No sale for Novartis' $14B Roche stake, but the revamp's not done

Novartis chairman Joerg Reinhardt said the company won't sell its $14 billion stake in rival drugmaker Roche. (Novartis Foundation)

Novartis has decided to put its $14 billion Roche stake back on the closet shelf. After more than a year of running numbers and taking the market's temperature—while playing out its own company business—Novartis has decided to hang onto its one-third interest in the rival drugmaker.

That's the word from Chairman Joerg Reinhardt, who told the Swiss publication Handelszeitung Wednesday that Novartis won't be offloading its Roche shares after all. "We said at that time that we would consider whether it would be useful to sell," Reinhardt said in an interview with the paper. "We then concluded that this is not the case."

Novartis had tabbed the investment for potential sale as part of a strategic review that has, over the last several years, reshaped the company—and is likely to continue next year as the company's new CEO, Vas Narasimhan, moves to the helm from his current post as R&D chief.

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Unloading the Roche shares could have raised anywhere from $12 billion to more than $14 billion, analysts figured, and would have supplied some funds for M&A.

Since 2014, the Swiss drugmaker has traded off most of its vaccines to GlaxoSmithKline in return for the British drugmaker's oncology drugs, and sold its flu-shot stable to Seqirus. Animal health sold to Eli Lilly. And its consumer health business went into a joint venture run by GSK.

Narasimhan, a Harvard-trained doctor and public health specialist, has so far only said he's intent on driving innovation; he made his debut as forthcoming CEO just as Novartis won early approval for its CAR-T cell therapy Kymriah, the first in an entirely new wave of treatments for cancer. Getting that $475,000 therapy onto the market will be a challenge of its own, and the company faces others, too, including the ongoing rollout of the heart failure drug Entresto and the generic pricing pressure that's shrinking sales at the company's generics unit, Sandoz.

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How M&A fits into all of that remains to be seen, but the Roche shares aren't the only assets Novartis could hive off for cash, of course. Other streamlining options? The Swiss drugmaker was said to be shopping a $496 million portfolio of central nervous system meds late last year, and this spring, word was that it was considering selling off some respiratory drug rights.

And then there's the eye unit Alcon, which has been under internal scrutiny for a while as its sales floundered. Hiving off that business—through a sale or spinoff—could raise $25 billion to $35 billion, and outgoing CEO Joe Jimenez has said he'll update investors on that possibility by the end of this year. Or consumer health: Novartis could sell its stake in the GSK venture and bring in some $10 billion in the process.

Meanwhile, Novartis is said to be eyeing a deal for the radiotherapy developer Advanced Accelerator Applications, a maker of radioactive tracers used in diagnostic scans. AAA's lead pipeline candidate, Lutathera, is an actual cancer therapeutic in a field Novartis already knows: neuroendocrine tumors (NETs). If it comes through, the deal would be "highly synergistic" with the company's existing NET franchise, which includes Sandostatin and Afinitor, Canaccord Genuity analyst John Newman said last month.