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Novartis AG NOVN

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Morningstar’s Analysis

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Capital Allocation


Roche Gains Flexibility With Share Buyback From Novartis, While Novartis Gains Deal-Making Capital

Damien Conover, CFA Sector Director

Analyst Note

| Damien Conover, CFA |

The Novartis $21 billion sale of Roche bearer shares back to Roche doesn’t have a significant impact on our fair value estimates for either company. However, the transaction provides more capital to Novartis for capital allocation. We expect Novartis will use part of the funds to repurchase shares to offset the lost income from the Roche shares, which should help stabilize Novartis’ earnings per share. We also expect the firm to increase its efforts with tuck-in acquisitions to bolster its late-stage pipeline, a core pillar of the firm’s wide moat. Additionally, we view Novartis’ Roche shares as non-strategic and likely built up long ago when the ownership may have led to a bridge to a more complete Novartis ownership.

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Company Profile

Business Description

Novartis AG develops and manufactures healthcare products through two segments: Innovative Medicines and Sandoz. It generates the vast majority of its revenue from Innovative Medicines segment consisting global business franchises in oncology, ophthalmology, neuroscience, immunology, respiratory, cardio-metabolic, and established medicines. The firm sells its products globally, with the United States representing close to one third of total revenue.

Lichtstrasse 35
Basel, 4056, Switzerland
T +41 613241111
Sector Healthcare
Industry Drug Manufacturers - General
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 109,000