Novartis AG (SWX: NOVN) has the cash to opt for a large deal in pursuit of accelerated growth – but it’s just not interested in one, according to its chief executive Vasant Narasimhan.
That’s because the bigger deals have historically not paid off in the pharmaceutical sector.
“They significantly disrupt R&D; synergies don’t materialize,” he said in a CNBC interview today.
But that doesn’t mean the Swiss giant will avoid smaller, bolt-on acquisitions.
CEO Narasimhan’s remarks arrive shortly after the pharma company reported better-than-expected sales for its fiscal fourth quarter.
Its shares gained as much as 3% on Friday.
Novartis on the lookout for new bolt-on acquisitions
Novartis has made more than 30 tuck-in acquisitions over the past two years – but it remains open to more in 2025.
That’s because bolt-on acquisitions bring new technologies and more talent into the company. “The only way we’ll discover the next breakthrough is having great people,” the chief executive added.
He touted the uptick in the company’s free cash flow, valuation, and growth rates following the recent spin-offs, adding “We have proved the strategy is working.”
Instead of spending more on acquisitions, Novartis will use the free cash flow to grow its dividend and buyback stock to create more value for its shareholders, according to CEO Narasimhan.
Novartis stock currently pays a dividend yield of 3.40%.
Novartis is interested in next-gen therapies
In terms of bolt-on acquisitions, Novartis will particularly go “aggressively” after a deal that adds next-generation therapies (radioligen, cell/gene, RNA) to its portfolio.
Other areas of interest for the company include cardiovascular diseases, oncology, immunology, and neuroscience.
Novartis currently attributes about 40% to external sales – but “I’m comfortable if that goes to 50%,” according to CEO Vasant Narasimhan.
He attributed lackluster stock performance in recent years to an “overshift into AI.” But the company is moving in the right direction and the strength of its fundamentals will eventually start to reflect in the share price, the chief executive added.
Artificial intelligence and Novartis
Vasant Narasimhan agreed that artificial intelligence will likely have a significant influence on the healthcare industry, particularly in terms of accelerating drug discovery.
However, it’s important to keep AI in perspective, he argued.
In general, we’re at 10 out of 1,000 projects that we take and research ultimately gets through to registration. If we could get that to 20, that would be amazing. But it’s still 20 out of 1,000.
For the current year, Novartis forecasts mid to high single-digit growth in its net sales and high single to low double-digit growth in its core operating income.
Note that Novartis stock is currently up only 6.0% versus its price in early 2020. Late last year, Novartis said it was not interested in joining the weight-loss drugs race.
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