Novartis AG, GSK in $23-bn assets swap deal

Swiss drug giant Novartis AG and Britain's GlaxoSmithKline Plc (GSK) today announced a swap of assets in a deal valued at around $23 billion.

The deal comes amid a flurry of multi-billion deals likely to be tabled soon in the pharmaceutical industry.

Last week, US drugs giant Pfizer was reported to have held talks for a $101-billion bid for Britain's second-largest drug company AstraZeneca, while Canada's Valeant Pharmaceuticals yesterday made known its intentions to mount a hostile bid Botox-maker Allergan for around $42 billion (See: Valeant teams up with hedge fund to buy Botox maker Allergan for $42 bn).

Basel-based Novartis will buy GSK's oncology unit for around $14.5 billion (£8.6 billion) plus $1.5 billion depending on the results of the COMBI-d trial. Under the terms of the deal, Novartis would have opt-in rights to GSK's current and future oncology R&D pipeline.

In return Novartis will sell its vaccines unit, excluding its flu business to GSK for $5.25 billion, plus potential milestone payments of up to $1.8 billion and ongoing royalties.

Novartis said that it has initiated a separate sales process for its flu business.

The two companies also said that they would create a joint venture, combining their consumer divisions to create a world-leading consumer healthcare business.

Post closing, Novartis will own a 36.5-per cent stake and get four of eleven seats of the JV, while GSK will hold 63.5 peer cent and have seven seats on the board.

Novartis will have the customary minority rights and exit rights at a pre-defined, market-based pricing mechanism.

Novartis' acquisition of GSK oncology products, which had 2013 sales of $1.6 billion, is expected to strengthen its oncology business and expand Novartis' position in targeted therapies and small molecules.

Novartis has one of the industry's largest oncology pipelines, with more than 25 new molecular entities targeting key oncogenic pathways and 24 pivotal trials underway exploring 16 new products and indications.

London-based GSK said that the acquisition of Novartis' vaccines business will significantly enhance its vaccines portfolio and pipeline, notably in meningitis, with the addition of Bexsero, a new vaccine for prevention of meningitis B.

The proposed transactions would increase GSK's annual revenues by £1.3 billion to £26.9 billion  and re-shape GSK's revenue base. These revenues would be split across Pharmaceuticals 62 per cent, Consumer Healthcare 24 per cent, and Vaccines 14 per cent.

Post closing, around 70 per cent of GSK's revenues would be focused around four key areas - respiratory, HIV, vaccines and consumer healthcare.

GSK estimates that total annual cost savings of £1 billion could be achievable by the fifth full year following closing. 

GSK plans to return £4 billion to shareholders following completion of the transactions.