It's catch-up time for
This 900-pound gorilla of the global drug business plans to list on the
New York Stock Exchange
on Thursday. The Swiss drug and chemical maker's official line is that it wants to increase "visibility" among U.S. investors (balloons and T-shirts will be on offer at the Big Board).
But industry observers suspect a deeper motive. With the U.S. drug industry consolidating at a record pace and a number of plum properties ripe for the taking, bankers say the bottom line is that Novartis doesn't plan to be left out of the wheeling and dealing.
A U.S. listing, the thinking goes, could make it cheaper for an overseas power -- such as Novartis -- to expand stateside. The pressure to make a move is especially great because Novartis has been bumped out of the top slot it held in 1997, as rivals have merged in an effort to reduce risk and expand drug pipelines.
A Currency of One's Own
Mark Hill, a Novartis spokesman, says the NYSE listing "increases flexibility" and that Novartis has no immediate plans for acquisitions. Such speculation, he says, is "overplayed."
But with a recent buying frenzy making the biggest drug makers even bigger and more financially sound, managers like Novartis Chief Executive Daniel Vasella don't want to be left out of the intensifying game of drug industry consolidation.
"What they are doing is increasing their visibility and having a currency to use, should they choose to use it," says Scott Schevic, a drug analyst at
, which doesn't cover Novartis and hasn't underwritten for it.
Threatened by rising drug development costs and possible price controls, the herd of global drug companies is expected to consolidate in coming years into a few truly mammoth companies that each control 10% to 15% of the $300 billion global pharmaceutical market. Right now, no one controls more than 7% of that market.
This year alone,
are linking and
. That action comes on the heels of last year's spate of European drug-industry marriages, including
Among big European players, the only one left standing alone is Switzerland's
. Other European independents are smaller players whose addition would help Novartis less on the world stage. And Novartis, the product of the 1995 merger of two of Switzerland's big-three drug companies,
, would have a politically tough time trying to join with Roche in a Swiss market that was shocked at the brazen capitalism and job losses experienced at its creation.
That leaves U.S. companies like
as plausible merger candidates. Lilly and Schering-Plough couldn't immediately be reached for comment; Bristol-Myers said it's always open to "opportunities." Any such combination could put Novartis back again in the top slot in the global drug industry, where it reigned in 1997 before the creation of
So Novartis is doing everything it can to make sure U.S. investors want to buy its newly minted American depositary receipts. For instance, it is offering more shares than planned at half the price -- about $35 each -- and targeting advertising to retail investors that currently have little access to the company's thinly traded over-the-counter ADRs.
Stock watchers here believe the listing could be a success. "There is definitely room for another drug company to be listed in the U.S.," says Mara Goldstein, drug analyst with
CIBC World Markets
, which has no rating on the stock and does no underwriting for Novartis. She says risk-averse investors may like the stock because Novartis is a mature company with consistent earnings growth. In addition, drug stocks have performed strongly in recent months as investors have fled tech highfliers for the perceived quality of blue-chips.
Everyone Else Is Doing It
To be sure, Novartis doesn't need the U.S. listing to participate in industry consolidation, with cash of about $7.3 billion at the end of 1999 and massive borrowing power. And Vasella has said publicly that Novartis is "opting for organic growth" and doesn't need a merger.
But it's cheaper to use shares, and executives routinely deny they're interested in mergers -- until they announce one. SmithKline's Jan Leschly, Glaxo's Richard Sykes and Zeneca's David Barnes all dismissed the need to merge before embarking on big combinations. Hey, if you didn't need it, what did you do it for?
And with European drugmakers like SmithKline, AstraZeneca and Glaxo having maintained listings in the U.S. for years, the biggest question U.S. investors may ask is, "Why didn't Novartis do it sooner?"