Pharma industry shakeup with Novartis-GSK deals

TWO of the world’s largest drug makers, Novartis AG and GlaxoSmithKline plc, said they had agreed to exchange assets and build a global partnership in key segments that involve their Consumer Healthcare, Vaccines and Oncology businesses.

The transactions are expected to be completed during the first half of 2015 subject to approvals.

The three-part transaction involves:

   ?   Novartis’ acquisition of GSK oncology products for a $14.5 billion payment and up to $1.5 billion more contingent on a development milestone. Under the terms of the transaction, Novartis would have opt-in rights to GSK's current and future oncology R&D pipeline.

   ?   GSK’s acquisition of the Novartis global vaccines business (excluding influenza vaccines) for an initial cash consideration of $5.25 billion with subsequent potential milestone payments of up to $1.8 billion and ongoing royalties.

   ?   Creation of a new world-leading Consumer Healthcare business combining Novartis OTC with GSK's consumer business in a joint venture with 2013 pro forma revenues of ￡6.5 billion*. GSK will have majority control with an equity interest of 63.5%

Separately, Novartis announced a definitive agreement with Eli Lilly and Company to divest the Animal Health Division, further focusing its portfolio on the leading businesses of innovative pharmaceuticals, eye care and generics.

The transactions mark a transformational moment for Novartis. “They focus the company on leading businesses with innovation power and global scale. They also improve our financial strength, and are expected to add to our growth rates and margins immediately," said Joseph Jimenez, CEO of Novartis. "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 realize immediate value from these businesses for our shareholders, and those divisions will benefit from being part of large, global businesses that are also leaders in their segments. Patients will benefit from even higher levels of innovation that this focus may afford. Looking ahead, this positions Novartis well for future healthcare industry dynamics."

Commenting on the proposed three-part transaction, Sir Andrew Witty, chief executive officer, GSK said, “Opportunities to build greater scale and combine high quality assets in Vaccines and Consumer Healthcare are scarce. With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders.

“The Novartis OTC portfolio is highly complementary to GSK’s and has many well-known, widely recommended brands such as Voltaren, Excedrin, Otrivin, and Theraflu. Together, we will create the world’s premier OTC business with clear opportunities to accelerate revenue growth.  

“The acquisition of Novartis’ Vaccines business will significantly enhance the breadth of our vaccines portfolio and pipeline, notably in meningitis, with the addition of Bexsero, an exciting new vaccine for prevention of meningitis B. The acquisition will also strengthen our manufacturing network and reduce supply costs.”

Oncology positioned strengthened

Novartis has one of the industry’s largest and most robust oncology pipelines, and its acquisition of GSK oncology products is expected to further reinforce its leading oncology business and improve the growth profile of the combined portfolio.

In particular, Novartis' scale in oncology development and commercial capabilities would additionally create the potential to optimize the launch of these two recently approved products for metastatic melanoma, Tafinlar, a B-RAF inhibitor, and Mekinist, a MEK inhibitor, positioning Novartis as the leader in treating melanoma. Votrient, a VEGFR inhibitor for renal cell carcinoma, is also expected to reach more patients in our hands. Votrient has shown significant efficacy as first-line treatment for renal cancer, and also has potential for the adjuvant setting. Additional products included in the transaction include Tykerb for HER2+ metastatic breast cancer, Arzerra in chronic lymphocytic leukemia, and Promacta? for thrombocytopenia. Novartis will have opt-in rights for GSK's current and future oncology R&D pipeline, which could be a source of new compounds and new targets. Sales of the acquired GSK oncology products in 2013 were approximately $1.6 billion.

GSK to expand vaccine portfolio
GSK expects to improve its position as the world’s leading global vaccines supplier. Demand for vaccination remains significant with the global vaccine market projected to grow approximately 10% per annum over the next 10 years.

The acquisition is expected to strengthen GSK’s manufacturing network and increase overall capacity, notably with the addition of Novartis’ secondary packaging and supply facilities in Rosia, Italy and Marburg, Germany. GSK would also acquire new manufacturing sites in India and China. In addition, the integration of the supply of a number of key antigens, currently provided to GSK by Novartis, will provide immediate improvements and enhance the future flexibility of the business, particularly in paediatric vaccines.

The transaction will strengthen the breadth of GSK’s portfolio, notably in meningitis, including the addition of Bexsero, a new vaccine for prevention of meningitis B and a further candidate vaccine in late-stage development, MenABCWY.

OTC and FMCG joint venture

The Consumer Healthcare joint venture would combine OTC and FMCG capabilities and expertise to establish a global consumer healthcare leader with approximately USD 10 billion in annual sales, and leading positions in four key OTC categories - Wellness, Oral Health, Nutrition and Skin Health. The joint venture would have several strong brands with almost half of the sales derived from brands larger than $300 million in annual revenue. The geographic footprint would span all regions, with scale and commercial presence in the developed world as well as in key emerging markets, such as Brazil, China, Mexico and Russia.

Emma Walmsley has been appointed as chief executive officer designate of the new business and will be a member of its board, which will have from both GSK and Novartis and be chaired by Sir Andrew Witty.