Novartis Chief Executive Joe Jimenez is taking a hard look at the drugmaker's smaller businesses as he reshapes the company for what he expects to be a "brutal" new era in healthcare spending.
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At least one of the three sub-scale units - animal health, vaccines and over-the-counter medicines - is not expected to make the cut, he told Reuters in the clearest indication yet of how the review is progressing.
"I really wish we could make all three of those businesses global scale, but I think it's unlikely," Jimenez said.
At first blush, Jimenez's vision of a healthcare market that could double in a decade as populations get older and sicker seems like good news. But there is a dark side because budget constraints will make it ever harder to get treatments paid for.
"It's going to be brutal in terms of getting reimbursement," he said, adding that sub-scale businesses which are not leaders in their fields would be left trailing.
While the three smaller divisions make up only 10.5 percent of Novartis sales, the review - which is due to be completed by the end of the summer - is a major focus for shareholders who are pushing all drugmakers to improve returns on investment.
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The industry has already seen Abbott Laboratories split off its innovative drugs into Abbvie, Pfizer spin out animal health into Zoetis, and GlaxoSmithKline sell drinks brands Lucozade and Ribena.
Jimenez did not specify which of the three sub-scale units was most likely to be sold or spun off, but he highlighted over-the-counter drugs as a strong growth area over the next 10 years as cash-strapped governments back increased self-medication.
Novartis has already taken the first steps to downsize, agreeing to sell its blood transfusion testing unit to Spain's Grifols for $1.7 billion in November.
A simple disposal is an option for the other businesses, too, but Novartis is also exploring more innovative deals.
JOINT VENTURES AND SWAPS
Jimenez confirmed he was talking to other companies and said the Novartis review had triggered "a lot of activity" in the industry, adding that the scramble for growth assets meant drugmakers were having to think creatively and consider trades.
"Most of these assets are embedded in other big companies, therefore there is going to have to be some cooperation with those companies to be able to create something big, either through joint venture or through a swap," he said.
In January, sources told Reuters that Novartis was discussing swapping its animal health and human vaccines business for Merck & Co's over-the-counter products unit.
Asked whether an asset swap was more attractive than an outright cash deal, Jimenez said it was often easier to bargain with assets rather than money.
"Cash is less attractive than being able to build a world-leading business that is going to create value that the cash will not," he said. "I think that's one of the reasons why you are hearing a lot about swaps. At the same time, swaps are very, very, difficult to execute."
Speaking on a sunny day at the drugmaker's modernist campus in Basel, Jimenez was in relaxed mood - but he acknowledged the pressure to resolve the company's future structure, not least to end uncertainty for staff in affected divisions.
Whatever the outcome, he believes the revamp will be good for Novartis employees who will end up as part of a bigger business - either owned by Novartis, joint-ventured with Novartis or owned outright by a larger player in that field.
Novartis is also weighing the future of its $16 billion stake in cross-town rival Roche, but Jimenez said he was in no hurry to take any action on this, adding that the summer deadline applied only to the review of sub-scale units.
He added Novartis would look at bolt-on buys for its three big business engines - its pharmaceuticals division, its Alcon eyecare unit and its Sandoz generics business - and these deals could be in the range of $2 billion to $5 billion in any year.
Finding the right assets to acquire was becoming harder, however, with a soaring biotechnology market pushing up multiples to "very, very high" levels.
One of the hottest areas in biotech right now is immunotherapy, a field that Novartis hopes to tap on a number of fronts, including via last month's acquisition of early-stage biotech firm CoStim Pharmaceuticals.
Novartis also has high hopes for a cell therapy programme, known as CART-19, where it is leading the field, and Jimenez said it planned to start a pivotal trial this year with the aim of filing for approval in 2016.