Flurry of Big Pharma deals ‘makes sense’

, UK - Apr 22, 2014 - Novartis and GlaxoSmithKline have agreed to exchange assets and combine their consumer healthcare units. Novartis has also agreed to sell its animal health division to Lilly for nearly $5.4bn.

Ali Al-Bazergan, analyst at Datamonitor Healthcare said:

"Overall, the flurry of deals makes a lot of sense for all companies involved, unlocking considerable shareholder value. Big Pharma continues to amplify areas of strength whilst divesting non-core assets, a trend that has recently gained traction with successes from Pfizer and Johnson and Johnson.

"Novartis, on the back of a well-publicised strategic review to focus on key growth businesses, has added a growing portfolio of GSK's oncology products, while divesting smaller, low-scale businesses. A highlight is gaining Tafinlar (dabrafenib) and Mekinist (tametinib) which are approved for BRAF V600E positive melanoma and are anticipated to achieve combined sales in excess of $450m by 2021.

"Novartis has opt-in rights on GSK's R&D oncology pipeline, which together with its marketed portfolio have been forecast by Datamonitor Healthcare to reach $2,041m in 2018, growing at a CAGR of 10% - quite a conservative figure considering the 2013 numbers that were quoted by the company. The oncology assets have also been earmarked as key assets to complement pipeline combinations with high-interest immuno-oncology products.

"The deals will improve the company's financial position and profitability by increasing operating income by $0.4bn on a top-line that would decrease by $3.8bn.

"For GSK, its exit of oncology signals its own lack of confidence in a growing competitive oncology market. GSK's declining sales of Tykerb and the recent failure of pipeline product MAGE-A3 will have contributed to their decision. By augmenting its assets in vaccines and consumer health, the company will continue to increase value for shareholders in markets where inorganic growth opportunities are considerably constrained.

"GSK will have majority control with an equity interest of 63.5% in the consumer joint venture with Novartis, with durable presence in oral health, nutrition, and skincare."

ENDS