Europe’s two biggest drug maker firms disclaimed any intentions to combine businesses by building on the 33% stake that Novartis AG (ADR)(NYSE:NVS) already owns in Roche Holding Ltd. (ADR)(OTCMKTS:RHHBY). Novartis Chairman Joerg Reinhardt said that value can be created on paper. Still, remaining independent is paramount for both Switzerland’s economy and the companies. He refused to discuss plans for the stake. Its holding, which was bought over a decade ago, in present time, is valued at nearly $14 billion. Their proximity, both firms headquartered in the city of Basel, stokes competition.
The problems
The area proximity results in close competition. Novartis AG is the larger firm by market value while the two companies are a hair’s breadth apart on sales. Shares of Roche have declined 4.4% in the past year, while Novartis has surged 4.6%. Adding intensity to the competition, Novartis bought GlaxoSmithKline Plc’s cancer-drug business earlier in 2015. That helped strengthen the company’s oncology revenue in the second quarter by 30% YOY, reducing the lead cherished by Roche.
And even the appreciation of Swiss franc won’t push them out of Basel, the management of both drug makers signaled. The country, which excelled in the competitiveness ranking, has been weighed down by concerns that the exclusion of the Swiss franc’s cap against the euro, as well as negative interest rates and near-zero inflation, would hurt its ability to expand the nation’s economy.
Other factors
The cost of a location is not the single factor in assessing its quality as the research sites, the number of scientists, and biotech firms available to boost innovation, as well as tax regime and patent protection, have to play a part. Switzerland continues to remain a very attractive and important location for Roche in coming years. The region is home to the majority of R&D operations for Novartis.
Roche Holding Ltd. (ADR)(OTCMKTS:RHHBY) has been in a strong uptrend over the last week ever since hitting an intraday low near the $31 level which is being seen as a huge positive. The stock has been able to break above its 50 day moving average which is being seen as a huge positive. The momentum indicators for the stock have given a buy signal and show no signs of a reversal which is indicative of the shift of momentum towards the buy side. The only cause for concern is the relative strength index which has given a sell signal.
