HTW Berlin - University of Applied Sciences International Business Corporate Finance Company Analysis Novartis AG Name: Duy Huy Dao Student No: S0561857 Supervisor: Prof Dr Ralf Hafner Handed in: July 14th 2017 Company Analysis – Novartis AG Contents Introduction – General information Corporate Governance and Shareholder Analysis 1.1Management and Ownership Measures of Corporate Performance 10 2.2 Performance measures 13 2.3 Profitability measures 14 2.5 Leverage ratio 16 2.7 Du Pont Analysis 18 Risk Profile ……………………………………………………………………………….21 3.1 Beta of Novartis AG 20 3.2 Risk analysis 22 Cost of Equity, Cost of Debt and Cost of Capital 23 4.1 Capital structure of Novartis AG …………………………………………………… 23 4.2 Cost of Equity 24 4.3 Cost of Debt 24 4.4 Weighted average cost of capital 24 Financial Performance and Financing Profile 25 5.1 Financial performance 25 5.3 Novartis AG typical project 27 5.4 Novartis AG debt design 28 Optimal capital structure 28 Bibliography…………………………………………………………………………… 32 Company Analysis – Novartis AG List of figures Figure 1: Company's structure Figure 2: Governance body Figure 3: The Novartis AG executive committee Figure 4: Novartis compensation system Figure 5: Novartis corporate social responsibility 10 Figure 6: Beta of Novartis AG 22 Figure 7: Foreign Exchange rate CHF/USD and EUR/USD over the last three years 23 Figure 8: Current capital structure Novartis 24 Figure 9: Cost of equity formula 25 Figure 10: Weighted average cost of capital formula 25 Figure 11: Novartis AG financial performance in the period from 2009-2016 27 Figure 12: Novartis AG and Roche AG share prices over the last five years 28 Figure 13: Novartis earnings from 2008-2016……………………………………………….28 Figure 14: Novartis AG capital structure over the past few years 29 List of tables Table 1: The board of directors and the company’s shares Table 2: The management committee and the company's shares Table 3: Ownership breakdown 13 Table 4: Common-size balance sheet 13 Table 5: Common-size income statement 14 Table 6:: EBIT and EBITDA (Unit: Millions) 15 Table 7: Net working capital (unit: millions) 16 Table 8: Tax rate 16 Table 9: Performance ratio of Novartis AG and Roche AG 16 Table 10: Profitability ratios of Novartis AG and Roche AG 17 Table 11: Efficient ratios of Novartis AG and Roche AG 18 Table 12: Leverage ratios of Novartis AG and Roche AG 19 Company Analysis – Novartis AG Table 13: Liquidity ratios of Novartis AG and Roche AG 20 Table 14: Growth ratios of Novartis AG and Roche AG 20 Table 15: ROA Du Pont breakdown of Novartis AG 21 Table 16: ROE Du Pont breakdown of Novartis AG 21 Table 17: Alcon's financial performance 22 Table 18: Research and development expenditure at Novartis AG 30 Table 19: Optimal capital structure 31 Company Analysis – Novartis AG Introduction – General information Novartis was incorporated in 1996 through a merger of two pharmaceuticals enterprises: Ciba-Geigy and Sandoz With the history of more than 250 years, the company now is one of the leading enterprises in the pharmaceutical industry Novartis, which is based in Switzerland, operates across 180 countries across around the world However, the main markets are developed countries such as the United States, Japan, France, Germany while emerging markets account for about 26% of its revenue Novartis focuses on pharmaceutical and consumer healthcare products through four main strategic divisions and business units Figure 1: Company's structure The pharmaceutical business unit, which is its largest division, develops and manufactures patented treatments for the blood pressure, and other ailments Novartis maintains the competitiveness via the internal development, partnerships, and purchase to keep pipeline of new drugs Novartis Oncology unit, which provides the cancer treatment solutions, was established after the purchase of oncology products from GlaxoSmith-Kline in 2015 It signals the importance of cancer operations in its strategy The subsidiary Alcon concentrates on surgery systems and eye cares devices Generic drugs and active pharmaceutical ingredients are produced at the subsidiary Sandoz In recent years, Novartis has invested increasingly in acquisition and internal research programs in those subsidiaries Novartis’ functional organizations such as corporate functions, business services, manufacturing, and research and development also provide support for the operations of the four main branches Company Analysis – Novartis AG Corporate Governance and Shareholder Analysis 1.1 Management and Ownership Novartis is a public corporation owned by many shareholders Until December 31, 2016, there were 627 114 820 registered shares, and each share has equal voting rights and right to receive dividends Moreover, the shareholders with more than 10% can request an extraordinary General Meeting when it is necessary In fact, Novartis shares can be bought and traded on two stock exchange markets: SIX Swiss Exchange, and NYSE New York Stock Exchange Especially, on New York Stock Exchange Market (NYSE), Novartis shares are traded in form of Novartis American depositary shares Annually at the General Meeting, shareholders elect Board of Directors and its committees The board is in charge of supervising the management and have the ultimate decision-making power for Novartis AG, except the decisions kept for shareholders The committees assist the Board of Director reviewing or overseeing issues so that the Board can work more efficiently and effectively Until the end of 2016, Ph.D Joerg Reinhardt is the chairman of the board of directors Before taking his position at Novartis AG, he was the chairman and CEO of Bayer Healthcare AG The board of directors includes five committees: audit and compliance committee, compensation committee, governance, nomination and corporate responsibilities committee, research and development committee, and risk committee Figure 2: Governance body The executive committee, who is appointed by the board of management, is responsible for operating business to achieve optimal results and developing and implementing strategic plans and policies Company Analysis – Novartis AG Figure 3: The Novartis AG executive committee 1.2 Possible Conflicts of Interest The board of directors and the executive management at Novartis not possess the big amount of the company’s shares This can lead to principal-agent problem because of conflicts between individuals’ interests and the shareholders’ interests This is the case when the board of directors and the executive just want to maximize their income regardless of possible risks that can harm the benefits and rights of shareholders Table 1: The board of directors and the company’s shares Joerg Reinhardt, Ph.D Chairman of the Board of 497762 Directors 0,02% Enrico Vanni, Ph.D Vice Chairman of the Board of Directors 17853 0,00% Nancy C Andrews, M.D., Ph.D Member of the Board of Directors 2308 0,00% Dimitri Azar, M.D Member of the Board of Directors 11217 0,00% Ton Buechner Member of the Board of Directors 1398 0,00% Srikant Datar, Ph.D Member of the Board of Directors 34998 0,00% Elizabeth (Liz) Doherty Member of the Board of Directors 839 0,00% Ann Fudge Member of the Board of Directors 17530 0,00% Pierre Landolt, Ph.D Member of the Board of Directors 58061 0,00% Andreas von Planta, Ph.D Member of the Board of Directors 127740 0,00% Company Analysis – Novartis AG Charles L Sawyers, M.D Member of the Board of Directors 6029 0,00% William T Winters Member of the Board of Directors 9257 0,00% Table 2: The management committee and the company's shares Joseph Jimenez Steven Baert F Michael (Mike) Ball James (Jay) Bradner, M.D Felix R Ehrat, Ph.D Richard Francis Paul Hudson Harry Kirsch Vasant (Vas) Narasimhan, M.D Bruno Strigini André Wyss Chief Executive Officer of Novartis Head of Human Resources of Novartis CEO, Alcon 347278 0,01% 11111 0,00% President of the Novartis Institutes for BioMedical Research (NIBR) Group General Counsel of Novartis CEO, Sandoz CEO, Novartis Pharmaceuticals Chief Financial Officer of Novartis Global Head of Drug Development and Chief Medical Officer for Novartis CEO, Novartis Oncology President of Novartis Operations and Country President for Switzerland No Information No information No information 22424 No Information 0,00% 47,437 0,00% 7271 0,00% No Information 61475 0,00% However, there are two solutions that Novartis is utilizing The first is the supervision from the external auditor The external auditor will provide the opinion about the financial statement and the compliance of applicable standards The second solution is designing an appropriate compensation system for the board of directors and executive committee The compensation system at Novartis is on basis of five key elements Company Analysis – Novartis AG Figure 4: Novartis compensation system The income of the Executive Committee consists of five components: Annual base compensation, pension and other benefits, annual incentive, long-term performance plan, long-term and relative performance plan The balanced scorecard is used to evaluate the performance of CEO and his colleagues In fact, the long-term incentives ensure that the board of management not only achieve short-term goals but also maintain the long-term strategy The income payment level of other pharmaceutical companies with similar size is used as a benchmark for the one at Novartis This factor guarantees that the performance of the management team is taken into consideration the up-to-date situation of the industry In addition, the independent advisors also support the compensation committee to review the compensation governance and risk management 1.3 Social Responsibility Maintaining good corporate image is always important for enterprises Especially, a pharmaceutical company like Novartis AG can suffer from critics if they just want to sell high prices because their products are related to the health of million patients Therefore, the company has to design the appropriate program so that they can sustain profits while more people can have access to their medicines as well as the healthcare system The social corporate responsibility of Novartis is based on five main approaches with the philosophy of expanding access to healthcare The five approaches are social business Company Analysis – Novartis AG models, patient assistance programs, zero profit models, donations, health systems strengthen The social business model was initiated by Novartis in 2015 Governments and public-sector customers in low- and lower-middle-income countries is offered a certain medicine portfolio at the price of USD per treatment per month Patient assistance programs are to improve the access in countries that have limited healthcare system due to lack of insurance, financial hardship In 2016, the company provided help for more than 130 000 people through this program The third program, which is zero profit model, was launched 30 years ago Novartis AG offers antimalarial treatments such as malaria at zero profit in malaria-endemic countries Moreover, donation approach provides preventive treatment in some chosen countries The last one is improve quality of care through training health workers and enhancing health services Figure 5: Novartis corporate social responsibility (The figure is below) 10 Company Analysis – Novartis AG Quick ratio (Cash+Marketable Securities+Receivables)/Current Liabilities Cash ratio (Cash+Marketable Securities)/Current Liabilities quick ratio tells us whether the entity could pass the acid test of paying all its current liabilities if they came due immediately measures a firm's ability to pay off its current liabilities with only cash and cash equivalents 0.57 0.72 0.74 0.79 0.23 0.35 0.39 0.4 2.6 Growth measure It can be found that Novartis AG used more earnings to pay dividends while Roche AG prefers keeping more retained earnings to finance its future investment Therefore, it is not surprising that the growth rate of Roche was higher, which stood at 9.19% and 11.03% in 2015, 2015 correspondingly On the other side, low sustainable growth implies that Novartis is already in the mature period Table 14: Growth ratios of Novartis AG and Roche AG Novartis AG Roche AG Ratio Formula 2015 2016 2015 2016 Payout ratio Dividends/Earnings 94.99% 97.27% 78.98% 74.14% Plowback ratio Sustainable growth (Earnings-Dividends)/Earnings 5.01% 2.73% 21.02% 25.86% Plowback ratio x ROE 1.21% 0.24% 9.19% 11.03% 2.7 Du Pont Analysis Table 15: ROA Du Pont breakdown of Novartis AG Novartis AG Ratio Formula 2015 2016 Asset Turnover Sales/Total assets 0.38 0.37 Operating Profit Margin After-tax operating income/Sales 0.36 0.15 19 Company Analysis – Novartis AG ROA Asset Turnover x Operating Profit margin 13.68% 5.55% Table 16: ROE Du Pont breakdown of Novartis AG Novartis AG Ratio Formula Asset Turnover ratio Average Total Assets / Average Total Equity Sales / Average Total assets Operating Profit Margin (Net Income +Interest) / Sales Leverage ratio Debt Burden ROE Net Income /(Net Income+interest) Leverage ratio x Asset Turnover x Operating Profit Margin x Debt Burden 2015 2016 1.74 1.72 0.38 0.37 0.36 0.15 0.96 0.9 0.23 0.086 2.8 Explanation In the fiscal year 2015 and 2016, the performance of Novartis AG was far behind the financial result of Roche AG There are several reasons, which can explain the poor performance of Novartis AG in 2015 and 2016 The first is the disappointing sales for Entresto The drug is used to treat heart failure and the condition in which the heart is unable to pump enough blood around the body The underunexpected sale figure and the big investment for the new products is due to high price of the medicine and the lack of specific guidelines from professional bodies1 The second reason is due to Glivec expired patent In the year 2016, the sale has fell 35% to 544 million http://www.reuters.com/article/us-novartis-entresto-idUSKCN0YB2QH 20 Company Analysis – Novartis AG However, the underperformance of Alcon contributed heavily to the poor result of Novartis AG As the below table points out, the sales and operating profit of Alcon department significantly decreased in 2015 and 2016 Table 17: Alcon's financial performance Alcon (millions) Sales (ExPharma) - Growth 2012 2013 2014 2015 2016 2017 2018 2019 6206 6388 6616 5999 5812 5928 6106 6411 2.9% 3.6% -9.3% -3,1% 2.0% 3.0% 5% 2248 2329 1235 850 889 1069 1282 0.2% 3.6% -47% -31.2% 4.6% 20.2% 20.0% 35.2% 20.6% 14.6% 15% 17.5% 20% Operating 2244 profit - Growth Operating 36.2% 35.2% margin Source: Bloomberg Intelligence 21 Company Analysis – Novartis AG Risk Profile 3.1 Beta of Novartis AG Beta (β) measures how sensitive the security is to market movement Figure 6: Beta of Novartis AG a Top-down Beta The figure shows that the beta of Novartis is 1.086 in relation to Swiss Market Index It means that the Novartis stock price moves almost the same as the market portfolio movement Moreover, r square equals 0.688, which implies that 68.8% of Novartis AG risk is due to market risks and 31.2% is from firm-specific risks b Bottom-up beta Bottom-up beta is a beta estimation, which starts with and considers the beta of business that the enterprise is in According to Damodaran data, the unleveraged beta of the pharmaceutical industry is 0.93 The formula to calculate beta is as follow: βt= βu(1+(1-t) x D/E)) βt= 0.93x (1+(1-0.143) x (0.151/0.849)) βt= 1.071 22 Company Analysis – Novartis AG 3.2 Risk analysis a Regulatory risk and Political risk Pharmaceutical companies heavily depend on the government regulations to protect their patents, which are granted due to research and development of new drugs In particular, in the USA, drug patents last 20 years, and have the possibility to extend more years2 However, to bring new products to markets, the drug companies have to undergo rigorous procedures Therefore, if there are any changes about regulations such as intellectual property rights or product safety laws, it would significantly influence the whole industry3 In addition, other groups such as Global Warning, Animal rights groups (fight against testing in animals) also concerns pharmaceutical companies The reason is that these groups have political connections so that full potential operations in many countries are hindered Therefore, enterprises should be well-prepared so that they not fall into the situations, in which they have problem with marketing and sale after passing through difficult clinical trials b Human capital risks Human resource is one of the most valuable assets in the pharmaceutical industry It can be explained by the fact that pharmaceutical industry is a substantial knowledge-based sector Although human capital is an off-balance sheet area, it has substantial impacts on the company’s performance and strategy Therefore, designing and implementing an effective recruiting, retention program and compensation strategies will contribute to the value of the firm c IT risk For pharmaceutical companies, the data privacy is significantly vital to the survival and development If hackers attack the proprietary information of the companies such as products in the research and trials stage, it will be like the catastrophe for the enterprises Additionally, the fact that many companies in the drug industry expand to emerging markets creates more data breach opportunities d Foreign exchange risk Novartis’s products are available in 155 countries worldwide and suppliers come from various countries Therefore, foreign exchange fluctuations will significantly affect the sales revenues, the costs and then the profitability of the company http://www.drugsdb.com/blog/how-long-is-a-drug-patent-good-for.html http://www.investopedia.com/ask/answers/032315/how-does-government-regulation-impactdrugs-sector.asp#ixzz4lKTT1P2O 23 Company Analysis – Novartis AG As can be seen from the table, Novartis used a lot of currencies to business And the mostly-used is US dollar, followed by Euro and Swiss Franc On top of that, the currencies fluctuated, especially for weak currencies such as Brazilian Real, Russian Ruble, or Chinese Yuan In order to reduce the risk, the company can have various options such as forward contracts and options Table 18: Net sales and operating expenses in important currencies to Novartis AG 2015 Operating Net expense sales % % 2016 Net Operating exsales % pense % US dollar (USD) 38 43 40 42 Euro (EUR) 26 23 24 23 Swiss franc (CHF) 15 13 Japanese yen (JPY) Chinese yuan (CNY) 4 British pound (GBP) 3 Canadian dollar (CAD) 3 Brazilian real (BRL) 2 Australian dollar (AUD) 2 Russian ruble (RUB) 1 1 Other currencies 12 13 Figure 7: Foreign Exchange Rate CHF/USD and EUR/USD over the last three years Source: Bloomberg terminals 24 Company Analysis – Novartis AG e Reputational risk In 2014, GlaxoSmithKline was fined $500 million by the Chinese court due to bribery4 GSK was accused of bribing Chinese doctors so that they prescribed medicines from GSK Moreover, the sales revenue decreased 25% from 759 million pounds in 2012 to 585 million pounds in 20145 Until the end of 2016, the sale revenue did not reach the pre-scandal amount Therefore, such scandal can noticeably influence the operation of the business Cost of Equity, Cost of Debt and Cost of Capital 4.1 Current capital structure of Novartis AG The current capital structure of Novartis AG consists of three main components: equity, short-term debt, and long-term debt Among them, the market value of equity accounts for 84,9% while long-term debt and short-term debt make up 11.1% and 4% Figure 8: Capital structure Novartis Capital structure 0.04 0.111 Equity - Market value Short-term debt Long-term debt Preferred equity 0.849 4.1 Cost of Equity Expected Return = Risk-free rate + Beta x Risk Premium Figure 9: Cost of equity formula http://www.reuters.com/article/us-gsk-china-idUSKBN0TF0A920151126 http://www.bbc.com/news/business-24637195 25 Company Analysis – Novartis AG  KE = risk free rate + Beta x Market risk premium Risk-free rate: 0.55% (based on 10-year government bond in US) Market risk premium: 9.482% Beta: 1.086  KE= 0.55% +1.086 x 9.482%  KE= 10.85% Cost of equity, which is 10.85%, indicates that investors require a return of 10.85% for their investment at Novartis AG 4.2 Cost of Debt After-tax Cost of Debt (KD) = Pre-tax Cost of Debt x (1- Tax) Pre-tax cost of debt: 3.1% (10-year Novartis bond rate)6 (1-tax): 0.857  KD= (3.1%) x 0.857 = 2.65% 4.3 Weighted average cost of capital Damodaran defines cost of capital as "the opportunity cost of all capital invested in an enterprise."7 Figure 10: Weighted average cost of capital formula KE (Cost of equity): 10.85% KD (after-tax Cost of debt): 2.65% E/(D+E) market value: 0.849 D/(D+E) market value: 0.151 http://www.finanzen.net/anleihen/novartis-capital-anleihen http://pages.stern.nyu.edu/~igiddy/articles/wacc_tutorial.pdf 26 Company Analysis – Novartis AG  WACC= 0.849 x 10.85%+2.65% x 0.1511= 9.61% The fact that weighted average cost of capital of Novartis AG equals 9.61% suggests that Novartis AG has to make a return rate of at least 9.61% to satisfy creditors, and shareholders It is the benchmark for Novartis AG to consider and select any project in the future Financial Performance and Financing Profile 5.1 Financial performance Novartis financial standpoint is actually strong The free cash flow remained at the high level and the operating income was usually over 10 billion US dollars while the dividends increased steadily over the past years Furthermore, although the operating income has fluctuated over the period, the figure in the year 2016 stood at just below 10 billion US Dollars From what can be seen in the graph, it is predicted that Novartis in the maturity stage of the business cycle Concerning the share price, it can be seen that the share price of Novartis AG and its competitor - Roche AG moved almost in the same direction The share price was volatile but in general increased over the last five years In addition, figure 13 shows that the earnings per share fluctuated from 3.3$ to 4.7$ However, it is still below the estimation from many financial institutions Figure 11: Novartis AG financial performance in the period from 2009-2016 Novartis AG Financial Performance 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2009 2010 2011 Operating income 2012 2013 Dividends 27 2014 Free cash flow 2015 2016 Company Analysis – Novartis AG Figure 12: Novartis AG and Roche AG share prices over the last five years Figure 13: Novartis earnings from 2008-2016 Novartis AG Earnings 25 20 15 10 2008 2009 2010 Reported EPS 2011 2012 Estimated EPS 2013 2014 2015 2016 Price/Earnings 5.2 Financing profile a Capital structure The following figure suggests that Novartis AG insist on using low debt ratio for a period of time from 2008-2016 In fact, debt ratio of Novartis AG has remained around 10% since 2018 28 Company Analysis – Novartis AG Figure 14: Novartis AG capital structure over the past few years Novartis AG Capital Structure Market Capitalization Short-term debt Long-term debt 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 The low debt ratio of Novartis can be explained by several reasons: - Low corporate tax rate in Switzerland: The corporate income tax rate that Novartis AG paid in the years 2015 and 2016 was around 14.3% Therefore, the tax shield from debt is not attractive - High investment in research and development; and marketing and Sales In addition, the balance sheet of the Novartis AG also shows that in the years 2015 and 2016, the total amount of goodwill and intangible assets accounted for approximately 45% of their total assets Therefore, investment is unpredictable and the indirect cost of bankruptcy cost is high for Novartis Table 18: Research and development expenditure at Novartis AG Year-end December 31 2015 Year-end December 31 2016 Research and Exploratory Development 2739 2645 Confirmatory Development Total Innovative Medicines Division Research and Development expense 4946 5064 7685 7709 As % of Innovative Medicines net sales to third parties 23% 23.70% However, there are also some reasons that encourage Novartis to take more debt They are: - High separation of ownership and management In fact, at Novartis AG, the management board and executive committee possess little shares Therefore, more debt can supplement more discipline to the management 29 Company Analysis – Novartis AG - Low volatility in the operating cash flow From 2014-2016, the operating cash flow of Novartis AG stood at the position of more than 10 billion US Dollars For example, the figure for 2016 is 11,475 million US Dollars Moreover, the operating income stood at the high level Therefore, the chance that Novartis AG goes bankruptcy is relatively small 5.3 Novartis AG typical project a A typical project The research and introduction of a new drug can be a typical project for Novartis AG Before releasing into the commercial market, a new drug has to go through different phases: from basic research, drug discovery, pre-clinical, to clinical trials, FDA reviews and post-approval research and monitoring Moreover, it is estimated that the research and development of each successful drug costs around 2.6 billion US dollars and the probability of clinical success is less than 12%8 However, the pharmaceutical enterprises can gain various advantages and then profits if a drug is successfully commercialized It can be explained by the fact that the company with a new drug can be granted a patent, which can last 20 years Therefore, it can be realized that a typical pharmaceutical project has a long duration, cash outflow in the beginning of the project, and if successfully pass the test from FDA, it will have the cash inflow in the later period of the project b Current performance As analyzed in the financial ratio analysis part, the cost of capital for the year 2015 and 2016 were 19.3% and 7.39% respectively Compared to the weighted average cost of capital (WACC) of 9.61%, Novartis AG had a good performance in 2015 while underperformed in the following year 5.4 Novartis AG debt design On the basis of the above analysis points, there are several suggestions for design debt structure of Novartis AG: - Duration: because projects of Novartis can last for many years, the company should issue the long-term debt (10-20 years) to finance its investment - Currency: Novartis AG has the operation in more than 100 countries The financial statement shows that the revenue and the expense were mostly dominated in US dollars, Euro and Swiss Franc Consequently, a mixed currency bond is recommendable - The fixed/floating Rate Choice: As the firm has a stable earnings and cash flow, a fixed coupon rate is more preferable http://phrma-docs.phrma.org/sites/default/files/pdf/rd_brochure_022307.pdf 30 Company Analysis – Novartis AG - The Choice between Straight and Convertible Bonds: Novartis AG is in the mature stage with stable but low growth, and has a good free cash flow standpoint, so it should choose straight bonds, not convertible bond Optimal capital structure In the following table, the optimal capital structure of Novartis AG is calculated The calculation is based on Damodaran excel sheet9 Table 19: Optimal capital structure D/(D+E) Beta Cost of equity Cost of debt Cost of Capital Value (perpetual growth) millions USD 0.00% 0.9749 9.79% 0.99% 9.79% $189,519 10% 1.07 10.67% 0.99% 9.71% $192,495 20% 1.18 11.77% 0.99% 9.62% $195,334 30% 1.33 13.19% 0.99% 9.53% $198,257 40% 1.67 16.36% 15.50% 16.01% ($2,805) 50% 2.00 19.52% 15.31% 17.41% ($2,521) 60% 2.50 24.26% 15.18% 18.81% ($2,289) 70% 3.33 32.17% 15.09% 20.21% ($2,096) 80% 5.00 47.98% 15.02% 21.61% ($1,933) 90% 10.00 95.40% 14.97% 23.01% ($1,793) It is not difficult to recognize that the lowest cost of capital and the highest enterprise value is when the ration D/(D+E) is 30% Therefore, it is suggested that Novartis AG should issue more debt to finance its operation http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html 31 Company Analysis – Novartis AG 32 Company Analysis – Novartis AG Bibliography http://www.drugsdb.com/blog/how-long-is-a-drug-patent-good-for.html http://www.investopedia.com/ask/answers/032315/how-does-government-regulation-impactdrugs-sector.asp#ixzz4lKTT1P2O http://www.reuters.com/article/us-novartis-entresto-idUSKCN0YB2QH http://www.reuters.com/article/us-gsk-china-idUSKBN0TF0A920151126 http://www.bbc.com/news/business-24637195 http://www.finanzen.net/anleihen/novartis-capital-anleihen http://pages.stern.nyu.edu/~igiddy/articles/wacc_tutorial.pdf http://phrma-docs.phrma.org/sites/default/files/pdf/rd_brochure_022307.pdf http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html https://www.novartis.com/investors/financial-data https://www.novartis.com/news/annual-report-2016 http://www.roche.com/investors/ar16e.html?utm_source=web&utm_campaign=annualreport-2016 33 ... Introduction – General information Corporate Governance and Shareholder Analysis 1.1Management and Ownership Measures of Corporate Performance 10 2.2 Performance... such as corporate functions, business services, manufacturing, and research and development also provide support for the operations of the four main branches Company Analysis – Novartis AG Corporate. .. 2016 The low debt ratio of Novartis can be explained by several reasons: - Low corporate tax rate in Switzerland: The corporate income tax rate that Novartis AG paid in the years 2015 and 2016 was