* Both drugmakers get new chairmen in space of a year
* New faces could help resolve question of Roche stake
* Reinhardt at Novartis overhauling structure, culture
* Roche's Franz must negotiate price pressure, politics
By Caroline Copley
ZURICH, March 3 When outgoing Lufthansa
chief executive Christoph Franz takes over as chairman
of Swiss drugmaker Roche on Tuesday, it could be the
start of a new era of less-frosty relations with arch-rival
The departure last year of Novartis architect and
CEO-turned-chairman Daniel Vasella marked the first step towards
a thawing-out process. He had upset Roche, the world's biggest
cancer drug maker, by building up a 6.2 percent stake in the
group between 2001 and 2003, with the aim of merging the two
firms into one Swiss pharma giant.
With Vasella gone, Franz and his German countryman Joerg
Reinhardt, a former Bayer pharma chief who became
Novartis chairman last year, are free to focus on the very
different challenges they face as well as potential closer
cooperation between the two Basel-based groups. This has
prompted speculation that Novartis could consider selling back
its $14 billion stake in its cross-town rival.
In a sign that relations are thawing, Reinhardt told the
SonntagsZeitung he had already exchanged emails with Franz.
"When you talk to representatives at both companies it looks
as if everyone would be happy if the stake were taken back by
Roche," Helvea analyst Olav Zilian said.
"Maybe having a mediator from outside and people who haven't
had a role in this before, who are unbiased and come with fresh
perspectives will help get the ball rolling."
If Novartis were to sell back the stake to Roche this would
give the drugmaker a hefty cash pile to buy back its own shares
and boost core earnings per share as some of its top-selling
medicines lose patent protection.
Aside from this, Reinhardt at Novartis faces pressure to
slim down the sprawling group built up under Vasella, while
Franz has to fight Roche's corner as governments put pressure on
drug prices, as well as diversify its business.
"I'm not sure that Reinhardt faces more challenges, perhaps
just different ones," J.Safra Sarasin analyst David Kaegi said.
"Novartis has work to do on the company's structure. There's
fewer question marks on this at Roche."
Roche shares shot up 35 percent last year, outperforming a
24 percent rise in Novartis' stock and a 20 percent in the
European health sector index
Franz, whose time at Lufthansa was marked by a series of pay
rows with unions over cost-cuts, will inherit a company at the
top of its game when he replaces Franz Humer who is stepping
down after 16 years as CEO and chairman.
Roche boasts an enviable list of high-margin new cancer
drugs, a well-stocked pipeline and had a bumper core operating
profit margin of 38.3 percent last year.
It was voted the "most liked" pharma name by 43 percent of
investors in a survey by ISI analyst Mark Schoenebaum, putting
it top and ahead of Novartis with 14 percent.
"For me as a finance guy, the market has given us an
answer," Chief Financial Officer Alan Hippe said when asked
about what changes Franz might bring. "When we made the
announcement there wasn't a lot of change in the share price.
Clearly the market expects continuity," he told Reuters.
Still, in the mid-term Roche's margins and profits could
come under pressure, as more and more drugmakers crowd into the
hot area of cancer research and encroach on Roche's dominance.
This puts more pressure on Roche to move into a new
therapeutic area, having had a string of failures with medicines
to treat cardiovascular disease, diabetes and schizophrenia.
Across town, Reinhardt, a Novartis veteran bar a three-year
hiatus at Bayer, has a longer to-do list. Expectations are high,
underscored by the more than 5 percent jump in the drugmaker's
share price when Vasella announced his resignation.
Having bet on a diversified strategy, adding eye care firm
Alcon and U.S. vaccines maker Chiron, investors are now
clamouring for Novartis to unlock value by shedding or bulking
up its non-core businesses, including animal health,
over-the-counter drugs and vaccines.
Reinhardt has launched a review of these smaller units,
which is expected to be complete by the end of summer.
The softly-spoken 57-year-old also has to fix Novartis'
reputation within Switzerland following a public outcry over a
planned $78 million pay off for Vasella.
Those who have worked with him say he is modest and
methodical and is pushing for a more transparent culture.
He has cut his annual salary to 3.8 million Swiss francs
($4.3 million), less than a third of the 13.1 million francs
Vasella was paid for his final year and removed the directors'
power to approve the pay of several senior managers.
At the same time, he has set up a new board committee for
R&D, a nod to his background as a pharmacist and perhaps a sign
he wants to increase productivity. The former chief operating
officer is keen to improve co-operation between Novartis'
Both Germans will also have to undertake some sensitive
lobbying as Switzerland debates how to implement new
restrictions on European Union immigrants, which make up nearly
one in two of workers in the pharma industry.
Another task will be protecting the drugmakers' interests as
Swiss lawmakers hammer out a new corporate tax law and negotiate
a free trade deal with India, a country which has run roughshod
over intellectual property in the past.
53-year-old Franz has lived in Switzerland for a decade and
sits on the board of rail group Stadler Rail and think-tank
Avenir Suisse, giving him first-hand knowledge of what makes the
Reinhardt has spent most of his career in Switzerland, and
has already met with the country's economy minister as part of a
"listening tour" to discuss Novartis with key stakeholders.
Both men are likely to be more hands-off than their
predecessors who had been both CEO and chairman. Roche CEO
Severin Schwan also sits on Roche's board and will be
instrumental in helping Franz get up to speed. Reinhardt has
signalled he is happy to leave day-to-day business to Joe
Jimenez to whom he lost out for the CEO job in 2010.
Novartis and Roche declined to make Reinhardt and Franz
available for comment.