Update below It’s all change with Big Pharma this week. A series of deals between GlaxoSmithKline (NYSE: GSK) and Novartis has reshaped both businesses in a move that will shift GSK away from the cancer drug development business and boost its vaccine business. A statement from GSK offered some highlights:
- GSK is scaling back high-risk drug development by divesting its marketed oncology portfolio, related research and development activities and rights to its AKT inhibitor and also grant of commercialization partner rights for future oncology products to Novartis for $16 billion. GSK will continue to develop cancer immunotherapies.
- GSK will acquire Novartis’ global vaccines business (with the exception of its influenza vaccines) for $5.25 billion with subsequent potential milestone payments of up to $1.8 billion and ongoing royalties.
- GSK and Novartis will create a new Consumer Healthcare business.
When the dust settles, GSK will have four businesses: respiratory, HIV (ViiV Healthcare), vaccines and consumer healthcare. Eli Lilly is buying Novartis’ animal health division for $5.4 billion.
Sir Andrew Witty, GSK CEO 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.”
For Novartis a revamp of its portfolio had been in the works for about one year.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
A roundup of analysis of the deal concluded that it was a logical response by both companies to play to their strengths, but for GSK the transactions will make it more focused on primary care.
Update Damien Conover, Morningstar’s director of equity strategy:
“Glaxo’s already strong vaccine position grows more so with key assets from Novartis. The addition of the meningococcal vaccine should enable Glaxo to defend against Sanofi’s aggressive bundling in the pediatric space. Further, late-stage vaccines should give Glaxo unparalleled breadth against both Sanofi and Merck, making Glaxo a partner of choice for payers.
“..the expansion in oncology with Glaxo’s drugs further entrenches Novartis as a leader in cancer. Strategically, oncology is one of the best places for drug companies to target due to strong pricing power and relatively low hurdles for product approvals in this area of unmet medical needs. However, the purchase price of $16 billion seems high based on relatively light current cancer drug sales (just over 1 billion pounds) and modest pipeline rights.”
Savvas Neophytou, a Panmure analyst, told Financial Times:
GSK had underperformed on concerns over missed opportunities in its drug pipelines and corruption allegations in its emerging markets businesses.
“Today’s transaction shows management will not sit idly by waiting for the pipeline to mature but will take brave decisions to unlock shareholder value.”
Vontobel analyst Andrew Weiss told Reuters:
“We reckon the real value of the deal should be searched for in the pipeline and the newly launched products, strengthening Novartis’ position in melanoma and hematology.”
Helen Thomas of The Wall Street Journal, Heard on the Street:
“The sale of Glaxo’s oncology operations, where it ranked only about 14th globally, just serves to emphasize the U.K. company’s shift toward primary care and over-the-counter medicines, in contrast to most rivals.”
