. The company has plans to shed underperforming brands to increase profitability and generate billions in cash.
With the recent departure of long-time Chairman Daniel Lucius Vasella, there is a greater probability that Novartis will sell its 53 million share stake in Roche, another pharmaceutical giant. The Novartis stake is currently valued at $12 billion but could fetch up to a 30% premium.
There is also speculation that Novartis will spin off its highly successful animal health division as the animal-care market continues to consolidate, possibly generating another $5 billion in cash. Selling these less profitable ventures and focusing on core strengths should enable Novartis to build its pipeline and most successful brands, support margin strength and drive higher multiples.
2. Novartis also looks well equipped to navigate the patent cliff.
Although generic competition is expected to negatively affect sales by $3.5 billion in 2013, generics are expected to decline to just 2%-3% of sales by 2014 and 2015. In the meantime, Novartis continues to build a prodigious pipeline of blockbuster drugs, growing to 14 from just eight in 2012. Each of the blockbuster drugs is expected to generate more than $1 billion in annual sales.
3. Its strong financial profile could boost dividends and fuel share buybacks.
The company currently has more than $8 billion in cash and equivalents, but the potential sale of its stake in Roche and animal-health division could raise another $20 billion. This would enable Novartis to grow its dividend, which management raised for the 16th consecutive year in 2012. At $2.53 per share, Novartis boasts an impressive dividend yield of roughly 3.6%. Management has also stated that it is open to using its cash position to buying shares back.