Novartis moves to growth with bolt-on deal

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Swiss pharmaceuticals group Novartis has shrugged off concerns about high valuations with a US$3.9bn bolt-on acquisition as it looks to boost growth.

Novartis said on October 30 that it was purchasing Advanced Accelerator Applications, a French company listed on Nasdaq specialising in nuclear medicines used to treat tumours.

According to the terms of the deal, Novartis is offering US$41 in cash per AAA ordinary share and US$82 per American Depositary Share and will fund the deal with existing debt.

Novartis said the deal would strengthen its oncology business with  “both near-term product launches as well as a new technology platform with potential applications across a number of oncology early development programmes.”

Earlier this year CEO Joe Jimenez said the company’s strategy was to make bolt-on acquisitions in the range of US$3bn to US$5bn but said that high valuations made it difficult to find deals that made sense for shareholders.

Analysts have questioned whether it is over-paying for AAA. “This is a small bolt-on deal that is somewhat complimentary to its oncology platform although the valuation appears rich, on 8x Bloomberg consensus 2020 revenues, “ said Liberum in a note on October 30.

Jimenez is keen to add to the company’s product suites as he looks to deliver on his promise to return the company to sales growth before handing over the reins to 41-year old Vas Narasimhan next year.

Jimenez has predicted a return to sales growth next year, citing a development pipeline of 12 possible “blockbuster” products, with annual revenues of US$1bn or more, to be rolled out over the next three years.

The purchase of AAA comes after a strategic review by Novartis that concluded this month that it planned to spin off its Alcon eyecare unit but pushed back the date of a possible deal until 2019, while it   also opted to retain its US$14bn stake in rival Roche.

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