Novartis targets expansion in Asia

Daniel Vasella, Novartis CEO, at the company's annual results conference in Basel Keystone

Pharmaceutical giant Novartis plans to expand in China and India after announcing that 2005 net profit was up ten per cent to $6.1 billion (SFr7.8 billion).

Executives refused to comment on future acquisition plans, but big money deals were listed as fourth priority behind organic growth, partnerships and small buyouts in their performance report.

Novartis splashed SFr14 billion on takeovers last year, taking a sizeable chunk out of operating margins, which sank 0.9 per cent from 2004.

Daniel Vasella, the company’s chairman and CEO, refused to be drawn on speculation linking Novartis with Geneva-based biotech Serono.

“Every time a company becomes available our name pops up, but we are hostage to a ‘no comment’ policy,” Vasella said at Novartis’s annual results conference in Basel on Thursday.

“Smaller acquisitions may occur and if something makes sense strategically then we will move. If not, we won’t.”

Target areas

Two planned areas for expansion are the rapidly expanding markets of China and India, where the Basel-based company is targeting an increased presence, particularly in the generics market.

Vasella told the conference that China’s pharmaceutical market expanded by 22 per cent last year compared with GDP growth of nine per cent. And he believed the proportion of people in India who can afford drugs will rise from 35 per cent of the population to 80 per cent in 2010.

“With economic growth there is always a pattern of associated healthcare improvements as citizens demand better provisions,” he said.

“Economic prosperity is also accompanied with more sedentary work such as sitting behind computer screens. Children also start to play computer games rather than play soccer outside. This leads to obesity, hypertension and diabetes, which increases the need for medication.”

Local production

The Asian region, excluding Japan, currently accounts for just five per cent of sales. But Novartis will be well placed to deliver supplies of more affordable copied versions of patent expired drugs with the expansion of its generics division last year.

Thomas Ebeling, CEO of Novartis Pharma AG, said Asia was the biggest growth market in the world for generics. Ebeling said Novartis intends to expand its generics business in China with the possibility of taking over local firms.

“We can contribute to China’s growing demand for medication with our broad portfolio at affordable prices,” he said.

“To be able to compete in China, we need to produce locally so we will look to build a local manufacturing presence.”

The conference also heard that Novartis is looking at setting up a research and development facility in either Shanghai or Beijing, starting with a “few hundred” scientists.

swissinfo, Matthew Allen in Basel

Key facts

At the annual results conference, Novartis announced group net sales were up by 14% to $32.2 billion in 2005.
Pharmaceutical net sales rose 10% to $20.3 billion.
Sandoz (generics division) net sales increased 54% to $4.7 billion.
Consumer Health net sales gained 8% to $7.3 billion.

In brief

Novartis was formed in 1996 through the merger of Ciba-Geigy and Sandoz.

The company became the world’s biggest producer of generic drugs last year when it bought German company Hexal with its US strategic partner Eon Labs last year.

Novartis is the second largest manufacturer of over-the-counter drugs in Europe and strengthened this part of its portfolio with the purchase of US company Bristol-Myers Squibb last year.

The pharmaceutical giant plans to launch a fourth division, vaccines, if its takeover of California-based Chiron gets regulatory approval this year.