The Telegraph
Wednesday , April 23 , 2014
CIMA Gallary

Pharma trio prescribe rejig pill Buy-sale mix defines mega deals

Zurich/London, April 22 (Agencies): Swiss pharmaceutical giant Novartis has announced an overhaul of its operations on Tuesday that included an agreement to buy the cancer drug business of its British rival GlaxoSmithKline for up to $16 billion.

At the same time, Novartis said it would sell its vaccine business to GlaxoSmithKline for $7.1 billion and combine its over-the-counter pharmaceutical business with Glaxo’s consumer drug business.

The new joint venture would be one of the world’s biggest companies in the consumer health care sector. Its products would include Novartis’s Excedrin pain reliever and Maalox antacid, and Glaxo’s Aquafresh toothpaste and Nicorette chewing gum.

The deals announced on Tuesday come on the heels of eye-popping transactions in the drug sector in recent months and speculation about even more to come.

Novartis, based in Basel, Switzerland, also said it had agreed to sell its animal health division to Eli Lilly for $5.4 billion, and that it would put its flu vaccine business up for sale.

The deals grew out of a strategic review begun last year as Novartis faced pressure from investors to exit its less profitable businesses.

“The transactions mark a transformative process for us,” said Novartis chief executive Joe Jimenez.

“They also improve our financial strength, and are expected to add to our growth rates and margins immediately,” he added. “This is about getting us into fighting shape for the next 10 years.”

“Opportunities to build greater scale and combine high quality assets in vaccines and consumer health care are scarce,” Andrew Witty, GlaxoSmithKline chief executive, said in a statement.

“With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders.”

Over the next decade, Jimenez said, health care systems will be under strain, trying to hold down costs as the number of older people grows rapidly. The winners will be the ones who can innovate, who have global scale, he said.

According to Thomson Reuters, deals this year in health care — driven by acquisitions by pharma companies — have resulted in global transactions worth about $64.1 billion through April 10. That is the sector’s strongest start to a year since 2009.

Cancer is a particular focus for some drug makers. Tuesday’s deal will see Novartis strengthen its world No.2 position in cancer behind Roche.

As well as strengthening its vaccines business, GSK will take the lead in running a future consumer health business worth about $10 billion in annual revenue with Novartis. The British drug maker will return 4 billion to shareholders as well.

Jimenez said the deals would result in lower overall sales for the Swiss group, but higher profit as it swaps lower-margin vaccines for higher-margin oncology (cancer) drugs.

The announcement was positive for Novartis shares, which rose 2.5 per cent in midday trading in Zurich.

GSK shares were up 5.4 per cent to 1,643.5 pence.