April 2014: Tzunami in the Global Pharmaceutical Industry & Consumer Health Care Sector – New Organizational Structure Emerging
Commentator: Aviva Lev- Ari, PhD, RN
- Much higher Concentration ratio in the Global Pharmaceutical Industry & Consumer Health Care Sector following the FIVE Tzunami Waves presented, below.
- The Consumer is expected to experience an increase in product prices involved
Wave #1: Novartis & GlaxoSmithKline – Swiss and British
The Swiss pharmaceutical giant Novartis announced an overhaul of its operations on Tuesday that included an agreement to
- buy the cancer drug business of its British rival GlaxoSmithKline for up to $16 billion. The deals announced on Tuesday come on the heels of eye-popping transactions in the drug sector in recent months and speculation about even more to come.
As part of its restructuring, Novartis said it would
- sell its vaccine business to GlaxoSmithKline for $7.1 billion and combine its over-the-counter pharmaceutical business with Glaxo’s consumer drug business.
That new joint venture would be one of the world’s biggest companies in the consumer health care sector. Its products would
- include Novartis’s Excedrin pain reliever and Maalox antacid, and
- Glaxo’s Aquafresh toothpaste and Nicorette chewing gum.
Novartis, based in Basel, Switzerland, also said it had agreed to
- sell its animal health division to Eli Lilly & Company for $5.4 billion, and that
- it would put its flu vaccine business up for sale.
The deals grew out of a strategic review begun last year as Novartis faced pressure from investors to exit some of its less profitable businesses.
“This is about getting us into fighting shape for the next 10 years,” Joseph Jimenez, Novartis’s chief executive, said by telephone.
Over the next decade, Mr. Jimenez said, health care systems will be under strain, trying to hold down costs as the number of older people grows rapidly – even as fewer people are actually able to pay for their medications. “It’s a demographic fact,” he said.
Pharmaceutical companies across the globe “are looking at their portfolios,” he said, “and they’re asking, ‘How can I be a winner in this industry?’ The winners will be the ones who can innovate, who have global scale.”
According to data from Thomson Reuters, deals this year in the health care sector – driven primarily by acquisitions by pharmaceutical companies – have resulted in global transactions worth about $64.1 billion through April 10. That is the sector’s strongest start to a year since 2009.
The deals would allow Novartis to focus on higher-margin businesses in which the company already has scale, while staying active in the over-the-counter market.
By acquiring Glaxo’s oncology business, Novartis would expand its cancer drug offerings, including adding Tafinlar and Mekinist, two recently approved drugs used to treat skin cancer. The GlaxoSmithKline cancer drug business had revenue of about $1.6 billion in 2013. For Glaxo, the proposed deals are expected to provide greater scale in two of the company’s core businesses –
- vaccines and
- over-the-counter products.
The transactions are expected to increase its annual revenue by £1.3 billion, to about £26.9 billion.
The transactions with GlaxoSmithKline, expected to be completed by the first half of 2015, are subject to regulatory and shareholder approval.
Mr. Jimenez, an American who took over as Novartis C.E.O. in 2010, said he anticipated few regulatory hurdles, as the businesses being combined would be complementary ones, for the most part.
Glaxo’s combined consumer health care business, based on 2013 performance, would have revenue of £6.5 billion, making it the largest provider of over-the-counter drugs.
GlaxoSmithKline would hold a controlling interest of 63.5 percent of the combined company, with the rest held by Novartis.
“Opportunities to build greater scale and combine high quality assets in vaccines and consumer health care are scarce,” Andrew Witty, the GlaxoSmithKline chief executive, said in a statement. “With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders.”
Emma Walmsley, the president of Glaxo’s consumer health care segment, will serve as chief executive of the combined consumer business.
The deal is also expected to expand Glaxo’s vaccine portfolio, including adding Bexsero, a treatment for meningitis.
Novartis, which had revenue of $57.9 billion in 2013, employs about 136,000 people in 150 countries.
GlaxoSmithKline was advised by Lazard, Citigroup, Zaoui & Company and Arkle Associates.
Wave # 2: Mallinckrodt Pharmaceuticals Irish and American partners
Mallinckrodt Pharmaceuticals, the Irish drug maker:
spun off from the medical device company Covidien last year, agreed this year to buy Questcor Pharmaceuticals for $5.6 billion in cash and shares, and acquired Cadence Pharmaceuticals of San Diego for about $1.3 billion in cash.
After a failed bid to gain control of the German pharmaceutical wholesaler Celesio, the health care company McKesson Corporation received enough shareholder support in January to complete the $8.3 billion deal.
Wave #3: Pharmaceutical Industries in India
And Sun Pharmaceutical Industries of India said this month that it would pay about $4 billion in stock for Ranbaxy Laboratories, a smaller Indian rival.
In addition to the Novartis deal, there are potentially tens of billions of dollars in transactions being discussed in the sector.
Wave #4: Allergen under hostile take over
Pershing Square Capital Management, which is led by the activist investor William A. Ackman, and the health care company Valeant are teaming up on a bid to buy Allergan, the maker of Botox, for about $46 billion. The bid by Valeant was announced on Tuesday.
Wave #5: AstraZeneca declines Pfizer
The British drug company AstraZeneca recently spurned several informal takeover approaches by Pfizer, according to a person briefed on the matter. One of those approaches valued AstraZeneca at about 60 billion pounds, or nearly $100 billion, according to The Sunday Times, a British newspaper.
The announcement on Tuesday was positive for Novartis shares, which rose 2.5 percent in midday trading in Zurich.
Pharmaceutical shares also rose elsewhere. In London trading, GlaxoSmithKline added 5.4 percent and AstraZeneca gained 6.6 percent. In Frankfurt, Eli Lilly rose 2.1 percent and Pfizer rose 2.4 percent. Sanofi rose 1.8 percent in Paris, and Roche gained 0.7 percent in Zurich.
Neil Gough, David Gelles, Michael J. de la Merced, Alexandra Stevenson and Andrew Pollack contributed reporting.
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