Novartis AG (NYSE:NVS) has plans to spend between $1 billion and $5 billion in strategic acquisitions to strengthen its generic unit Sandoz. The company’s CEO, Joe Jimenez, revealed the plan at the opening of Novartis’ largest R&D facility in Asia, which is a $1 billion R&D campus just outside China’s Shanghai city.
Target is on biosimilars
Novartis’ buyout prospects are biosimilars in the areas of eye care, oncology and other treatments. Although the company is planning to keep its M&A deals in the range of $1 billion to $5 billion, it can exceed that range if it gets a particularly compelling asset that costs more. The condition to spending more than $5 billion in a buyout is that the asset should bring almost immediate value to shareholders.
Novartis is hoping to capitalize on the ongoing pharmaceutical consolidation to get hold of assets that add value to its long-term strategic plan. For example, as pharmaceuticals combine, some will face regulatory requirements to sell assets and there lies the opportunity for Novartis. Because when companies are required to divest themselves of certain units before they can gain approval to combine, the assets can easily be sold at a discount.
Casting the net wider
Novartis’ CEO Jimenez appeared to doubt whether there will be exciting biosimilar assets to acquire in China where the company has just opened one of its largest research centers in the world. However, he expressed hope that if Novartis didn’t get an attractive biosimilar prospect in China, they would definitely get one in other parts of Asia.
Why China and why now?
Novartis AG’s new Chinese research facility will be dedicated to researching drugs to address medical conditions that are prevalent in the country. The Chinese are struggling with rising cases of liver, lung and gastric cancers among others. The government there is concerned about the growing health risks in the country and is offering incentives to encourage development of treatments that address local medical needs. Therefore, Novartis is hoping to benefit from China’s growing spending on medicines and the government’s goodwill to accelerate growth in the country and the region.
