Novartis plans $5B share buyback, hints at restructuring

Novartis' new chairman Joerg Reinhardt has moved quickly since his arrival this year to take steps that signal he has investors' best interests in mind. The company is selling off some less viable pieces and said it is cutting about 500 jobs. Now, he has pulled out an old but well-liked trick--a $5 billion share buyback.

"The market likes a buyback," Michael Leuchten, an analyst at Barclays in London, points out to Bloomberg. "I'd say it's a nice gesture, when you do the math they're buying back 2.5% of their market capitalization over two years."

The buyback starts now and will happen over two years. The company also said it would form new business segments focusing on dermatology, heart failure, respiratory diseases, and cell therapy. The statement, released before the company's annual investor day in London today, wasn't long on specifics, but CEO Joseph Jimenez did make it abundantly clear that delivering a return to shareholders would top his list of priorities going forward. Novartis, which had been widely criticized for its lack of focus under previous chairman Daniel Vasella, has been overhauling its operational plan ever since Reinhardt arrived.

One element of the new strategy will no doubt be to cast off non-core assets. Last week, Novartis announced it would sell its blood-transfusion business to Grifols SA in Spain for $1.7 billion. Today's announcement didn't shed any light on further divestitures, but analysts have speculated that Novartis's animal health, consumer products and vaccines units are likely under review.

As Novartis's blockbuster cancer drug Gleevec speeds towards its 2015 patent expiration, the company is under pressure to prove it can grow its pharmaceutical business. Today the company highlighted some of its pipeline prospects, including psoriasis drug AIN457 (secukinumab), which is up for approval in the U.S. and Europe, and LDK378, its Phase III lung cancer treatment that received the coveted breakthrough therapy designation from the FDA. Novartis also promised a "broad portfolio of new and innovative products" in its Alcon eye business, which it acquired in 2011.

One open question is what Novartis will do with the 33% of voting shares it owns of fellow Swiss drugmaker Roche ($RHHBY). In October, Novartis board member Pierre Landolt speculated in an interview with a Basel newspaper that the two companies might merge, but Roche CEO Severin Schwann quickly poo-poohed the idea.

Nevertheless, investors seem optimistic that Novartis can thrive on its own. Shares of the company climbed about 1% in pre-market trading on Friday.

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