With the announcement of the portfolio transformation of Novartis this month, we believe this will have a positive impact on the biotech industry. The company will focus on Pharmaceuticals, Eye Care and Generics. The diversification strategy of former CEO and Chairman Daniel Vasella has been axed by the new leadership of Novartis. Key components of the transformation are:
- Novartis acquires GSK oncology products
- The Novartis OTC business will be combined with GSK’s consumer business in a joint venture
- Divestment Vaccines business (excluding flu) to GSK
- Divestment of Novartis Animal Health to Lilly
Impact:
For the biotech industry this transformation is good news as we see it. There will be another clear partner for oncology projects with know-how, dedication and resources. That it is another Swiss player might be by chance, but both Roche and Novartis have been very successful compared with their peers and this might be the opportunity for Novartis to capitalize on past success and reshape for the future. On the other side, there is the danger that the number of possible partners for biotech companies becomes smaller and smaller. The question is if mid-size pharma can close this gap?
As a new joint venture company (OTC) will be created, this increases diversification and helps at least to some degree to off-set the trend of M&A activities (Pfizer / AZ).
Overall, transformation shows that the pharma companies are under pressure and that there is a constant ongoing need for new pipeline products.
Value terms:
In value terms, the transformation is very impressive and the investment banks involved will have generated nice fees. The key terms of the reshaping are:
- Novartis pays USD 14.5bn for GSK oncology products plus another USD 1.5bn based on milestones
- GSK pays USD 7.1bn (USD 5.25bn upfront and USD 1.8bn in milestone payments) plus royalties for Novartis vaccine business. Novartis will try to divest the flu business separately.
- The OTC business of Novartis and the GSK consumer Healthcare are brought into a new joint venture. Novartis will own 36.5%.
- Lilly will pay approx. USD 5.4bn for Novartis animal Health Division.
Read more here: Press release Novartis.