Novartis has firepower for big M&A deals, says CEO
This photo, taken on October 30, 2022, shows the logo of Swiss pharmaceutical and pharmaceutical manufacturer Novartis on a building in Basel.
Gabriel Monnet | Afp | Getty Images
Novartis CEO Vas Narasimhan told CNBC that the company must always look for the next “big asset” because “it can never be done” when it comes to big acquisitions in its industry.
Novartis went on an acquisition spree last year, acquiring more than 35 companies to offset the blow from generic drug competition. The Swiss drugmaker announced the biggest deal of the last decade on Sunday, announcing that it had agreed to acquire US biotechnology company Avidity Biosciences for approximately $12 billion.
The acquisition will give the Basel, Switzerland-based pharmaceutical giant access to Avidity’s broad pipeline of promising experimental drugs. Novartis said two of Avidity’s three leading drugs expected to launch before 2030 have the potential to generate billions of dollars in sales.
“We’re driven by science and technology, so this was a perfect fit for us… If you look at our free cash flow, it’s approaching $20 billion a year, so we have enough firepower to do deals like this and support the growth profile of the company,” Narasimhan told CNBC’s “Europe Early Edition.”
Novartis posted a 7% increase in third-quarter constant currency sales to $13.9 billion as it continues to grapple with competition for some of its blockbuster drugs. Net income increased 25% year over year to $3.9 billion. Analysts expected net revenue of $4.4 billion, according to the consensus estimate compiled by LSEG.
Novartis shares were down 3.4% at the start of the Tuesday trading session. The stock is up nearly 17% year-to-date, outpacing the 8% rise in the Swiss Market Index.
The company said its performance in the quarter was driven by growth in drug sales, including cancer treatments Kisqali, Pluvicto and Scemblix, as well as multiple sclerosis drug Kesimpta, which showed high double-digit revenue growth.
Novartis has raised its forecasts for the past 10 quarters, including twice this year. Analysts at UBS expected the drugmaker to raise its forecasts again this quarter. But the drugmaker stuck to its guidance for sales to grow at a “high single-digit” percentage rate and operating income to grow at a “low teens” rate.
Its major drugs, Entresto, Promacta and Tasigna, face loss of exclusivity in the US, resulting in a negative impact of 7 percentage points. Meanwhile, the firm noted in Tuesday’s earnings call that revenue cut adjustments, particularly in the U.S., led to a 2 percentage point negative impact due to pricing.
US drug pricing
Investors are closely watching global updates on tariffs and U.S. President Donald Trump’s efforts to lower drug prices for U.S. consumers.
pharmaceutical giants Pfizer And AstraZeneca They recently signed “most favored nation” (MFN) agreements with the US administration. The policy aims to reduce drug costs by tying prices of some drugs in the United States to significantly lower prices abroad. For the Pfizer and AstraZeneca deals, this would lower the cost of drugs for U.S. consumers while giving the companies a three-year reprieve from tariffs.
“Following the PFE and AZN MFN deals, we expect further announcements in the EU and US pharma sector in the coming weeks. The general expectation from investors is to see a similar deal for Novartis. We are seeking to see Novartis’ views on the expected impact of any deal on 2026+ earnings,” analysts at UBS said.
In September, Novartis promised to eliminate the price gap between drugs in the United States and other industrialized countries.
Novartis has been sharing since the beginning of the year.
When asked about the Pfizer and AstraZeneca MFN deals, Narasimhan said the company has been in talks with the White House since the beginning of this year.
“Of course, we’re trying to find a good solution to the challenges they present. I think more importantly, we’re also trying to solve some of the larger structural problems here… Outside of the United States, innovation is not appropriately rewarded,” the CEO said.
He added that if a deal is struck with the US and prices drop in the US, it would likely lead to “fewer launches on public markets in target countries outside the US”.
“I think prices in the U.S. will adjust, but they will adjust modestly. I think what you’re really going to see is if overseas countries — especially as the administration focuses on the G7 plus Switzerland and Denmark — don’t raise their prices to reward innovation, and if companies on par with the U.S. aren’t going to operate in the public market in those countries,” Narasimhan told CNBC.
In September, Novartis also announced that it would not be affected by the White House’s 100% tariff on branded pharmaceutical products due to its $23 billion investment in US-based infrastructure.
