Bloomberg News
Novartis AG agreed to buy GlaxoSmithKline Plc’s cancer drugs for as much as $16 billion while selling most of the company's vaccines division to Glaxo for $7.1 billion and its animal-health unit to Eli Lilly & Co. for $5.4 billion.
The transactions, as well as a plan to form a consumer-health joint venture with Glaxo, mark the biggest shakeup of Novartis since Chief Executive Officer Joe Jimenez took over in February 2010. The vaccines purchase is the biggest for Glaxo since Andrew Witty became CEO in 2008.
'We're talking about three companies swapping assets so that each can specialize in what they're good at and make it even more profitable,' said Ori Hershkovitz, a managing partner at Sphera Funds Management Ltd. in Tel Aviv whose fund owns shares of all three drugmakers.
Shares of Basel, Switzerland-based Novartis, which rose as much as 3 percent in Zurich, have lagged behind crosstown rival Roche Holding AG and Sanofi in the past four years. The stock was up 2.6 percent to 76.65 Swiss francs at 10:46 a.m. Glaxo, whose performance has lagged behind Novartis in the same period, advanced 5.2 percent to 1,640.50 pence.
Building Businesses
Novartis, whose best-selling medicine is Gleevec for cancer, will add London-based Glaxo's recently approved Tafinlar and Mekinist for melanoma. With its vaccines purchase, Glaxo will gain Bexsero for meningitis to its Cervarix for human papillomavirus. Lilly will become the second-largest animal-health company by sales. The Novartis-Glaxo consumer-health venture brings together brands including Novartis's Excedrin painkiller and Glaxo's Sensodyne toothpaste.
Executives 'talked to virtually everyone' as they searched for a way to rejuvenate Novartis and leave it better equipped to face industry challenges, said Chief Executive Officer Joe Jimenez.
'So in the next 10 years, we're in fighting condition,' Jimenez said in an interview with Bloomberg Television. 'You have to be No. 1, No. 2 or No. 3 in your segment. This was so critical we talked with virtually everyone.'
Under the cancer-drug agreement, Novartis will pay Glaxo as much as $1.5 billion as a reward for meeting certain development goals. The Swiss company will also have the option to rights for Glaxo's current and future cancer treatments in development.
Vaccines Deal
Novartis will pay royalties and as much as $1.8 billion in payments based on the achievement of certain business goals as part of the vaccines agreement, Novartis said in a statement today. The deal excludes flu vaccines, and Novartis will begin to seek a buyer immediately for those products. Excluding that operation from the deal with Glaxo will help Novartis get the most value for it, Jimenez said.
Glaxo and Novartis's consumer-health venture will have about 6.5 billion pounds ($10.9 billion) in revenue, Glaxo said. The U.K. 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 on a conference call. 'It gives us a very rare, extremely rare opportunity to substantially strengthen our vaccine business. And it finds a home for our nascent oncology business.'
Shareholder Rewards
Glaxo said the transaction will probably be completed during the first half of 2015 subject to approvals. The company said it expects to return 4 billion pounds to shareholders after the completion of the deal and will maintain its commitment to increasing dividends.
Lilly said the Novartis animal-health business had 2013 sales of about $1.1 billion. The Indianapolis-based drugmaker said it will take on about $2 billion of debt and pay the rest with cash on hand. Lilly expects annual cost savings of about $200 million within the third year after the deal is completed.
BofA Merrill Lynch advised Lilly, while Goldman Sachs Group Inc. advised Novartis on the animal-health deal. Glaxo said Lazard and Zaoui & Co. are acting as joint financial advisers. The U.K. company has also received financial advice from Citigroup Inc. and Arkle Associates. Lazard and Citigroup are acting as joint sponsors for the transaction, Glaxo 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.
For Related News and Information: Glaxo Disciplines Employee After Bribery Allegations in Poland
To contact the reporter on this story: Oliver Staley in London at ostaley@bloomberg.net
To contact the editors responsible for this story: Phil Serafino at pserafino@bloomberg.net Kristen Hallam, Marthe Fourcade
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