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GSK and Novartis sign multi-billion dollar deal

Published on 23/04/14 at 08:10am
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GlaxoSmithKline and Novartis are radically shaking up their businesses, starting up a joint venture while selling off major parts of their companies to one another.

The manufacturers are going to combine their consumer health units under GSK’s majority (63.5%) control, while also in effect swapping some of their major assets.

GSK will sell its cancer portfolio to Novartis for a maximum of $16 billion, and in turn Novartis will let GSK acquire its own vaccines business for up to $7.1 billion.

The complex deal is aimed at creating sustainable growth, with GSK saying it will increase annual revenues by £1.3 billion and everything being expected to be complete by June 2015. In a separate move, Novartis is selling its animal health division to Eli Lilly for $5.4 billion.

“Opportunities to build greater scale and combine high quality assets in vaccines and consumer healthcare are scarce,” says GSK chief executive Sir Andrew Witty. “With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders.”

Meanwhile Novartis boss Joseph Jimenez says the move “positions Novartis well for future healthcare industry dynamics”.

He adds: “We have also created a world-leading consumer healthcare business in our joint venture with GSK. We believe the divestment of our smaller vaccines and animal health divisions will enable us to realise immediate value from these businesses for our shareholders.”

Analysts see considerable logic in such merger and acquisition activity. “Vaccines are a low margin business and gaining scale is a critical requirement for GSK,” suggests Ranjith Gopinathan, life sciences programme manager at Frost & Sullivan.

“On the other hand, this is a non-priority segment for Novartis. Similarly, Novartis will be able to consolidate its already strong position in the highly lucrative oncology business. Hence, this is a win-win deal for both companies,” Gopinathan adds.

Ali Al-Bazergan, analyst at Datamonitor Healthcare, says the deal suggests that GSK has lost confidence in oncology. “GSK’s declining sales of Tykerb and the recent failure of pipeline product MAGE-A3 will have contributed to their decision,” he continues.

“By augmenting its assets in vaccines and consumer health, the company will continue to increase value for shareholders in markets where inorganic growth opportunities are considerably constrained.”

For Novartis, a highlight of the deal is gaining BRAF V600E positive melanoma treatments Tafinlar (dabrafenib) and Mekinist (tametinib), for which combined sales in excess of $450m by 2021 are forecast.

“The deals will improve the company’s financial position and profitability by increasing operating income by $0.4 billion on a top-line that would decrease by $3.8 billion,” Al-Bazergan concludes.

Adam Hill

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