Novartis/Chiron: Validating the Value of Vaccine R&D

Nothing solidifies the emergence of a hot investment sector like a big investment of cash, and Novartis AG provided that with its two-stage $5.7 billion close out of the remaining shares of Chiron Corp. that it did not already own [See Deal]. Novartis bought $300 million worth of Chiron’s stock in December 2005 and then closed out the deal with $5.4 billion in April 2006. That’s a noteworthy price, representing a direct investment to purchase one company in the vaccines sector for a price equal to almost 60% of the total current sales of the whole segment (estimated at about $10 billion currently).

Almost as important as Novartis’ dollars in validating the value of the vaccine business is the rhetoric that the Swiss company has been using to explain its investment: the bottom line is that the deal relies on a firm belief in the profit potential for the vaccine industry. Novartis is projecting an annual rate of growth for the vaccine sector of about 20% through 2009 to $20 billion