What he loses on price, Jimenez now plans to make up for in volume. “If you look at the absolute return that we project, we’re essentially on [target] or higher, even with those assumptions,” he says.
Motivation to Sell
Novartis has many motivations to unload its Roche shares.
For one, Novartis is building its cancer franchise after its 2015 acquisition of GlaxoSmithKline assets, so the stake in Roche, the world’s biggest maker of oncology medicines, risks putting too many eggs in one basket.
Profit margins on Roche cancer drugs may narrow, too, if Novartis’s biosimilar strategy succeeds.
“The decision to divest its Roche stake is partly motivated by biosimilar dynamics,” Leerink analyst Seamus Fernandez told investors.
Proceeds from the shares would replenish Novartis’s acquisitions warchest as Jimenez seeks “bolt-on” targets of up to $5 billion, or possibly larger, as prices for takeovers come down.
Also, inter-company tensions may escalate should Roche’s lawyers seek to stall Novartis’s rituximab copy in the courts. Such a lawsuit would make for uncomfortable times in Basel.
The legal threat is real: Xarxio (filgrastim-sndz), Novartis’s version of Amgen’s blockbuster that prevents infections in cancer patients, hit the U.S. market last year only after beating back a legal challenge.
Jimenez said the aggressive legal strategies of drug originators to delay would-be copies have replaced government approval as the biggest stumbling block to speedy U.S. biosimilar introductions.
“You’re seeing less regulatory time, more blocking,” he said. “Eventually, as the legal battles are won, you’re going to see a good business in the U.S. with biosimilars.”
