Novartis “At An Inflection Point,” Announces $5B Buyback

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In a move that reinforces its commitment to enhance returns to shareholders, Novartis AG (ADR) (NYSE:NVS) announced it will buy back shares worth $5B over the next two years, commencing immediately.

Novartis has reached an inflection point

“Novartis AG (ADR) (NYSE:NVS) has reached an inflection point, having fully integrated Alcon and reduced debt,” said Joseph Jimenez, CEO of Novartis. “We are now further sharpening the execution of our strategy to strengthen shareholder value through science-based innovation in high-growth segments of healthcare where we have the global scale, competitive advantage and the right capabilities to win.”

Also see: Roche ‘extremely open’ to talks with Novartis

Novartis’ shareholder returns

The company said it would maintain a focus on delivering better returns to shareholders through 2014 and 2015 using a mix of strong dividends, strategic acquisitions that will add value and the aforesaid buyback. Other measures that are expected to boost shareholder value include a productivity agenda that could deliver gains of 3-4% of sales annually through 2015.


The company said its pharmaceutical division was “preparing for a new growth phase, driven by an expanding blockbuster portfolio and an industry-leading pipeline,” and specifically, oncology is expected to grow despite the loss of patent exclusivity for its Glivec product. The Alcon division, post-merger integration, is poised to deliver above-market growth.

Also see: Novartis Disputes India For Misrepresenting Position On Patent Laws

Analysts positive on the buyback

Citi pharmaceutical analyst Andrew Baum said, “We anticipate further increases in cash returns as the company divests non-core assets such as animal health over the next six to 12 months,” according to an article in Bloomberg. Barclays analyst Michael Leuchten said it was a nice gesture from Novartis AG (ADR) (NYSE:NVS).

Girding up for battle with generics

The departure of long-time chairman Daniel Vasella appears to have galvanized the company into a review of its operations, and it may be looking to jettison businesses that are unlikely to achieve global scales.

The company recently disposed of its blood transfusion diagnostics division to Grifols for $1.7B.

On the other hand it expects to concentrate on expanding businesses such as dermatology and cardiac disease, while it also grapples with loss of patent protection on blockbuster products such as Diovan, and increasingly aggressive competition from generic drugs.

The company’s ADR is trading at $80.39, having gained $1.18 or 1.52%.

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