Investing in NVS has been a textbook example of how 80% of a stocks movement can be attributed to its sector. I've been a long time investor in NVS and was disappointed over the years when NVS was far in away outperforming its major pharma competition (whether it was gauged by improved sales, market share, new approvals & launches, etc.) yet the share price languished and the multiple contracted despite earnings which increased at a steady pace.
Fast forward to 2012 when NVS faces generic competition for its biggest products, has had some notable pipeline failures but the share price hits a all time high. This demonstrates that the recent price appreciation is a result of secular forces including search for yield, reasonable growth prospects and the uncertainty that abounds in other sectors (financials, cyclicals, etc.).
I've maintained that NVS is undervalued based on a sum of the parts analysis. As such, I'll continue to hold. Possibly at some point (if the options premium increase) I'll consider writing some calls to trade around my core position. For now I'll hold tight.
I think at some point Roche will become open minded to the merger with NVS. Even without this merger NVS is on pace to become the largest diversified big pharma at a time when baby boomers are reaching peak consumption years. Also, NVS' fastest geographical growth is derived from emerging markets which are developing their middle classes. This will help diversify some of the sales from developed markets where years of austerity are likely.
The next few years should be interesting for NVS. We should see more signs that its biogenerics program is the juggernaut of the industry and the vaccine and diagnostics division should become more visible.