By Marta Falconi and Hester Plumridge
ZURICH-- Novartis AG unveiled Tuesday a sweeping overhaul of its
product portfolio, selling two units and buying another in a series
of transactions worth more than $25 billion.
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
GBP6.5 billion ($10.9 billion). Glaxo will own 63.5% of the
business, which will be run by its current consumer health head,
Emma Walmsley.
The deal will also widen Glaxo's lead as the world's largest
provider of vaccines, strengthening its position in the meningitis
vaccine market and the U.S. The new business will have more than 20
vaccines in development.
The transactions come against a backdrop of increased
mergers-and-acquisition activity in the pharmaceutical space that
has seen deal values jump 40% in the first quarter, according to
data tracker Dealogic. Many drug companies have paid down debt
taken on during a buying spree in the earlier 2000s and are now
generating lots of cash they want to put to work.
Prescription drug makers are also attracted to acquisitions
because deals can allow them cut costs and scale back research and
development. Generic drug makers are seeking to gain scale as both
competitors and customers bulk up.
Pfizer and AstraZeneca have discussed combining their operations
in recent months, though it is unclear if talks are ongoing.
Separately, activist investor William Ackman and Valeant
Pharmaceuticals International Inc. are seeking to buy Allergan
Inc., according to a filing on Monday.
Though Novartis investors have expected the company to cut some
kind of a deal since it sold a diagnostics business to Spain's
Grifols S.A. last year, the scope of the transformation took some
by surprise.
"The scale of the changes is really astonishing," said Birgit
Kulhoff, a fund manager with private bank Rahn & Bodmer in
Zurich, which owns Novartis and Glaxo shares. Ms. Kulhoff said
Novartis's risk profile would increase "slightly" because of the
new set up, but said the challenges, such as patent expirations
that the company is facing or will face in the future, are
manageable.
Shares of Novartis rose more than 2% to 76.20 Swiss francs in
midmorning trading, reflecting enthusiasm for the deals. Glaxo
shares were 5.3% higher in London.
In a separate deal, Novartis also announced it is selling its
animal health division to Eli Lilly and Company for around $5.4
billion.
Novartis said it has also started a separate sales process for
its flu business, which is excluded from the transaction with
Glaxo.
Write to Marta Falconi at marta.falconi@wsj.com and Hester
Plumridge at Hester.Plumridge@wsj.com
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