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GlaxoSmithKline swaps oncology for vaccines with Novartis AG

GlaxoSmithKline Plc will sell oncology to Novartis AG for $16 bn, buy the vaccines piece for $7 bn.

GlaxoSmithKline Plc, the fifth largest company by revenue globally, said on its website on Tuesday it will sell its oncology business to Novartis AG; in a simultaneous transaction the Swiss drug major will shed its vaccines portfolio ? except flu vaccines ? to the British drugmaker. The net transaction value will be $9 billion ? while GSK will sell the oncology business for about $16 billion, it will buy the vaccines arm for $7.05 billion, which includes milestone payments.

The move is expected to give the vaccines portfolio of GlaxoSmithkline Pharma, the Indian subsidiary of the British multinational, a boost. Currently, this segment is very small at R149.6 crore in FY14, according to AIOCD-AWACS data. Novartis India’s vaccines portfolio registered sales of R81.1 crore in FY14. The vaccines market in India is valued at a little over R1,000 crore currently, but is tipped to grow at around 10% annually.

EY India partner Murali Nair believes that in the long run, the vaccines segment will grow faster than the overall pharma market. ?Right now the vaccines segment should be growing at least as fast as the overall market, at 10-12%, perhaps. However, given that awareness levels are rising, the use of vaccines to prevent diseases will go up,? Nair told FE.

?Glaxo already has a strong vaccines portfolio in India. It caters to a different market, not the national immunisation programmes and this segment is also growing fast,? said Utkarsh Palnitkar, head of life sciences at KPMG, adding that although low-value products, vaccines were a high-volume business.

?The acquisition of Novartis’ vaccines portfolio certainly is positive for GSK Pharma since it focuses on that space. Since GSK has a policy of launching all new products through the listed entity, chances of these new vaccines being available here are high. However, it may take a couple of years for the launches,? an industry watcher observed.

Novartis India’s top-selling vaccine in the country is Rabipur, a rabies vaccine that earned about Rs 81 crore in annual sales for the company. For GSK Pharma, its top-selling vaccines include Synflorix, a vaccine against respiratory diseases, Havrix, a Hepatitis A vaccine and Varilrix, a vaccine against chicken pox.

In February, GSK completed a Rs 6,400-crore open offer that raised the British parent’s stake in its Indian arm to 75% from 50.67%. The open offer indicated the parent company?s willingness to invest in India, which it believes is a promising opportunity. ?The loss of the oncology portfolio is slightly negative for GSK Pharma as they were ramping up operations in that business by adding new drugs. Overall, we feel the transaction is neutral to GSK Pharma’s India business,? Nitin Agarwal, who tracks the pharma space at IDFC, said.

GSK Plc and Novartis have also reported the creation of a joint venture of its consumer healthcare businesses where GSK will hold a majority stake. ?The JV will operate under the GSK Consumer Healthcare name and would operate in all territories where GSK and Novartis have a presence in those businesses, with the exception of India and Nigeria where GSK will continue to hold directly its interests in its listed subsidiaries,? the parent company said in a statement.

GSK Consumer Healthcare will add the entire portfolio of Novartis’ over-the-counter products to its pipeline in India despite the country being one of the two nations where the JV will not be operational, the company said.

?The answer is yes, the business would potentially have access to the entire portfolio of products in the JV upon transaction close during the first half of 2015. However, they still continue to operate as their own separately listed entity,? said GSK Plc’s director, communications, Sarah Spencer, when asked whether Novartis’ OTC drugs would be added to GSK Pharma’s portfolio in India.

GSK Pharma shares were relatively flat on Tuesday, closing at Rs 2,486.80 on the BSE. Novartis India shares jumped as much as 20% in intra-day trade before dropping slightly to end 6.3% higher at Rs 497.20 each on the BSE.

Meanwhile, it?s not clear if Novartis India will introduce the new oncology drugs that its parent acquires globally from GSK Plc. The oncology market in India is estimated at close to Rs 1,050 crore, according to AIOCD-AWACS. Novartis? anti-cancer therapies brought in sales of Rs 9 crore in FY14 while Glaxo Pharma?s business generated about Rs 6 crore in sales. Novartis is a significant player in the oncology market along with Roche and it makes sense that it acquired GSK Plc’s cancer drug pipeline.

?We are not breaking out expected impacts by country. However, overall, we have divested our marketed oncology portfolio for $16 billion, crystallising very full value for this business ? 11x sales or 14% of market cap for a business that currently represents 4% of sales,? Spencer said by email, adding that the transaction overall is accretive to core EPS from year one.

For GSK Plc, oncology comprises 4% of group sales or about ?1 billion while vaccines accounts for approximately 13% of turnover of the company or ?3.4 billion, Spencer said. GSK Pharma’s Neotrexate is its top chemotherapy therapy, which generated Rs 5 crore, while the best-selling drugs in Novartis India’s portfolio include Afinitor, a kidney cancer drug, and Femara, which targets advanced breast cancer.

During GSK Pharma’s annual general meeting held in Mumbai last week, managing director Hasit Joshipura said the company plans to launch a colorectal cancer drug during CY14 and looks to bring a blood cancer drug to market during CY15.

For FY13, Novartis India registered net revenue of Rs 110.46 crore from its OTC business in India. GlaxoSmithKline Consumer Healthcare, which is listed separately from its pharma business in India, recorded total revenue of Rs 3,603.8 crore for CY13. Novartis has products such as Otrivin, Otrinoz and T-minic in its OTC business with Otrivin having a market share of 35.4% in the nasal decongestant market in FY13.

In a separate transaction, Novartis agreed to sell its animal health business to Eli Lilly for approximately $5.4 billion. In FY13, the company’s Indian subsidiary reported a net revenue of Rs 95.5 crore.

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First published on: 23-04-2014 at 05:15 IST
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