İsviçre Basel'deki Novartis binası (Photo credit: Wikipedia)
Will Roche and Novartis work more closely together and even consider a merger? Now that both drugmakers have new chairmen – replacing a pair who had famously icy relations – there is increasing talk about cooperation and that, in turn, is leading to speculation that a merger could even occur. In fact, a Novartis board member earlier this month suggested such a deal might make sense.
Earlier this month, you may recall, Roche named Lufthansa ceo Christoph Franz, who is also one of its board members, to succeed Franz Humer as chairman, a move that came only a few weeks after Jorg Reinhardt replaced the controversial Dan Vasella as Novartis chairman (how controversial? read about his departing package here). The proverbial changing of the guard is being viewed as an opportunity to create a new climate between the traditional rivals.
“If the right opportunity (for a partnership) comes up, we would be extremely open to talk with Novartis as we would be with all the other players,” Roche ceo Severin Schwann tells The Financial Times. “…It’s opportunity driven. If it makes sense for both companies, why not sit together and talk? It’s a very professional relationship with have Novartis.”
Maybe so, but this was not always the case. More than a decade ago, Vasella, who was also Novartis ceo at the time, engineered a 33 percent voting stake in Roche, which led to especially frosty relations between the two drugmakers. There were exceptions - pacts were signed to market the Lucentis eye treatment and Xolair asthma medication, both of which were developed by the Genentech unit at Roche.
Initially, Vasella hoped to combine the two drugmakers, but met with resistance. Since then, the stock holding has grown in value as Roche has built on its oncology franchise by acquiring all of the outstanding Genentech shares not previously under its control back in 2009. However, Roche has also suffered setbacks in other therapeutic areas, notably diabetes and cholesterol.
Such disappointments only underscore an increasing acknowledgement among drugmakers that collaboration can be desirable. But the Novartis stake in Roche marks the rare instance in which one big drugmaker owns a sizeable chunk of another. This explains why Novartis board member Pierre Landolt said a merger may make sense “from an objective standpoint” and create a "pharmaceutical champion" (see this). This assumes anti-trust issues do not stand in the way.
Of course, Schwann is not racing to embrace the notion of a merger since Roche does not own 33 percent of the voting rights in Novartis (NVS). And he tells the paper that there have been no discussions over the stake that Novartis holds. Perhaps Schwann and his board would consider paying a premium to buy the Novartis stake as a part of share repurchase program, another notion that has generated speculation (see this). But would Novartis sell?
