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Novartis to divest Diagnostics Unit

Zacks Equity Research

Novartis (NVS) announced a definitive agreement to divest its blood transfusion diagnostics unit to Spain-based Grifols for $1.675 billion.

The divestment is expected to be completed by the first half of 2014. The diagnostics unit generated sales of $565 million in 2012.

Novartis acquired this transfusion diagnostics unit in 2006 which then became a part of its Vaccines and Diagnostics segment.

We note that Novartis’ Vaccines and Diagnostics segment is engaged in research, development, manufacture, distribution and selling of preventive human vaccines and novel blood-screening diagnostic tools.  

Novartis aims to focus better on its strategic business and hence the company decided to divest its diagnostics business. The company will however retain its companion diagnostics unit and the Genoptix business as these businesses are integrated with the pharmaceuticals business.

We remind investors that the Vaccines and Diagnostics business generated net sales of $1.3 billion in the first nine months of 2013, up 8% from the year-ago period.

The Vaccines and Diagnostics business looks strong with numerous vaccines under its kitty. Influenza vaccines are the core products of this division, which includes brands such as Fluvirin, Fluad, Agrippal, Optaflu and Flucelvax. Novartis’ meningococcal franchise consists of three vaccines – Bexsero, Menjugate and Menveo.

We believe the divestment of the diagnostics unit is a step in the right direction as Novartis can invest resources to further strengthen its vaccines franchise.

Novartis currently carries a Zacks Rank #3 (Hold).  Right now, Allergan Inc. (AGN), Bayer (BAYRY) and Johnson & Johnson (JNJ) look attractive. All three carry a Zacks Rank #2 (Buy).

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