Novartis' nutritional and eye care businesses are seen as "farther away" from the company's core pharmaceutical focus going forward, CFO Raymund Breu told a J.P. Morgan CEO conference on building shareholder value April 26.

Addressing potential divestitures, Breu noted "it is really pharmaceuticals that is our core. Everything else is in the health care portfolio as long as - and if - it supports pharmaceuticals, and as long as it is successful," he explained.

"Some of them are very close to pharma," he said. "Think of generics. Think of OTC medicine. I think they have a justification to be in this portfolio which is beyond reproach."

"Others are a bit farther away," Breu continued, such as animal health, while "some are even a bit farther away, like Ciba Vision eye care products...or functional nutrition and health nutrition."

Novartis' nutrition businesses span a wide range from supplements such as the ReSource Wellness line to infant foods (Gerber) and beverages (Ovaltine) to functional foods (the struggling Aviva line and the Altus joint venture with Quaker).

The company's attitude toward divestitures does not solely focus on how closely a business relates to pharma, Breu added. "If we were to discover that we are not the best owner, that would be another reason to look at it." However, "at the moment, none of these businesses are diverting resources or management time," he said. "They are well-performing."

In addition, "I don't need cash at the moment. I'm sitting on CHF 15 bil. of net cash anyway," the exec added. "Why would I want to add to the cash pile? So our priority will be to grow" all the divisions.

Addressing Novartis' position on acquisitions, particularly in the pharmaceutical sector, the firm would "prefer" to wait two or three years before its next large transaction so it can focus on upcoming product launches, Breu noted.

"Large transactions are always a distraction for your organization, because for a while the focus of the organization turns inward," Breu said. "It potentially will unbalance your launch machine."

Novartis continues to view further consolidation in the pharmaceutical industry as an inevitability, and Breu declared the company is ready to move quickly if an opportunity presents itself in the near term.

"We do not know what will happen in the industry, and we don't want to miss any opportunities in case somebody else would want to make one," Breu said. However, "at the moment, we would prefer not to do a transaction."

Novartis' stance on mergers has evolved over the past two years. In 1999 and 2000, Novartis made an unsuccessful offer for Monsanto/Searle and was the subject of frequent speculation as a potential suitor for American Home Products or Bristol-Myers Squibb.

Novartis was viewed as looking for a merger to add bulk in the U.S. ahead of the current wave of product launches. Over the past several months, however, the firm has begun to play down speculation that a merger or acquisition is in the offing.

Breu emphasized Novartis' interest in adding scale to its U.S. business. The top 10 pharmaceutical com-panies now represent 46% of the global market, Breu noted, with Novartis ranked sixth with a 3.9% share.

"We strongly believe in these transactional moves when they create value and they allow you to become the true leader in one of the segments that you are targeting," Breu said.

Mergers will continue to come in clusters, Breu predicted. "Somebody asked me why is it that you always have these bursts of activity in consolidation and then peace and quiet for a while, and then suddenly a burst again."

The Novartis CEO suggested an analogy to shifting tectonic plates. During quiet periods "it doesn't mean that the pressure has disappeared. The pressure is building up like in an earthquake zone, but then if anything happens, one plate moves, suddenly two other plates can move too, so you have these bursts."

"I'm convinced this will continue to happen. I'm not going to tell you when it will happen, or what the targets can be, or who is being bought. I have my ideas about it, obviously," he concluded.

Novartis OTCs Fit Well With Pharma Core - CFO

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