Spring Fever? Novartis, GlaxoSmithKline, and Eli Lilly’s Deal-Making Frenzy

Source: Thinkstock

Source: Thinkstock

Eli Lilly & Co. (NYSE:LLY), Novartis AG (NYSE:NVS), and GlaxoSmithKline plc (NYSE:GSK) have been shuffling assets recently, according to press releases from the three companies. Eli Lilly announced Tuesday morning that it has made an agreement with Novartis to buy the drugmaker’s animal health unit, while Novartis and GlaxoSmithKline announced that they would exchange businesses.

The deals will radically transform all three companies, allowing each to focus on their strongest businesses, analysts say. “We’re talking about three companies swapping assets so that each can specialize in what they’re good at and make it even more profitable,” said Ori Hershkovitz, a managing partner at Sphera Funds who spoke with Bloomberg.

Under its agreement with GlaxoSmithKline, Basel, Switzerland-based Novartis would acquire some of that company’s oncology products, adding to its already impressive line-up. The Wall Street Journal notes that once the deal closes cancer drugs will account for nearly a fifth of the company’s expected $54 billion in revenue.

In exchange, Novartis will divest its vaccines division (with the exception of its flu vaccines) to GlaxoSmithKline. As part of the agreement, Novartis has agreed to pay GlaxoSmithKline 14.5 billion for its oncology products, with up to 1.5 billion additionally if certain milestones are met; GlaxoSmithKline, on the other hand, has agreed to pay Novartis 7.1 billion for its vaccines business, comprising 5.25 billion upfront and an additional 1.8 billion after reaching agreed upon development targets, according to the press release.

In a third deal between the two companies, GlaxoSmithKline and Novartis plan to create a joint venture by combining their respective consumer health divisions; upon completion of the deal, Novartis will own a 36.5 percent stake in the resulting venture and will have claim over four out of 11 seats on the company’s board.

If that wasn’t enough, Novartis, in a separate move, reached an agreement with Eli Lilly & Co. to divest its animal health business; the move aids Novartis in its efforts to re-focus its portfolio on innovative new pharmaceuticals, as well as its eye care and generics businesses. Lilly is purchasing the animal health unit from Novartis for approximately $5.4 billion, in the form of $3.4 billion in cash and $2 billion in debt.

“Lilly emerged from our competitive process as the clear best buyer for Novartis Animal Health and a good home for our employees,” said Joseph Jimenez, CEO of Novartis, per the press release Tuesday morning. “We look forward to a smooth transition of the business over the next several quarters.” Jimenez added that, “We believe the divestment of our smaller Vaccines and Animal Health Divisions will enable us to realize immediate value from these businesses for our shareholders, and those divisions will benefit from being part of large, global businesses that are also leaders in their segments. Patients will benefit from even higher levels of innovation that this focus may afford. Looking ahead, this positions Novartis well for future healthcare industry dynamics.”

Analysts, for their part, seem generally impressed with the transactions. “Novartis has agreed to an elegant set of transactions that either removes or strengthens its underperforming assets, whilst boosting its oncology portfolio,” a Jeffries analyst who spoke with Reuters said Tuesday, while Birgit Kulhoff, a fund manager in Zurich told The Wall Street Journal that the scale of the transactions was “astonishing.”

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