What's going on?
On Friday, leading Swiss drugmaker Novartis – worth over $190 billion – announced it intends to amputate its eye-care unit. And it’s spying as much as $20 billion for it…
What does this mean?
Novartis’ new CEO took the reigns six months ago and is decidedly set on getting the company focused on the business of developing new medicines. In March, he sold off Novartis’ share of a consumer health business (to GlaxoSmithKline, which owned the other half) and put the money to use almost immediately, buying AveXis – an early-stage biotechnology company.
The company hasn’t decided exactly how to split off from its eye-care segment yet, but selling it to a private equity investor or listing it on the stock market via an initial public offering (IPO) are possible options.
Why should I care?
For markets: Investors likely see this as a good thing for Novartis.
Novartis’ stock rose by 4% on Friday. The company’s eye-care unit wasn’t profitable last year, so investors are likely buying Novartis shares in the hope that future profit will be higher after the split. They may also be positive on the company’s strategy – developing new drugs for complicated ailments. When successful, pharmaceutical companies can charge high prices on new medicines for a long time because patents stop others from producing identical, competing products – leading to many years of high sales and profits.
The bigger picture: It’s all to play for in the pharma industry.
On Thursday, Amazon announced its acquisition of online pharmacy, PillPack – shaking up the distribution of medicines in the US. And, on Friday, a group of private equity firms agreed to buy 52% of Italian pharmaceutical company, Recordati, for $3.5 billion. Companies, both public and private are investing in the pharma sector – possibly attracted by its size (over $800 billion is expected to be spent worldwide on prescription drugs in 2018 alone!) and growth potential as emerging markets develop and more of the world’s population demand better healthcare.