Novartis posts record profit and ups Roche stake

Novartis has upped its stake in Roche swissinfo.ch

Swiss pharmaceutical giant Novartis has bucked the economic downturn, reporting a four per cent increase in net income for 2002 to SFr7.3 billion ($4.7 billion).

The Basel-based firm also announced that it had boosted its voting stake in its Swiss rival Roche from 21.3 per cent to 32.7 per cent.

Novartis, which has repeatedly made overtures about a possible merger, described the move as a “long-term financial investment”.

The company’s stake in Roche now falls just short of the one-third threshold needed to trigger a mandatory public offer.

“We have increased our stake to 32.7 per cent to make sure that we can protect this stake for the long term. It’s obviously very close to a very important threshold,” Novartis chief financial officer Raymond Breu told swissinfo.

Although analysts clearly view the move as increasing pressure on Roche, they are also aware that Novartis chairman and CEO Daniel Vasella is biding his time.

Vasella told swissinfo what a merger would bring to both Novartis and Switzerland.

Swiss champion

“It would be a Swiss champion in the champions’ league – number two in pharmaceuticals worldwide, number one in diagnostics, number two in generics and a leader in OTC (Over The Counter) too.

“You would have an incredibly solid healthcare company,” he added.

Roche, which only found out that Novartis had upped its stake on Thursday, said it intended to remain independent. Spokesman Daniel Piller said Novartis’s move “does not affect our strategy nor our operational activities”.

He added that there was no way Novartis could take majority control without the consent of the Oeri family, which owns 50.1 per cent of the bearer shares.

Commenting on the group’s 2002 full-year results, Vasella said: “We are pleased to report record results for the sixth consecutive year since Novartis was created.

“In 2002, virtually all of our businesses grew ahead of the market, gaining market share amid economic uncertainty and volatility.”

Positive outlook

Novartis forecast that it would post record earnings for a seventh successive year in 2003 despite a 20 per cent increase in pharmaceutical research costs that would depress the firm’s margins this year.

“Despite the higher investments in research and a lower anticipated level of financial income due to the challenging economic environment, both operating and net income are expected to exceed the previous year’s levels, barring any unforeseen events,” the company said in a statement.

Weighed down by a strong franc, group sales rose by only two per cent to SFr32.4 billion. Operating profit gained eight per cent to SFr7.9 billion.

The figures were generally in line with analysts’ expectations.

Strong performance

At a time of shaken confidence in the drug sector, Novartis continues to perform strongly thanks to a steady stream of new drug products and relative immunity to a wave of expiring patents that have subjected some of its rivals to cut-price generic competition.

Novartis’s core pharmaceuticals division gained market share in 2002 and saw sales grow by 13 per cent in local currencies (four per cent in Swiss francs) to SFr21 billion, driven by its key cardiovascular and oncology portfolio.

Its generics division posted sales growth of 25 per cent in local currencies (15 per cent in Swiss francs) to SFr2.8 billion.

In November, Novartis completed the acquisition of Lek, Slovenia’s leading drug-maker, boosting its share of the fast-growing eastern European generics market.

swissinfo, Robert Brookes

Key facts

Novartis’s net income for 2002 increased by four per cent to SFr7.3 billion.
Growth was seen in all business areas, the company says.
The firm has also increased its voting stake in rival Roche, from 21.3 per cent to 32.7 per cent.
Novartis has spent $2.1 billion to raise its stake in Roche.
The total spent on the participation now amounts to $8 billion, currently worth $9.2 billion in the market.
The company expects “dynamic” sales growth as it continues to focus on its core pharmaceuticals business and key therapeutic areas.