Can Novartis' CEO resist going for a megamerger with cash from asset sales?

Joe Jimenez
Novartis bought the Alcon unit for $60 billion in 2010 and is now expected to sell it for much less.

A series of potential asset deals could put $50 billion cash in the hands of Novartis CEO Joe Jimenez. While he has said he is looking for manageable deals, the company's pharma portfolio has gaping holes in it, and some analysts are getting anxious the Swiss pharma might squander its opportunity as it did when it bought Alcon, one of the operations Jimenez might unload.

A sale of the the eye care business Alcon could be bring in $25 billion to $35 billion. Novartis paid $60 billion for it 6 years ago.

Another $10 billion might come from Novartis selling its stake in its consumer health JV with GlaxoSmithKline. It has only until next March to decide whether to exercise an option for that 36.5% chunk, Reuters pointed out.

Finally, Novartis has a stake in Swiss peer Roche—which Jimenez’ predecessor bought—that is worth an estimated $14 billion. The company has said it might sell that to do deals.

Jimenez has said he is on the hunt for smaller acquisitions, but as a leader in cancer medicine with no immuno-oncology drug on the market, some investors have worried Novartis might take a run at Bristol-Myers Squibb or AstraZeneca. BMS’ Opdivo is one of the leaders in the immuno-oncology market, and AstraZeneca just this month won FDA approval for its checkpoint inhibitor Imfinzi in bladder cancer.

Related: Would Pfizer, Roche or Novartis megamerge with BMS? Rumors say they're crunching numbers now

While Stephen Anness of Invesco Perpetual is all for Novartis selling the assets, he is a bit uneasy about what it would do with with pockets stuffed with cash.

"I would be very cautious about selling stakes ... in things to raise a war chest to go and do a massive deal, only for that deal to go and be another poor deal," Anness said to Reuters.

There has been rumble of rumors that Jimenez might take a run at either BMS or AstraZeneca to move his company’s fortunes ahead. The talk got hot around BMS in February after some disappointments arose for BMS' blockbuster Opdivo. 

Related: Could Opdivo worries turn BMS into an M&A target? One analyst thinks so

Leerink Partners’ Seamus Fernandez earlier this year wrote that Opdivo, Yervoy and the BMS’ burgeoning immuno-oncology pipeline were “a high-value industry asset,” but with BMS’ shares depressed on Opdivo’s stumbles, the U.S. drugmaker could make a juicy target.  

A few weeks later, talk surfaced that both Novartis and Roche, as well as Pfizer and even Gilead Sciences, were crunching numbers on a deal. Last year, similar talk about Novartis being interested in AstraZeneca pushed up its shares by 6%.  

Related: Megamerger-happy investors bid up AZ shares on speculation that Novartis might try a takeover

Of course, merger talk is a staple of the industry and most of it ends up being wishful thinking for investors hoping for a big payday.

While Novartis has not wavered from its insistence that small bolt-ons, up to $5 billion, are what the company is looking for, Reuters pointed out its sales have fallen the last nine quarters at Novartis, Alcon is a big drag on the company and some of its newer drugs have been slow starters. This all puts pressure on the CEO to do something that will impress investors.

As for its prospects for M&A, Jimenez last month acknowledged Novartis is “having a hard time finding value-generating acquisitions” in the $2 billion to $5 billion range “just because prices have moved up quite a bit,” he said.