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- Swiss drugmaker Novartis’s new CEO,Vas Narasimhan, has beenadjusting the company to focus on prescription medicines.
- As part of that, he’s led more than $60 billion in deals over about 18 months, with more to come.
- “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 also isn’t backing away from a strategy of focusing onearlier-stage biotech companies, even though they can be riskier bets.
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WhenVas Narasimhan started as the new CEO of 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 even had a hand inconsumer 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 begangetting out of those businesses and into new ones like gene therapy, acquiring thebiotech 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 plans 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.
Read more: Pharma giant Novartis has been on a tear. CEO Vas Narasimhan told us how wearing jeans to work is helping transform the Swiss company.
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’s drug development around the world and been chief medical officer.
After Novartis reportedsecond-quarter earnings on Thursday, increasing its 2019 sales expectations and reporting growth in its core operating income, the stock advanced.
An M&A strategy that bets on earlier-stage biotechs
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 afocus on acquiring smaller, riskier biotech companies.
Read more: The CEO of $230 billion pharma giant Novartis explains why he’s not scared of buying biotechs at an earlier — and riskier — stage
Mostbiotech 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 aspate 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’smore risk associated with that.”
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