin St. Francis hotel. “Our intent is to increase the margins over time, and not five years from now, but starting now.”
“The margins at Novartis are not where they need to be. I’m not happy with where our operating margins are,” Jimenez added.
Minutes earlier during his presentation, Jimenez laid out three objectives for 2014—maintaining what it called its lead in innovation, accelerating growth, and driving productivity. In order to achieve these goals, he said, Novartis will have to actively manage its portfolio, achieve greater synergies between the company's divisions, and deliver greater shareholder returns.
Novartis has been in strategic review mode since last year, evaluating its operations for possible selloffs, which have been expected and speculated about ever since by analysts for the company’s smaller assets such as its animal health business (part of a consumer health unit that generated $3 billion in sales between January–September 2013), and vaccines and diagnostics division ($1.3 billion during Q1–3 2013). Jimenez said Novartis may not resolve these units’ futures via selloffs, but would consider “alternate structures that maybe we haven’t considered in the past. I really don’t want to comment beyond that.”
Novartis has already moved to shrink its vaccine unit, selling off the division’s blood transfusion diagnostics unit to Grifols for $1.675 billion—a deal completed last week, Jimenez said. And at the conference, the CEO hinted at possible further shrinkage of the division by citing the company’s interest in vaccines targeting just two diseases, the flu and meningitis: “We believe that particularly meningitis could be a multi-billion-dollar area for Novartis.”
Novartis’ meningitis vaccines include Menveo® (Meningococcal Group A, C, W-135 and Y conjugate vaccine), which FDA approved last summer for prevention of meningococcal disease caused by four strains of the bacterium Neisseria meningitidis in infants and toddlers from two months of age; and Bexsero, which has completed Phase I and Phase II studies, and is the first and only broad coverage vaccine protecting against MenB. While Bexsero is not FDA-approved, it is approved in Europe, Australia, and Canada. And last month, FDA approved an IND from the CDC allowing Bexsero’s use at Princeton University to prevent further spread of meningococcal serogroup B.
As for the company’s strongest units of pharmaceuticals ($23.9 billion between January–September 2013), Alcon eyecare products ($7.8 billion), and Sandoz generic and biosimilar drugs ($6.7 billion), “I would look in 2014 at bolt-ons that would strengthen our three big engines,” Jimenez said, using industry lingo for acquisitions of niche companies whose products or programs can simply be added to existing infrastructure. He envisions those deals being in the $3 billion to $5 billion range.