Glaxo in $13 billion push as Novartis bets on new drugs

Bloomberg

The new bosses of two of Europe’s largest drugmakers are pivoting in different directions, with GlaxoSmithKline Plc doubling down on consumer health as Novartis AG focusses on finding new prescription medicines.
Glaxo CEO Emma Walmsley’s $13 billion deal for Novartis’s stake in a joint venture that includes Panadol pain relievers and Theraflu cold medicine comes only days after the UK company abandoned its pursuit of Pfizer Inc.’s consumer unit. The deal gives Novartis’s Vas Narasimhan more firepower for the Swiss giant’s drug business and acquisitions.
Glaxo rose as much as 7.45 percent in London, the most in intraday trading since November 2008, while Novartis was up 2.1 percent in Zurich.
Narasimhan, who rose to the top spot, has said the over-the-counter business is no longer central to the strategy as he focusses on breakthroughs for cancer and other diseases. Walmsley, who took over last year, has emphasized the benefit of combining the more steadily performing consumer and vaccine businesses under the same roof as the more volatile pharmaceutical operations.
Glaxo’s three-pronged strategy means being “leaders in each of those businesses,” said Tara Raveendran, an analyst at Shore Capital in London. “In consumer in particular you need scale, and there aren’t that many assets out there that would have given them momentum to achieve that.”
The consumer health sector’s pricing has come under pressure as drugstores and other retailers vie for shoppers. Glaxo’s investors balked in 2017 when Walmsley mentioned interest in the Pfizer unit, fearing that it might endanger the British drugmaker’s dividend. The new CEO has said that strengthening Glaxo’s pharma business remains her top priority.

Removing Uncertainty
Novartis had the right, starting this month, to require Glaxo to purchase its stake in the venture. The new agreement removes uncertainty surrounding that option, Glaxo said.
The consumer business expects operating margins to improve and approach “mid-20s” percentages by 2022, Glaxo said.
The sale of the 36.5 percent stake in the venture, which was formed in 2015, will strengthen Novartis’s ability to drive shareholder returns and make acquisitions, Narasimhan said in a statement.
The deal should close in the second quarter, Basel, Switzerland-based Novartis said.
“While our consumer health-care joint venture with GSK is progressing well, the time is right for Novartis to divest a noncore asset at an attractive price,” Narasimhan said.
Narasimhan is focussing on its pharma business and R&D. Novartis reiterated in January that a decision on whether to spin off the Alcon eye-care division probably won’t come before the first half of 2019.
The deal with Glaxo may have been prompted by an “imminent bolt-on deal,” analysts at Jefferies said.
Glaxo is starting a review of its Horlicks unit and other consumer-health nutrition products to help fund the transaction and increase focus on the over-the-counter and oral-health categories. The company expects to conclude that process around the end of 2018.