Novartis Deal-Making Scouts Get ‘Significantly’ More Funding
By Eva von Schaper
Jan. 29 (Bloomberg) -- Novartis AG is injecting more money into its hunt for acquisitions and licensing deals as competitors Pfizer Inc. and GlaxoSmithKline Plc snap up companies and products.
Novartis’s unit that scouts for products, evaluates projects and carries out due diligence has gotten “significantly” more funding, said Joe Jimenez, head of the company’s pharmaceutical division, yesterday in an interview at Novartis’s Basel, Switzerland, headquarters. He declined to specify the increase, saying it was less than 25 percent.
Novartis, Switzerland’s second-biggest drugmaker, needs to replace income from the heart medicine Diovan and the Gleevec cancer treatment when patents expire starting in 2012. The drugmaker plans to make more acquisitions in the next 12 months than the three purchases it made last year, Jimenez said. Novartis is looking to acquire health companies and buy marketing rights for drugs, he said.
“We have increased the funds towards due diligence, search, and evaluation and negotiation significantly,” Jimenez said. Prices for licensing deals “have come down” and “a number of biotechs are running out of money and are more willing to sell.”
Chief Executive Officer Daniel Vasella said yesterday, after Pfizer Inc. announced Jan. 26 that it will buy Wyeth, of Madison, New Jersey, for more than $68 billion, that he is sticking to his strategy to buy small companies and invest in research.
Vasella’s Strategy
“I don’t anticipate we’ll be in a transformational transaction,” Vasella said in a Bloomberg television interview after the company reported earnings. “Our strategy really is to look at additional, smaller acquisitions that fit our existing business.”
In the last year, Vasella agreed to spend $115 million for Nektar Therapeutics’ pulmonary unit, as much as $400 million for antibiotic maker Protez Pharmaceuticals Inc. and about 1.01 billion Swiss francs ($932 million) for hypertension drug partner Speedel Holding AG. He also paid $10.4 billion in cash for a 25 percent stake in Swiss eye-care company Alcon Inc.
Novartis is interested in experimental drugs in the second and final stages of human trials, Jimenez said.
“The most important thing is organic growth and that you can produce your own pipeline,” Vasella said in the interview. “Of course, you have to proceed with your eyes wide open and look at every opportunity, but we won’t alter our strategy.”
Novartis dropped 2.83 francs, or 5.5 percent, to 48.62 francs in Zurich trading yesterday. The stock is down 7.7 percent so far this year, compared with a 1 percent decline in the 18-member Bloomberg Europe Pharmaceutical Index.
Glaxo’s Acquisitions
Vasella’s strategy is similar to that of GlaxoSmithKline Plc CEO Andrew Witty. In a Jan. 8 interview, Witty said adding more vaccines, medicines and consumer products will help wean the U.K. drugmaker off its reliance on one or two bestsellers. A large merger or acquisition would threaten to disrupt the company’s own revamped research and development operations, Witty said.
Pfizer’s bid to buy Wyeth reflects the company’s failure to offset looming generic competition to Lipitor, the company’s best-selling cholesterol pill, using job cuts, new research priorities and sales in developing countries, analysts said.
“We don’t consider it to be of great strategic importance for us directly,” Vasella said. “Pfizer has recognized that certain diversification is positive. For Pfizer, it’s the logical step to do. Either you grow externally or you grow internally as a main driver.”
Two days after Pfizer announced its bid for Wyeth, Roche Holding AG’s majority shareholder agreed to keep its stake in one pool for an unlimited period, protecting Novartis’s larger Swiss rival from a takeover as industry mergers are heating up.
The extension of the accord, which had been set to expire at the end of 2009, will make it difficult for other drugmakers, including Novartis, which owns a 33 percent stake, to consider an acquisition of Roche, the world’s biggest maker of cancer medicines. Cross-town rival Novartis spent $2.1 billion in 2002 to increase its holding. Vasella said at the time that a combination would produce “a great company.”