Two-Decade 'Marriage' Ends: Novartis Sells Roche Stake for $20.7 Billion

　　【Pharmaceutical Network Industry DynamicsRecently, Novartis announced that it has signed an agreement worth approximately $20.7 billion with Roche to sell its holdings of 53.3 million shares, accounting for about 33% of Roche's shares. This also signifies the end of a 20-year "alliance" between Novartis and Roche.
 

In May 2001, Novartis began acquiring 20% of Roche's shares, increasing its stake to 33% by 2003. It currently holds 53.3 million freely tradable shares of Roche, accounting for approximately 33% of Roche’s total freely tradable shares. This long-term investment has generated significant recurring earnings for Novartis, with cumulative dividends exceeding $6 billion. During the holding period, the annualized return was 10.2% in US dollars and 6.6% in Swiss francs.
 

Although the returns were substantial, Novartis believes that its financial investment in Roche is neither part of its core business nor a strategic asset. Novartis will report the proceeds from this equity sale in its core adjusted results, with the total expected gains to be approximately $14 billion.
 

In fact, as early as May 2016, the then CEO of Novartis had indicated that Novartis might sell all its Roche shares without a premium, valued at approximately 13.7 billion Swiss francs, and use the proceeds for company acquisitions. However, in October of the same year, Swiss media reported that Novartis had terminated this plan. Now, after five years, Novartis has finally decided to sell its stake in Roche.
 

In recent years, Novartis has been divesting non-core businesses. For instance, in 2018, Novartis sold its 36.5% stake in a consumer healthcare joint venture to GSK for $13 billion. In April 2019, Novartis announced the spin-off of its ophthalmic care subsidiary, Alcon, which was subsequently listed on the Swiss and New York Stock Exchanges. In the third-quarter report released this October, Novartis revealed that it is considering spinning off or selling its generics division, Sandoz. According to insiders, senior management at Novartis has discussed the plan, with discussions focusing on pushing for an initial public offering (IPO) of the generics subsidiary, Sandoz, on the Swiss Stock Exchange.
 

Financial results for the third quarter of 2021 show that Novartis Group's net sales for the quarter were $13.03 billion, compared to $12.259 billion in the same period last year. The net profit for the quarter was $2.758 billion, compared to $1.932 billion in the same period last year. Among them, the net sales of innovative drugs were $10.628 billion, a year-on-year increase of 6%. Sandoz's net sales were $2.402 billion, a year-on-year decrease of 1%.
 

Regarding the destination of the funds Novartis received from this sale, the industry has shown a high level of concern. Reports suggest that Novartis might use the funds for a major acquisition. Some believe that Alnylam Pharmaceuticals could be Novartis' primary potential acquisition target. Alnylam is the developer of the RNA interference (RNAi) technology behind Novartis’ newly acquired cholesterol drug Leqvio, which cost $3.3 billion and is expected to receive FDA approval soon. Novartis and Alnylam have been collaborating for some time; even before acquiring The Medicines Company, the developer of Leqvio, Novartis announced a partnership with Alnylam in 2005. However, by 2014, Novartis had slowed down the collaboration due to certain reasons, including challenges related to formulation and delivery, as well as a limited range of relevant targets where siRNA could be applied. Currently, Alnylam is in a CEO transition period, and investors view this transition as reducing the likelihood of the company pursuing mergers and acquisitions in the near term, within half a year.
 

In addition, BioMarin Pharmaceutical, a gene therapy company, could also be a potential acquisition target for Novartis. Industry analysts have also mentioned that Sangamo Therapeutics, a developer of cell and gene therapies, and Biohaven, a developer of CGRP migraine drugs, are likely to become acquisition targets for Novartis.