It looks as if Novartis ($NVS) has had enough of the animal kingdom. According to Bloomberg's sources, the Swiss drugmaker is leaning toward a sale or spinoff of its animal health unit as a first move toward a slimmer, more focused company.
It may not be the last, however. When incoming Chairman Joerg Reinhardt announced a strategic review in August, analysts flagged the veterinary drugs business for disposal. Also on their list were the vaccines business, which has been plagued by flagging sales, and the over-the-counter drugs business.
Now, Bloomberg's sources confirm that vaccines and consumer health are among the units under evaluation for sale. Novartis is working with Goldman Sachs on its asset review, and the analysis is ongoing, with no final decisions yet.
Discussing the strategic review during the third-quarter earnings call, CEO Joe Jimenez said he's looking for all Novartis' units to have "global scale and critical mass" in their respective markets. That echoes Reinhardt's previous go-big-or-go-home comments. And to Jimenez's mind, the three Novartis units that fill that prescription are pharma; its eye business, Alcon; and its generics division, Sandoz.
Novartis' animal health unit has been pegged at around $4 billion, value-wise, and some natural buyers would be other Big Pharmas with their own vet-drugs businesses, including Eli Lilly ($LLY), Bayer and Sanofi ($SNY). The unit isn't without its problems, however; manufacturing difficulties in North America cut off supplies of the flea-control product Sentinel, so the company has been working to fix the manufacturing snags and relaunch the product.
The company said late last month that the FDA has given the Lincoln, NE, plant a clean bill of health. The Sentinel relaunch is less of a cut-and-dried story; getting the product back into distribution is one thing, but growing sales will be tough in a market where veterinarians and pet owners have moved on to other products. Because of the relaunch and its attendant difficulties, Jimenez put George Gunn in sole control of the animal health business, triggering speculation that Gunn would be grooming the unit for sale (which Jimenez tried to quash during the Q3 call).
If Pfizer's ($PFE) experience with its animal health business Zoetis ($ZTS) is any indication, a Novartis animal health sale could be a lucrative proposition. Pfizer finished spinning off Zoetis earlier this year, with a stock offering on the high end of its price range.
If and when Novartis makes a move on animal health, analysts likely will be calling for more. Andrew Baum, a Citi analyst, is advocating an OTC unit sale and serious consideration of a vaccines disposal.
As with animal health, neither of those businesses is problem-free. Many of Novartis' OTC products were made at the Lincoln plant along with Sentinel. The company has been relaunching some recalled brands, but that process is far from finished. It will take some time to ramp up production in Lincoln again. Meanwhile, the business delivered double-digit growth during the third quarter, but it's worth noting that Q3 2012 was a rough one for OTC sales. As for vaccines, Baum puts it succinctly: The unit "has failed to deliver."
- see the Bloomberg story
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