Novartis and GSK Launch Joint Venture and Exchange Assets

22 Apr 2014 --- Novartis and GlaxoSmithKline, two leading global drug companies, have agreed to exchange assets and merge their consumer healthcare units. In the deal Novartis will acquire GSK’s cancer drug business for $16bn while GSK will acquire its vaccines division (excluding the flu unit) for $7.1bn.

The move is expected to help both firms focus on their key business areas.

“The transactions mark a transformational moment for Novartis,” chief executive Joseph Jiminez said in a statement. “They also improve our financial strength, and are expected to add to our growth rate and margins immediately.”

Novartis has had a challenging time of late with slow growth overall. The deal with GSK is part of its overall plan to streamline its business in order to accelerate growth.

The two global drug-producing giants said that combining their over-the-counter (OTC) units would help boost the fortunes of both firms, with expected annual revenues of £6.5bn. Novartis will have the majority control of this business as it will own 65.5%.

Sir Andrew Witty, chief executive officer at GSK said: “This proposed three-part transaction accelerates our strategy to generate sustainable, broadly sourced sales growth and improve long-term earnings.

“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 two OTC portfolios are complementary, with Novartis brands such as Voltaren, Excedrin, Otrivin and Theraflu fitting well with some of GSK’s brands. “Together, we will create the world’s premier OTC business with clear opportunities to accelerate revenue growth,” said Witty.

Meanwhile, Witty also commented that the acquisition of Novartis’ Vaccines business would “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 GSK’s manufacturing network and reduce supply costs, he noted.

“The third part of this transaction would see divestment of our Oncology portfolio to Novartis,” said Witty. “Over the last six years we have made excellent progress to develop a series of innovative medicines. This transaction provides us with a unique opportunity to crystallise an attractive value for this portfolio and allow these medicines to benefit from Novartis’ global scale in this area.”

“We also expect to return £4 billion to shareholders following completion of this transaction, whilst maintaining a strong capital base and our commitment to increasing dividends.

“Finally, and very importantly, this transaction strengthens GSK’s offering to patients and consumers. We will expand our portfolio to both help treat illness and prevent disease, and we will broaden our scope to improve human health with the acquired R&D and innovation expertise.”

In a separate deal, Novartis will be selling its animal health division to Lilly for $5.4bn.

By Sonya Hook