Novartis and GlaxoSmithKline have agreed to swap a series of assets in a multibillion-dollar deal that will reshape two of the world’s biggest drugmakers. GSK will sell its portfolio of cancer drugs to Novartis for up to $16bn and buy the Swiss group’s vaccines unit for up to $7.1bn, while the pair will combine their consumer health businesses in a joint venture controlled by the UK group.
Separately, Novartis will sell its animal health business to Eli Lilly of the US for $5.4bn. The deals represent the most significant moves so far by Joe Jimenez, chief executive of Novartis, and Sir Andrew Witty, chief executive of GSK, to restructure their businesses in search of stronger growth. Investors welcomed the shake-up, with shares in GSK up more than 5 per cent and Novartis more than 2 per cent on Tuesday, as analysts hailed a “win-win” deal that strengthens both companies in core areas. The complex transaction adds to a flurry of mergers and acquisition activity among big pharma groups. Activist investor Bill Ackman and Valeant Pharmaceuticals have teamed up to launch a bid worth more than $50bn for Allergan, the maker of Botox, that is expected to be announced later on Tuesday. And shares in AstraZeneca jumped more than 6 per cent on Tuesday after it emerged that Pfizer had made a tentative $100bn takeover approach that would have been the biggest pharmaceuticals deal in industry history if accepted. However, Sir Andrew stressed that GSK’s agreement with Novartis was different to the usual pharma megadeals, which often lumber companies with unwanted baggage.
“M&A is a strategy to be used sparingly,” he told the Financial Times. “But it has an extremely valuable role to play if you can find targeted transactions that allow you to strengthen in areas where you have long-term competitive advantages.” The deal will leave GSK focused on four main businesses – respiratory conditions, HIV, vaccines and consumer healthcare – and reduce the company’s dependence on high-risk drug development. Sir Andrew also announced he was launching a strategic review of the company’s established products operations – those involving older, low-growth drugs – with a view to selling some assets. A full disposal was possible but unlikely, he added. For Novartis, Mr Jimenez declared the deal “transformational” and said it would strengthen the company’s position in the high-value but fiercely competitive market for cancer drugs, where it is number two to Swiss rival Roche. By exiting the vaccines and animal health markets, Mr Jimenez is reversing part of the expansion pursued by his predecessor, Daniel Vasella, who stepped down last year after 17 years as chief executive and later chairman. “Diversity is still important but this will allow us to focus on businesses where we hold a leading position,” he told the FT, referring to the group’s three remaining core units: pharmaceuticals, eyecare and generic drugs. Sir Andrew admitted that GSK’s exit from cancer drugs was “not a trivial decision”, given the prestige and high potential rewards associated with the market. But he argued that, as the 14th biggest competitor in the oncology market, GSK had little prospect of establishing a leadership position with its current portfolio of products. However, he said the company would continue researching new treatments for the disease, leaving open the option of returning to the field in future. GSK said it would receive net proceeds of $7.8bn from the transactions and return £4bn to investors through a share buyback.
Source: Financial Times