The reaction to Novartis’ purchase of US biopharmaceutical company, Chiron, is expected to be muted [[01/09/05a]], according to a research report from analysts at Merrill Lynch, who note it may renew concerns about the Swiss giant’s recent spending spree. Prior to the Chiron buy, it bought Hexal and Eon Labs as part of a bid to boost its presence in the generics industry [[21/02/05b]], [[21/07/05f]].

However, notes ML - despite a lack of financial guidance from Novartis – it expects the Chiron deal to be only marginally dilutive to its short-term earnings and accretive to the tune of 1-2% beyond that. This forecast excludes any costs relating to the resolution of problems Chiron has suffered at its flu vaccine plant in Liverpool, UK [[01/09/05c]], as well as other deal-related costs.

The analysts conclude: “While news of this acquisition may dampen near-term enthusiasm, we feel that Novartis’ defensive attributes, off-patent exposure and well-balanced pipeline justify a premium.” It’s 12-month price objective is 68 Swiss francs or $53 per share.