Daniel Vasella, the controversial Swiss executive who created drugmaker Novartis, unexpectedly said he will leave the board after 17 years, handing over to Bayer AG’s top health-care executive.

Vasella, who oversaw the 1996 merger of Sandoz AG and Ciba-Geigy AG that created Novartis, ceded the role of chief executive officer to Joe Jimenez in 2010.

Joerg Reinhardt, who left that year after losing out to Jimenez for the top job, will return and replace the 59-year-old Vasella as chairman, the Basel, Switzerland-based company said in a statement today.

[The moves affect two companies with a major presence in the Research Triangle Park area. Novartis operates a huge vaccine plant and research facility in Holly Sprints. Bayer’s BayerCrop Science maintains its U.S. headquarters in RTP.]

The choice of Reinhardt, 56, places another veteran pharmaceutical industry executive at the head of Novartis’s board as Europe’s biggest drugmaker navigates patent expirations on some of its top-selling medicines, including the Diovan hypertension drug. Jimenez is a former consumer-products executive who joined Novartis in 2007.

“Joerg Reinhardt coming in is good news,” said Michael Leuchten, an analyst at Barclays Plc in London. “He can hit the ground running.” Vasella’s departure “did surprise me,” he said. “People love to hate him.”

Novartis rose 4.1 percent to 62.55 Swiss francs in Zurich. It was the biggest advance since Sept. 6, 2011. The shares have gained 4.6 percent this year through yesterday, compared with a 3 percent increase for the Bloomberg European Pharmaceuticals Index of 19 companies.

New Era

Vasella’s departure signals a new era that may bring the sale of undervalued assets such as the drugmaker’s vaccine unit or stake in crosstown rival Roche Holding AG, Jeffrey Holford, an analyst at Jefferies & Co. in New York, wrote in a note to clients.

The management change kindles speculation that Reinhardt may “unwind Novartis’s conglomerate discount,” said Alexandra Hauber of JPMorgan Chase & Co.

Reinhardt supports Novartis’s diversification strategy, Jimenez said when asked about a possible sale of the Roche stake at a news conference today. Novartis acquired the stake in 2001 and unsuccessfully sought a merger. Jimenez said he “wouldn’t anticipate” a lot of change under Reinhardt.

Novartis today also forecast a mid-single-digit percentage decline in profit for this year, and said sales will be in line with those of 2012, excluding currency swings. Competition from generic medicines will cut revenue by as much as $3.5 billion in 2013, the company said. Sales growth will resume in 2014 and 2015 on a constant-currency basis, according to Novartis, which doesn’t typically provide longer-term forecasts.

Higher Earnings

“Novartis issued mid-term guidance for the first time,” said Odile Rundquist, an analyst at Helvea SA in Geneva, said in a telephone interview today. “That is definitely positive.”

Earnings excluding some costs rose 3 percent to $3.1 billion, or $1.27 a share, in the fourth quarter from $3 billion, or $1.23, a year ago, the company said. Analysts predicted profit of $1.25 a share, the average of 14 estimates compiled by Bloomberg.
Vasella, a medical doctor who joined Sandoz in 1988, said “the time is right for me to ensure a smooth transition.”

“I am confident in the leadership of Joe Jimenez and his top team, the company’s strategy with its commitment to innovation, and the course charted to strengthen Novartis as one of world’s leading health-care companies,” Vasella said in the statement.

Vasella brought together Sandoz and rival Ciba-Geigy in 1996, orchestrating a transaction that ranked as the world’s largest merger at the time. He oversaw the sale of agriculture chemicals in 1999, three years after having defined the concept of “life sciences,” which melded chemicals for humans and plants under one roof.

Product Setback

Vasella, who earned 13.1 million francs ($14.1 million) last year including 4.1 million francs in cash, is a controversial figure in the small Alpine nation.

Ethos Foundation, a Swiss activist investor group, criticized him for holding the jobs of chairman and CEO at the same time, and urged shareholder votes on the company’s compensation system. Based on feedback from shareholders, Novartis will overhaul its executive pay system beginning next year, the company said in its annual report today.

Vasella had a sprawling campus built on the border between France and Switzerland, hiring architects including Frank Gehry to design some of buildings. In a 2009 interview with the New York Times, he said he persuaded the governments to move a border crossing.

‘Not Shy’

“He’s not shy of showing the wealth he’s created and that’s not something that went down too well in Switzerland,” said Leuchten.
Vasella was also perceived to have overpaid for some acquisitions, including the purchase of Chiron Corp.’s vaccine business for $7.5 billion and the $50 billion takeover of Alcon Inc. to create an eye-health division, according to Leuchten.

Jimenez’s compensation was cut 16 percent to 13.2 million francs last year, in part after Novartis suffered manufacturing problems at a U.S. plant that makes the Excedrin headache pills and Lamisil athlete’s foot ointment. Novartis said today the plant will resume production in the second quarter.

Wolfgang Plischke, a Bayer executive, will assume Reinhardt’s responsibilities as head of Bayer HealthCare AG until a successor is named, Leverkusen, Germany-based Bayer said in a statement.

Forgotten Rivalry

Reinhardt, who has a doctorate in pharmaceutical sciences, rose through the ranks at Sandoz and was Novartis’s chief operating officer from 2008 to 2010. His departure from Novartis was announced the day Jimenez was made CEO, and Vasella said at the time that the choice of a new chief executive had come down to the two men.

Jimenez, 53, said any former rivalry between he and Reinhardt is forgotten.

“The relationship will be very positive,” Jimenez said in an interview today on Bloomberg Television. “Joerg and I go way back. We’ve worked together. He knows the company well. Between the two of us, with Joerg managing the board and managing governance, and me managing the business and the operation, I think it will be a good relationship.”

Vasella won’t stand for re-election to the Novartis board at the Feb. 22 annual meeting. Shareholders will be asked to elect Reinhardt as a director and non-executive chairman, effective Aug. 1. Novartis Vice Chairman Ulrich Lehner will lead the board until Reinhardt joins.