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Pharma – Roche and Novartis face important years | News

Thursday, September 7th, 2017 | Economy

Novartis headquarters are located at the Rheinknie in Basel, only a few hundred meters from the 178 meter high Roche Tower. But not only because of this local proximity, the two pharmaceutical manufacturers on the exchanges are often thrown together.
The proximity also has a different reason: since Novartis bought the financier Martin Ebner a 20 percent in Roche in May 2001 and then expanded its participation in the open market to 33.3 percent, Novartis has a blocking minority on the local competitor. It is true that Novartis has been claiming to sell again and again. However, package sales have not yet been completed.
Roche, Novartis and the Wolfsrudel theory
Similarities also pointo share price development. For many years the Novartis share has already been almost in line with Roche's share of the company. According to the Wolfsrudel theory, once the title, then again the other nose.

The price development of the Novartis share (red) corresponds more or less to that of Bon Bon (green) for more than five years (source: www.cash.ch)
With 20.5 percent, Novartis is weighing more on the Swiss Market Index (SMI). Roche contributes "only" 16.6 percent to the total capitalization of the 20 companies included in the stock market barometer. According to the new rules of the exchange operator SIX, the weight of Novartis will be capped to 18 percent from 18 September. From then on the two Basel companies in the SMI again play in a similar league.
So different the two business models …
And these titles have one more thing in common: the top rates have been some years back. At the beginning of December 2014, Roche's share of the Swiss franc, at CHF 295.80, fell barely a mere 300 francs. After a wild ride on the roller coaster, he is currently trading at 242.60 Swiss francs and thus just 4.3 percent above the level of the beginning of the year.
The Novartis share reached its peak only months later. In the middle of July 2015 she climbed in the peak to 103.20 francs. Looking back, however, the joy of courses over 100 francs did not last long. Today, the share stands at around 80 Swiss francs, which corresponds to an increase of more than 8 percent since the beginning of the year.
According to estimates, Roche is expected to translate 53.4 billion Swiss francs this year, generating a profit of 13.4 billion Swiss francs. In addition to the pharma business, the market leader in the field of cancer drugs continues to rely on the diagnostics business.
Novartis, on the other hand, still holds the reputation of a mixed goods store. Unjustly, under the long-standing Group CEO Joe Jimenez, the health group has separated from the vaccine as well as the animal medication business. The company has since then comprised the Divisions Innovative Medicines (Pharmaceuticals), Sandoz, a specialist in generic medicines, and its subsidiary Alcon, which is active in ophthalmology. In addition to a split into an independent audience, an alcon sale is just as much a topic as the stay under the umbrella of Novartis.
… the problems are so similar
The new CEO, Vasant Narasimhan, who will replace Joe Jimenez in February 2018, is waiting for some work. According to the Diovan blood pressure monitor, another important key drug has lost its patent protection with the leukemia product Glivec. The sales erosion of imitator drugs must be absorbed by young products such as Cosentyx, Ilaris or Entresto. But at Entesto, sales growth was sometimes lagging behind expectations.
Roche is still facing the infamous patent cliff. Over the next few years the patent protection will be affected by high-turnover cancer drugs such as Herceptin, Rituxan and Avastin. Like Novartis, Roche also wants to jump into the Presche with young and promising preparations such as Tecentriq, Ocrevus or Perjeta.
In addition to the patent procedures, the pricing of medicines remains the dominant topic. Encountered by the former Presidential candidate Hillary Clinton during the election campaign, the key market in the United States is now facing political resistance to the sprawling medication prices. And the fear of painful concessions does not only point to the development of the share price for the two Basler Pharma values. Around the world, the shares of large pharmaceutical manufacturers show signs of weakness.
Key figures from Roche and Novartis at a glance:
Key figures *
Price-earnings ratio 2017
Price-earnings ratio 2018
Dividend yield 2017
3.6 percent
3.4 percent
Dividend yield 2018
3.7 percent
3.7 percent
Sales growth 2017
6 percent
-1 percent
Sales growth 2018
5 percent
2 percent
op. Marge (EBIT) 2017
36.4 percent
26.6 percent
op. Marge (EBIT) 2018
36.9 percent
26.7 percent
(* Source: Barclays Capital, estimates)
With price-earnings ratios of 14.5 (Roche) and 15.8 (Novartis) on the next-year estimates, the valuation of the two SMI heavyweights is on a long-term average. The dividend yield is between 3.4 and 3.6 percent. In addition, Novartis is repurchasing its own shares through a second trading line.
On which of the two title investors should put, is ultimately a question of faith. Roche has to maintain Roche's growth potential, despite patent procedures. Novartis has to shake off the homemade problems and return to the growth path. And does the fear of price concessions look retrospectively as exaggerated? Probably only the next few years will probably provide a reliable answer to all these questions.


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