Shake-up in pharma world as Novartis, GSK announce mega-deals

Drugmakers Novartis and GlaxoSmithKline announced an extreme makeover Tuesday, unveiling multi-billion-dollar deals also involving US group Eli Lilly in a major shakeup of the pharmaceutical sector.

The string of takeovers and ventures by the three giant healthcare groups will see Novartis sharpen its focus on the high-grossing cancer sector, GSK boost its share in vaccines and Eli Lilly strengthen its animal health unit.

The mega deals come as the global pharmaceutical industry is quickly shifting to deal with a raft of challenges, including deep cuts in government healthcare spending worldwide.

The fast-changing sector was also abuzz Tuesday with speculation that the biggest deal in pharma history could be in the making after a report that US giant Pfizer was interested in buying its British competitor AstraZeneca for a reported $100 billion, sending the latter's share price soaring more than 6.0 percent.

While that remains a rumour, market observers said Thursday's deals were a logical rejigging of the market.

In the biggest of the deals announced Thursday, Novartis said it plans to buy GSK's oncology (cancer treatment) business for $16 billion (11.5 billion euros) in cash, including $1.5 billion that would depend on future performance.

In exchange, the Swiss group would sell its vaccines division, excluding flu vaccines, to the British company for up to $7.1 billion, also in cash.

The two groups further announced a joint venture to create "a world-leading consumer healthcare business," focused on wellness, oral health, nutrition and skin health and expected to book around $10 billion in annual sales.

Non-prescription drugs like Novartis's Nicotinell products aimed at helping people stop smoking and its Voltaran Dolo back pain relief medication, and GSK's Panadol pain-relief tablets will fall under the joint venture.

"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," Novartis said.

Novartis would also sell its animal health division to Eli Lilly for $5.4 billion -- turning the US group into the world's second biggest market of such products in terms of revenue.

- 'Long-awaited simplication' -

"We believe the divestment of our smaller vaccines and animal health divisions will enable us to realise 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," Novartis chief executive Joseph Jimenez said.

But more importantly for the Swiss group, the deals enable it to secure ownership of a range of top-line cancer drugs, as it bids to catch up with world leader Roche in oncology treatment.

Two recently approved drugs for treating skin cancer -- Tafinlar and Mekinist -- are among the medication that Novartis would own following the takeover.

Analysts at Vontobel Bank called the changes a "long-awaited simplification of (Novartis's) corporate footprint," while the Notenstein private bank said the Swiss group had managed to find a solution for virtually all of its weaker units in one fell swoop.

Analysis firm ETX Capital said GSK shareholders also had reason to celebrate as the British firm's oncology business had been struggling to remain competitive.

GSK chief executive Andrew Witty said the moves accelerate the British firm's "strategy to generate sustainable, broadly sourced sales growth and improve long-term earnings".

The group said it would use proceeds from the deals to return £4.0 billion ($6.7 billion, 4.9 billion euros) to its shareholders.

Expected to be completed by the middle of next year, the deals require approval from the British firm's shareholders.

Lilly meanwhile said its purchase of Novartis' animal health division -- which posted revenues of about $1.1 billion for 2013 -- is expected to conclude during the first quarter of 2015.

Investors welcomed the deals, which come amid signs Europe's mergers and acquisition market is finally rebounding after years of doldrums.

Shares in Novartis soared 2.61 percent to 76.65 Swiss francs in late afternoon trading on a Swiss stock exchange, outperforming the main SMI index which was up 1.33 percent.

In London, shares in GSK rose by 5.64 percent to 1,647 pence.