Drug company Novartis was arguably the most admired businesses in its industry for most of the 2000s. It was created in 1996 from the merger of competitors Ciba-Geigy and Sandoz in what was then the biggest takeover in corporate history. The deal established a trend for the pharmaceutical industry, and a series of similar mergers by competitors pushed Novartis down the rankings a little. However, under CEO Daniel Vasella the group established a reputation as one of the industry's strongest performers, with a strong suit in innovative marketing and successful new launches. Novartis was the first of the major drug companies to establish a leading position in generic as well as patent-protected pharmaceuticals. It also completed a series of large deals with fellow Swiss group Nestlé, selling its Gerber baby food and medical nutrition businesses, while also agreeing to acquire the food giant's ophthalmology division Alcon for almost $52bn, the largest purchase in Swiss corporate history. Vasella's successors have overseen further, equally dramatic reconstruction of the group, not least sizeable asset-swapping deals in 2014 with GlaxoSmithKline and Eli Lilly to spin off the group's OTC and animal health divisions, and refocus the business to on prescription pharmaceuticals. Alcon, which has reported disappointing performance since acquisition, is also now to be divested; so too perhaps will be the Sandoz generic business. Novartis's prescription portfolio is currently led by nine blockbusters: MS treatment Gilenya (sales of $3.2bn in 2017), Cosentyx for psoriasis ($2.1bn) and opthalmology drug Lucentis ($1.9bn) as well as five $1bn-plus cancer drugs including Gleevec and Tasigna. Combined revenues for 2017 were $49.1bn. Vasant Narasimhan became CEO in 2018. The group retains a one-third stake in Swiss rival Roche, acquired against that company's wishes in the 2000s. Roche has firmly rebuffed any suggestions of a merger of the two groups.
Capsule checked 11th December 2018
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Adbrands Weekly Update 5th July 2018: Novartis confirmed plans to spin off its eyecare division Alcon. It acquired the business in 2011 from Nestle for an extraordinary $50bn, but Alcon has struggled to live up that valuation, delivering several years of disappointing performance. The decision to divest was widely expected. Novartis CEO Vas Narasimhan said Alcon will be spun off to shareholders as a separately traded company next year, with a new HQ established in Novartis' own home country of Switzerland. However, Novartis will itself retain the collection of ophthalmic drugs it acquired as part of the business, leaving the separated company to specialise in devices and surgical equipment. Valuation is expected to come in at around $20bn, significantly less than the price paid, even without the pharmaceuticals unit.
Adbrands Weekly Update 17th May 2018: AT&T and Novartis suffered serious reputational damage after it was revealed they agreed to hire Donald Trump's personal "fixer" Michael Cohen in an attempt to get a better understanding of - and possibly win favour with - the newly appointed president. Cohen appears to have aggressively cold-called numerous companies following Trump's election success, offering to impart inside information on the new President. Ford said they too had been contacted but declined his proposal. Cohen appears to have made himself made a small fortune in the process - he was paid $600,000 by AT&T and an astonishing $1.2m by Novartis. Yet both companies said they had gained no useful insights from the arrangement. Indeed, Novartis said they decided after a single meeting that Cohen offered no value. Yet they continued to pay him a $100,000 monthly retainer, apparently because they feared the repercussions of a lawsuit. "That was the mistake," Novartis' then-CEO Joe Jimenez told Bloomberg. "It was clear [Cohen] oversold his abilities... We should have just definitively parted ways with this guy as soon as we knew he was not going to be a help." More embarrassing still, it turns out that the company to which they made payments for his consultancy was the very same which paid out $130,000 in hush money to former porn star Stormy Daniels. AT&T CEO Randall Stephenson issued a memo to all staff admitting "our company has been in the headline for all the wrong reasons these last few days and our reputation has been damaged... Hiring Michael Cohen as a political consultant was a big mistake." The two top lawyers at AT&T and Novartis respectively who had negotiated the relationship with Cohen have left in the wake of the revelations.
Adbrands Weekly Update 17th Nov 2016: Swiss drugmaker Novartis hinted that it might be considering the sell-off of its substantial ophthalmology division Alcon. It acquired that business in 2010 in a mammoth $51bn buyout from Nestle. However, according to Novartis chairman Joerg Reinhardt, the business "has not developed over the last two years as we had expected". He told Swiss newspaper SonntagsZeitung, “we will keep all options open. In the long run, the question arises whether we are the best owner for Alcon."
Adbrands Weekly Update 24th Apr 2014: There was a sudden burst of M&A activity in the pharmaceutical sector this week, led by a series of transactions between GlaxoSmithKline and Swiss rival Novartis with some assistance from Eli Lilly of the US. Underlying all the current activity in the sector is a move on the part of the bigger groups towards specialisation, instead of the cultivation of a broad collection of products in multiple different segments as has been the strategy in the past. The GSK/Novartis deal comes in three parts. Perhaps the most significant is the merger of both companies' consumer healthcare businesses in a new joint venture, which will overtake Johnson & Johnson as the global #1 in OTC, with revenues of almost $11bn. It is effectively a slow motion acquisition of Novartis's OTC unit by Glaxo. The combined business will retain the GSK name, and the UK group will have management control of the business through a 63.5% shareholding. Novartis has an option to put its own 36.5% stake to GSK after three years. At the same time, GSK agreed to sell its portfolio of current and pipeline oncology drugs to Novartis for $16bn in cash, while also acquiring the Swiss company's vaccines division (apart from flu products) for up to $7.1bn, depending on future performance. In a separate transaction, Novartis announced plans to quit the animal health sector, selling its portfolio of products to Eli Lilly's Elanco for $5.4bn. As a result, the latter will move up to become the global #2 in that sector behind former Pfizer subsidiary Zoetis.
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