Novartis aims for super-speed with strategic review, CEO tells analysts

Want the latest on Novartis' ($NVS) should-we-or-shouldn't-we asset review? Leerink Partners analysts met with CEO Joe Jimenez recently, so they can deliver that and more, including some hints at cost-cutting targets.

Novartis CEO Joseph Jimenez

As you know, Novartis is analyzing four of its smaller units, with an eye to either: a., dispose of them in a shareholder-friendly way; or b., somehow build them into bigger contributors to the bottom line. Those units would be animal health, vaccines, consumer healthcare and diagnostics.

Now, as Leerink's Jason Gerberry points out in a new note to investors, these businesses together account for just about 10% of the Swiss drugmaker's sales. So, Jimenez aims to act quickly, to minimize the distraction and simplify the company ASAP. And he means quickly: Novartis management told Leerink that the strategic review will be wrapped by mid-year.

Novartis could sell or spin off one or more of these units. It could, as rumored, trade vaccines and animal health to Merck & Co. ($MRK) for its consumer healthcare business. Or it could go inventive. Executives highlighted "the potential for creative strategic transactions including sales, swaps, or even ViiV-like JVs/partnerships," Gerberry wrote, referred to GlaxoSmithKline ($GSK) and Pfizer's ($PFE) HIV-focused joint venture. 

Most urgent, he said, is the vaccines business, because it's losing money. But this is where Novartis may need to try something new, to reap more of its investment in vaccines R&D. "[Management] would like to participate in the potential upside of the pipeline," Gerberry wrote.

As for cost cutting, Jimenez opined in the meeting that he has a zero tolerance policy for budgets with declining operating margins. Two places where costs could be targeted, he said: general and administrative expenses, particularly via reducing duplications; and pharma R&D.

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