Drug majors Novartis AG and GlaxoSmithKline Plc have agreed to buy key businesses from each other in a three-part transaction that will re-define the international marketplace.

As part of the global deal, GlaxoSmithKline’s (GSK) cancer drugs segment will move into Novartis’ fold for a consideration of $16 billion, even as vaccines move out from Novartis and into GSK’s kitty for $7 billion.

The deal realigns the strengths of the multinationals, as Novartis sharpens its focus on its innovative pharmaceuticals, eye-care and generics business, and GSK builds its vaccines portfolio to include Novartis’ meningitis franchises.

The transaction is expected to be sealed by mid-2015, subject to approvals. The realigned portfolio will see GSK’s breast cancer drug Tykerb, for instance, add to Novartis’ oncology portfolio with Glivec, its blood cancer drug, which had witnessed a long-drawn and high profile patent-related case in India.

Novartis’ vaccines portfolio will bolster GSK’s existing infant and adult vaccines pipeline, at a time when the company’s pharmaceutical business in India is being constrained by price controls exercised by the Government.

Consumer giant

In the third part to the deal, Novartis and GSK are creating a consumer healthcare business with revenues of £6.5 billion (2013), where GSK will have majority control, and the focus will be on wellness, oral health, nutrition and skin-care.

This transaction does not include the consumer healthcare business in India, a GSK representative said. “It will continue to operate as an independent company, but obviously may benefit from selling more products from within the new JV (joint venture),” the spokesperson added.

Novartis’ products going into this venture include Voltarin, Excedrin and Otrivin.

At the same time, Novartis’ animal healthcare business moves out, but to another multinational, Eli Lilly, for $5.4 billion.

India contours

Though the India contours of the deal are still to become clear, according to market-watchers, it is advantage GSK.

Novartis loses its vaccines and ₹95-crore animal health business, even as its ₹110-crore over-the-counter business goes into a JV, where GSK has majority ownership, said Ranjit Kapadia of Centrum Broking.

Data put out by market intelligence agency IMS pegged the value of Novartis’ domestic vaccines business at ₹109 crore for the year ended March 2014, and GSK’s local oncology business at ₹5.4 crore.

IMS, however, added, that its audits only reflected sales to stockists, and cancer drugs and vaccines are sold through non-stockist routes, including institution and hospital channels. However, in the past, both segments have reflected over 50 per cent of the actual market, said the research firm.

“GSK will further consolidate its top position in the vaccines market in India, commanding over 30 per cent share in the segment post the deal. On the other hand, Novartis will get quick access to a substantial patient pool in the oncology segment through GSK’s rapidly growing new launch XGEVA (used for the management of bone metastasised solid tumours), as well as other flag ship products such as Hycamtin (used for treatment of ovarian cancer).

This transaction also provides Novartis a presence in novel therapies, including a B-RAF/MEK combination agent for melanoma, and advanced renal cell carcinoma (Votrient),” an IMS spokesperson added.

(This article was published on April 22, 2014)
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