ViewPoints: Management changes at Novartis to leave shareholders disappointed?

Over the past decade Novartis has outperformed its rivals in terms of new product launches by some margin. For many this remains the 'purest' metric against which a pharmaceutical company's performance should be benchmarked. Nevertheless, the announcement that chairman and former CEO Daniel Vasella will shortly end his 25-year stint at the company was met with positive sentiment from both analysts and shareholders.

Insight, Analysis & Opinion

The broad suggestion is that Vasella's departure may mark a shift in Novartis' forward strategy, with management change likely to diminish perceptions of M&A and/or over-investment risk, noted UBS analyst Gbola Amusa.

Citi Group's Andrew Baum labelled the change an "important positive for Novartis shareholders," suggesting that under the continued leadership of CEO Joseph Jimenez, and incoming chairman Jorg Reinhardt, there could be an acceleration of value creation for shareholders. Specific opportunities cited by Baum include the monetisation of Novartis' stake in Roche, initiation of a share buy-back scheme and potential rationalisation/divesture of non-core divisions.

Speaking at Novartis' fourth-quarter analyst meeting, however, Jimenez batted away each of these suggestions. Indeed, management was questioned in a number of ways as to whether there would notable strategic changes to which the answer was a consistent 'no' wrote Bernstein analyst Tim Anderson. Furthermore, Jimenez indicated that Novartis' stake in Roche holds a worth greater than its market value, and suggested that rather than divest non-core business units, the company would be more inclined to make further investments in them.

Despite investor expectations and analyst enthusiasm for strategic change, Novartis' stance comes as little surprise, wrote Anderson. There is no compelling business reason for the company to shift its strategy, he added, given that Novartis' future looks "comparatively bright."

Fourth-quarter results suggested as much, with newly launched products all performing robustly. The Swiss company expects 2013 revenues to be flat as it absorbs a $3.5 billion headwind (heavily driven by Diovan patent expiry), and broke with tradition to provide guidance for 2014 and 2015, which was above consensus forecasts. Confidence is high that continued growth momentum can also be achieved in 2016 when Novartis will absorb the impact of patent expiry for Glivec, noted Jimenez.

As Novartis moves towards these targets, it would therefore appear to be business as normal. Whether Reinhardt plays as active a role as Vasella did in his shorter tenure as chairman remains conjecture, but his appointment could be key; given his status as a Novartis veteran (he left to take up the position of CEO at Bayer in early 2010 and had been interviewed for Jimenez's current position), his views may be aligned closely to those of Vasella, noted JP Morgan analyst Alexander Hauber. Jimenez's comments on Wednesday certainly inferred consistency rather than change.

Reinhardt's departure a blow for Bayer

Reinhardt's return to Basel may be viewed as a positive for Novartis, but his departure from Bayer is a further blow to the German company, wrote Bank of America Merrill Lynch analyst Sachin Jain. Following the departure of Flemming Ornskov, global head of marketing and Sandra Peterson, chairman of Crop Science, Reinhardt's decision to return to Novartis is a "little unnerving," commented Jain, particularly as each were appointed by CEO of Bayer Marjin Dekkers since his appointment in 2010. The fundamentals at Bayer remain robust, added Jain, but some uncertainty will remain until a permanent successor to Reinhardt is announced.

Further analysis

Spotlight On: Daniel Vasella's legacy at Novartis

Spotlight On: On the back of Q4 results, AbbVie and Novartis demonstrate contrasting routes towards growth

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