Novartis unleashes M&A scouts as GSK deal starts to deliver on margins

Novartis CEO Joe Jimenez

Novartis ($NVS) beat profit estimates for the first quarter, partly because of the big deal closing with GlaxoSmithKline ($GSK) March 2. Now, CEO Joe Jimenez says the Swiss drugmaker is back on the dealmaking trail.

"We've put our M&A people back to work," Jimenez said during a conference call Wednesday.

The company doesn't have much of an appetite for another big transaction, though. It has plenty to do absorbing the oncology business it bought from GSK for $16 billion. Jimenez said bolt-on deals in the $2 billion to $5 billion range would suffice.

While the deal scouts are out scouting, Jimenez and his team will be continuing their focus on improving margins--something its three-way deal with GSK and Eli Lilly ($LLY) was designed to assist. As Zuercher Kantonalbank analyst Michael Nawrath noted Wednesday, the core margins under the new structure were 30.6%, compared with 26.1% at the old Novartis. "This is where the restructuring is apparent," he wrote (as quoted by Reuters).

Novartis has unloaded its underperforming vaccines business to GSK, sold off animal health to Lilly and set up a consumer health joint venture with GSK, to be run by the British drugmaker.

The idea was to streamline and refocus on what Novartis does best. That means applying its oncology expertise--in the clinic and on the market--to get the most out of GSK's cancer assets, which include the melanoma duo Tafinlar and Mekinist.

It also means continue laying the groundwork for a big new launch in heart failure, with LCZ696, the experimental med Novartis expects to win approval during the third quarter. With its impressive trial data, analysts see it as a straight-to-blockbuster med, and Novartis pharma chief David Epstein figures it's the company's most exciting launch ever. Analysts are predicting peak sales of more than $10 billion.

For now, drugs such as the multiple sclerosis pill Gilenya and the cancer treatment Afinitor are helping to offset competition to some previous top sellers, including the blood pressure treatment Diovan. Thanks to that assist, first-quarter drug sales grew by 1%, a scant improvement, but better than nothing.

Of course, the strong dollar is taking its toll at Novartis as it is at other Big Pharma companies. Novartis now expects currency effects to slice 10% off of sales and 13% from core operating income if current exchange rates continue.

- read the Novartis release (PDF)
- get more from Reuters

Special Reports: Top 15 pharma companies by 2014 revenue - Novartis | Pharma's top 10 M&A deals of 2014 - GSK Oncology/Novartis Vaccines

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