Published - July 18th, 2023 @ 4:00 PM (GMT+2)

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Novartis Announces Share Buyback Plans & Forecast Upgrade

Novartis (NYSE:NVS), flush with funds from selling its stake in domestic rival Roche, is set to return $15 billion to shareholders without compelling acquisition targets. The company's Chief Financial Officer, Harry Kirsch, acknowledged that no "bolt-on" acquisitions had met their criteria for generating attractive returns. Novartis' decision comes alongside the completion of a similar-sized share buyback program last month.

Forecast Upgrade: Strong Revenue & Income Growth

Driven by a strong performance from its innovative medicines division in the first half of the year, Novartis has upgraded its full-year revenue forecast. The company now expects revenues to grow at a high single-digit pace, surpassing the previous prediction of mid-single digits. Furthermore, core operating income is projected to witness low double-digit growth, improving from the earlier high single-digit forecast.

Positive Market Response & Share Price Surge

Following the announcements, shares in Novartis surged by just over 3% during early trading on Tuesday. This response was a welcome boost for the company, which had experienced a languishing share price performance earlier in the year. The strategic decisions have instilled renewed investor confidence in the pharmaceutical giant.

Since taking the helm in 2018, Chief Executive Officer Vasant Narasimhan has been steering Novartis towards a focus on developing more profitable drugs. As part of this strategy, the company plans to spin off its generics drugs division, Sandoz. The division, boasting approximately $10 billion in annual revenues, had attracted interest from private equity groups. However, the rapid rise in interest rates has cooled deal-making activities, challenging potential investors.
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Sandoz Spin-off Timeline & Positive Shareholder Feedback

Novartis plans to proceed with the spin-off, considering it in the "best interest" of shareholders. CFO Harry Kirsch has highlighted the positive feedback from shareholders, indicating strong support for the move. Assuming shareholder approval, the spin-off is expected to occur by early October, ushering in a new chapter for both Novartis and Sandoz.

Robust Second-Quarter Sales & Encouraging Outlook

During the second quarter, Novartis recorded a 7% increase in sales, totaling $13.7 billion. This growth was primarily driven by exceptional sales figures of crucial drugs such as Entresto, which witnessed an impressive 37% growth in local currencies, amounting to $1.52 billion. Additionally, the new multiple sclerosis injection, Kesimpta, exceeded expectations, with quarterly revenues more than doubling to $489 million. Sales of the newly launched radiotherapy for prostate cancer, Pluvicto, also showed promise, reaching $240 million.

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In addition to the share buyback plan, Novartis is commencing a share buyback program worth up to $15 billion, set to be completed by the end of 2025. The company aims to strengthen shareholder value through this strategic move. Moreover, analysts estimate that Sandoz accounts for just over 10% of the group's overall value, with a projected "low-to-mid single-digit" billion-dollar net financial debt.

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