Frankfurt The Swiss pharmaceutical company Novartis intends to concentrate fully on the business with innovative medicines with the spin-off of the generic medicine division Sandoz next year. In the future, this is to be geared more closely to the largest pharmaceutical market, the USA, and to five therapeutic areas.
The world’s fourth-largest pharmaceutical company wants to grow by four percent annually until 2027 and achieve an operating core margin of more than 40 percent in the medium to long term (2021: 32.1 percent). Novartis CEO Vasant Narasimhan confirmed these goals on Thursday at an investor event in Basel.
“Novartis is transforming itself into a thoroughbred company for innovative medicines,” said the manager. According to Narasimhan, additional acquisitions, such as those made by Novartis in recent years, are still part of the strategy. The group aims to strike a balance between continuing to invest in the business and returning capital to shareholders.
A decade ago, Novartis had a broad presence in various healthcare fields such as veterinary, diagnostics, over-the-counter medicines and ophthalmology. Long-standing boss Daniel Vasella was still fully committed to diversification, but his successors gradually initiated a turnaround from 2014 onwards. Driven by the realization that focused companies are valued higher on the stock exchange, the Novartis management successively parted with various business areas.
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CEO Narasimhan, who has been in office since February 2018, took the ophthalmology division Alcon public, among other things. He is also aiming for this in the coming year with the Sandoz generics division, which accounts for around a fifth of Novartis sales of 51.6 billion US dollars.
At the company, which will then be completely focused on innovative medicines, some strategic priorities will be set anew. From a regional perspective, Novartis intends to play a stronger role in the USA, the world’s largest pharmaceutical market. By 2027, the company wants to move up from its current tenth place to fifth place. To this end, Novartis has already restructured its pharmaceutical activities and aligned them to two independent sales organizations: one for the USA and one for the rest of the world.
Novartis plans to save $1.5 billion
With the restructuring of the pharmaceutical business, Novartis wants to save around 1.5 billion dollars by 2024. A goal that Narasimhan sees the company on course for, as he reiterated on Thursday. In the future, the group also wants to tailor new developments more specifically to the requirements of the US market, which Novartis estimates at one trillion dollars for innovative drugs.
The “US first mindset”, as Narasimhan describes it, also includes the plan to include more patients from the American market in clinical trials and to develop more talent with a US focus.
In China, which Novartis sees as a key growth market for the next decade, the group wants to rise from fifth place among the three largest multinational pharmaceutical companies. The leading market positions in Germany and Japan are to be maintained.
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In order to further focus research and development activities, Novartis has identified five core therapeutic areas: cardio-renal diseases, immunology, neuroscience, oncology and hematology. In each of these areas, the company already has promising products on the market or in advanced development.
The Swiss rely on eight bestsellers
Growth in the near future is said to come primarily from eight major products, which the company believes will generate peak sales of several billion dollars. These include drugs such as Cosentyx for psoriasis, the heart drug Entresto, Kesimpta for multiple sclerosis, the breast cancer drug Kisquali and the new cholesterol-lowering drug Leqvio.
To drive growth through 2030 and beyond, Novartis has more than 20 new product candidates with sales potential of at least $1 billion that could be approved by 2026, the company said. In the current year, Novartis intends to increase sales and also core operating profit at a currency-adjusted level in the mid-single-digit percentage range at the group level.
However, analysts fear that the progress in the development of the drug candidates will not be big enough to compensate for the threatening sales losses from 2025, which are expected from expiring patents at large drugs such as Entresto, Cosentyx and Gilenya against multiple sclerosis. Because the company had had some setbacks with advanced drug candidates in the past few months.
Credit Suisse and Berenberg, among others, lowered their recommendations for Novartis a few days ago. The Swiss have made good progress in terms of operating margins and costs in the pharmaceutical business, wrote analyst Kerry Holford. However, investors would not have appreciated that given the lack of progress in the product pipeline.
The Novartis share has lost more than 13 percent of its value in the past three years. On Thursday, the titles posted a slight increase of just over one percent up to midday.
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