As part of an ongoing trend for pharmaceutical companies to get back to their knitting, Novartis and GlaxoSmithKline “agreed to trade more than $20 billion worth of assets on Tuesday to bolster their best businesses and exit weaker ones,” as Reuters’ Caroline Copley and Paul Sandle put it.
The British GSK is selling its cancer drugs to the Swiss-based Novartis for up to $16 billion and is, in turn, buying the latter’s vaccines for up to $7.1 billion. In addition, the two companies are combining their consumer health businesses in a joint venture controlled by GSK.
“The combined consumer healthcare business will house 19 brands, including Panadol and Nicotinell, with sales of more than $10 billion worldwide,” reports the Guardian’s Sarah Butler. Better-known brands in the U.S. are Novartis' Excedrin painkiller and GSK’s Sensodyne toothpaste. GSK CEO Sir Andrew Witty described the new entity as a “powerhouse in over-the-counter products.”
Novartis CEO Joseph Jimenez said the agreements with GSK marked a “transformational moment,” Butler writes. “They focus the company on leading businesses with innovation power and global scale,” Jimenez continued.
In another deal, Novartis is selling its animal health business to U.S.-based Eli Lilly for $5.4 billion. When the deal closes early next year, Lilly's Elanco unit will trail only New Jersey-based Zoetis in the global animal health business, according to the Reuters report.
The expiration of lucrative patents is one huge factor driving consolidation on the homo sapiens side of the industry.
“As health plans opt for cheaper generics, drug company sales can plummet unless they find new drugs or new lines of business, analysts said,” writes the AP’s Dana Flavelle. “One way to do that is through acquisitions, and most drug companies are flush with cash.”
“As we all know, there’s a lot of pressure to bring drug prices down,” Laurence Booth, a finance professor at the University of Toronto’s Rotman School of Management, tells Flavelle in the Toronto Star. Drug companies “spend a huge amount developing drugs and it’s very easy to knock off those drugs as soon as the patent protection runs out.”
Companies are “[narrowing] their focus after decades of diversifying their drug portfolios,” write the Wall Street Journal’s Jonathan D. Rockoff, Jeanne Whalen, Marta Falconi and Hester Plumridge in a comprehensive analysis of recent Big Pharma deals.
“It goes back to what they teach in business school,” Lilly CEO John Lechleiter said. “It's understanding what you're good at, what your core competencies are and making sure you're at scale to pursue opportunities in that space.”
Lilly, the WSJ’s writers point out, “has described its Elanco animal-drugs business as a pillar of its future.”
“Deals Fever Grips Pharmaceuticals Industry” is the way the Financial Times characterizes the trend. Yesterday’s announcements “took the total for global pharma transactions so far this year to $140 billion, representing about 13% of total M&A activity, according to data from Dealogic,” write Andrew Ward and Ed Hammond. That’s second only to telecoms, media and technology deals announced this year.
“The deal tally will rise further still if Valeant Pharmaceuticals and activist investor Bill Ackman succeed in their battle for control of Allergan, the maker of wrinkle treatment Botox,” Ward and Hammond continue. “Allergan claimed to have had no warning about the unsolicited bid, worth $48.1 billion or $160.69 a share on Tuesday, and within hours took drastic steps to thwart the move by adopting a so-called poison pill defense.”
Ackman’s hedge fund, Pershing Square Capital Management, is buying 9.6% of the Canadian-controlled Allergan. Ackman explained his investment in a presentation covered by Quartz’ Max Nisen in which he “cites Valeant as a model of how to allocate capital, benefit from acquisitions, operate with extremely low costs, and use decentralized management to outperform.”
“More deals in the cash-rich industry are expected,” write Michael J. de la Merced, David Gelles and Rachel Abrams in the New York Times’s “Deal Book” blog. “In recent months, Pfizer made a number of informal takeover approaches for AstraZeneca, including one that would have been worth over $100 billion, only to be rebuffed.”
Writing for Market Intelligence Center, Julian Close sees “three very different visions” emerging in the pharmaceutical industry: 1. “Do Everything” (see Pfizer, for example) 2. “Specialize” (Novartis and GlaxoSmithKline being the relevant case in point) and 3. “Own Everybody” (as exemplified by Valeant, which “has been on an absolute buying spree” since 2010).
“If one vision should prove right and the other wrong, we could see a giant fall,” Close writes.
And some spectacular rises, as already de-conditioned Boomers sit around and eat and drink themselves into chronic diseases managed by pills, pills and more pills.