Novartis launches $15B share buyback after huge windfall from Roche stake sale—but M&A is still in the cards

Novartis has found a way to spend the big pile of cash—at least $15 billion of it—the drugmaker received from selling a large stake in Swiss rival Roche.

Novartis is initiating a share buyback campaign of up to $15 billion, which will wrap up before the end of 2023, the company said Thursday. The purchase is funded by the $20.7 billion windfall Novartis received from selling about one-third voting stake in Roche in a transaction that just closed last week.

For investors who hoped Novartis would use the money for M&A, fear not; the company said it can complete the buyback “without compromising the company’s capacity for value-creating bolt-on M&A.”

But a megadeal appears out of the picture. By explicitly spelling out “bolt-on M&A” in its buyback announcement, Novartis seems to be signaling that it won’t go after a huge buyout. That sentiment echoes similar comments made by Chief Financial Officer Harry Kirsch during an investor event a few days ago. 

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Novartis has historically focused its M&A dealmaking on small- and mid-cap companies, Mizuho analyst Salim Syed noted during a recent interview with Fierce Pharma. The company’s recent M&A deals include the 2018 purchases of Advanced Accelerator Applications for $3.9 billion, AveXis for $8.7 billion and Endocyte for $2.1 billion. Novartis' $9.7 billion takeover of The Medicines Company, unveiled late 2019, was the largest transaction for the drugmaker in recent years.

Novartis had a three-year share buyback plan (PDF) in place since March 2020. Under that program, Novartis can buy back up to 10% of its registered shares on a separate trading line through March 2023. Over the last five years, the company has undertaken about $12.5 billion in share buybacks.

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Novartis’ latest move comes on the heels of another $15 billion share buyback plan unveiled by Bristol Myers Squibb on Monday. Like Novartis, BMS also assured investors that it will continue to invest in business development.

Deployment of cash toward paying dividends and buybacks is generally viewed as a negative sign for M&A deals.

Novartis billed the new $15 billion share buyback as a show of confidence for its revenue growth despite upcoming patent expirations. The company expects generic competition to some of its top-selling drugs, including heart failure therapy Entresto, to leave a $9 billion hole in its top-line between 2020 and 2026. Nevertheless, the Swiss pharma believes it can grow sales by 4% on average per year during that period thanks to 20 potential blockbuster launches.