While the rest of the market has been largely quiet as earnings week unfolds, it have been the pharma companies that has stolen the spotlight in the past few days. First it was the rumor that Pfizer may, reluctantly, be courting Astra-Zeneca, then yesterday afternoon news broke that Valeant in conjunction with Bill Ackman (did he replace his “expert” retail analyst with a healthcare specialist?) would team up to buy Botox maker Allergan – an announcement which once again magically lifted the stock price of both potential buyer and seller – something which usually happens only at bubble peaks. And overnight, Swiss firm Novartis unveiled a sweeping overhaul of its product portfolio, selling two units and buying another in a series of transactions worth more than $25 billion.
Here are the released deal highlights:
- Swiss giant Novartis, in the middle of a strategic rethink after an acquisition binge by its previous chairman, Daniel Vasella, agreed to buy GlaxoSmithKline’s high-margin oncology unit for $14.5 billion. That deal value would rise to $16 billion if certain development milestones are met.
- Novartis will sell its lower-margin vaccines division to GSK for $5.25 billion. The business, which relies on scale, is a better fit for GSK, and slims down the world’s ranks of big vaccine makers from five to four.
- Novartis will also sell its animal-health division to Eli Lilly for $5.4 billion.
- Finally, GSK and Novartis will create a joint venture, majority owned by GSK, for its consumer business—essentially those drugs that can be bought over the counter, creating a new giant in that business. The combined companies will have revenue of about $11 billion, and include household names like Excedrin and Panadol.
Some additional details from the WSJ:
Basel-based Novartis said it is acquiring the oncology unit of Britain’s GlaxoSmithKline PLC for around $14.5 billion. The Swiss pharmaceutical giant is also selling its vaccines unit to Glaxo for $5.25 billion. Both deals include provisions for milestone payments that could raise the total values. Novartis and Glaxo are also planning to combine their consumer divisions, which sell medicines that don’t require a prescription.
The deals are the long-awaited culmination of a Novartis review of its businesses that the company has been conduction since last year. The transactions bring Novartis higher-margin products, such as cancer drugs, and remove the low-margin vaccine business, which depends on scale.
The overhaul refocuses Novartis on a handful of areas in which the company will have scale to compete, rather than maintaining small presences in a host of markets. The new structure marks a sea change from the era of former Chairman Daniel Vasella, who built Novartis into a sprawling health care conglomerate through acquisitions.
“The transactions mark a transformational moment for Novartis,” Chief Executive Joe Jimenez said. The company said it expected sales, core operating income growth rates and margins to improve because of the deals.
The transactions, which will strengthen Novartis’s position in melanoma and hematology, also reshape Glaxo, focusing its business on respiratory, HIV, vaccines and consumer health products. Those four areas will account for roughly 70% of the British company’s total sales.
Glaxo will take charge of the combined consumer health operations, which will be one of the world’s largest over-the-counter drugs businesses, with annual revenue of around £6.5 billion ($10.9 billion). Glaxo will own 63.5% of the business, which will be run by its current consumer health head, Emma Walmsley.
