London - Novartis will focus more on cancer, GlaxoSmithKline (GSK) on vaccines and Eli Lilly on animal health as the drug makers announced a series of deals for a total of as much as $28.5 billion (R300bn) yesterday.
The transactions, as well as a plan to form a consumer-health joint venture with GSK, are part of an overhaul of the pharmaceutical industry spurred by the loss of sales as best-selling medicines lose patent protection. Pfizer, the biggest drug maker, sold its infant nutrition business to Nestlé for $11.9bn in 2012, and then spun off its animal health unit last year.
Novartis agreed to buy cancer drugs for as much as $16bn while selling most of the company’s vaccines division to GSK for $7.1bn and its animal health unit to Lilly for $5.4bn.
It’s the biggest shake-up of Novartis since chief executive Joe Jimenez took over in February 2010. The vaccines purchase is the largest for GSK since Andrew Witty became chief in 2008. Lilly will become the second-largest animal health company by sales.
“We’re talking about three companies swapping assets so that each can specialise in what they’re good at and make it even more profitable,” said Ori Hershkovitz, a managing partner at Sphera Funds Management in Tel Aviv, whose fund owns shares in all three drug makers.
More transactions may follow. Merck is in talks to sell its consumer-health unit, according to people with knowledge of the matter. Germany’s Bayer and Paris-based Sanofi have both said they were interested in consumer health.
“You have to be No 1, No 2 or No 3 in your segment,” Jimenez said. “This was so critical we talked with virtually everyone.”
Shares of Switzerland-based Novartis, which rose as much as 3 percent in Zurich, have lagged behind crosstown rival Roche Holding and Sanofi in the past four years. The stock was up 2.2 percent to Sf76.35 (R906) at 1.18pm yesterday.
GSK, whose performance has lagged behind Novartis in the same period, advanced 5.6 percent to £16.46 (R289). It was the stock’s biggest intraday gain since 2009.
Novartis, whose best-selling medicine is Gleevec for cancer, will add London-based GSK’s recently approved Tafinlar and Mekinist for melanoma. With its vaccines purchase, GSK will add Bexsero for meningitis to its Cervarix for human papillomavirus. The Novartis-GSK consumer-health venture brings together brands including Novartis’s Excedrin painkiller and GSK’s Sensodyne toothpaste.
The price for the cancer drugs includes as much as $1.5bn as a reward for meeting certain development goals. Novartis will also have the option to rights for GSK’s current and future cancer treatments in development.
Novartis said it would pay royalties and as much as $1.8bn in payments based on the achievement of certain business goals as part of the vaccines agreement.
The deal excluded flu vaccines, and Novartis would begin to seek a buyer immediately for those products. Excluding that operation from the deal with GSK would help Novartis get the most value for it, Jimenez said.
For GSK, the deals shift the company away from prescription drugs and toward consumer products and vaccines, which are less vulnerable to the patent life cycle.
The new joint venture with Novartis will be the second-largest consumer health care company by revenue, trailing only Johnson & Johnson, and it will control 29 percent of the global vaccine market. It also signals a willingness to sell off promising drugs that other companies may be better positioned to market.
GSK and Novartis’s consumer-health venture will have about £6.5bn in revenue, GSK said. The UK company will have majority control, with an equity interest of 63.5 percent.
“What this transaction does for GSK is it takes one of the leading position in consumer health care and truly elevates us to a global leadership position,” Witty said. “It gives us a rare, extremely rare, opportunity to substantially strengthen our vaccine business. And it finds a home for our nascent oncology business.”
GSK said the transaction would probably be completed during the first half of 2015 subject to approvals. The company said it expected to return £4bn to shareholders after the completion of the deal and would maintain its commitment to increasing dividends.
Lilly said the Novartis animal health business had 2013 sales of about $1.1bn. The US-based drug maker said it would take on about $2bn of debt and pay the rest with cash on hand. Lilly expected annual cost savings of about $200 million within the third year after the deal is completed.
Bank of America Merrill Lynch advised Lilly as Goldman Sachs did for Novartis on the animal health deal. GSK said Lazard and Zaoui acted as joint financial advisers. The UK company has also received financial advice from Citigroup and Arkle Associates. Lazard and Citigroup were joint sponsors for the transaction, GSK said.
Novartis began a strategic review of animal health, vaccines and consumer health last year because the units were too small. Jimenez said the company wanted to be the leader in its businesses or it would consider selling them. Novartis’s bigger operations include prescription drugs, the Sandoz generic pharmaceuticals unit and the Alcon eye-care operation. – Bloomberg