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These Three Pharmaceutical Companies Shake The Market With Their Deal

April 27, 2014 | About:
Arrow Analysis

Arrow Analysis

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The face of Big Pharma underwent a sea change days ago when the three leading companies GlaxoSmithKilne (GSK), Novartis (NVS) and Eli Lilly (LLY) finalized a deal that significantly affects all three major players. The complicated three way deal worth about $28.5 billion lets the three bigwigs focus on their core business of choice while divesting underperforming or underutilized divisions.

Novartis takes on Cancer

Leading name in cancer drug therapy, Novartis sought to divest GlaxoSmithKline of its Oncology department. The deal went through for $14.5 billion, and reports claim that another $1.5 billion may exchange hands if as yet unstated goals are met.

This deal is an obvious plus for both. A trusted name in cancer treatment, Novartis owns top-selling cancer therapy drugs with Gleevec enjoying the fourth position, garnering sales as high as $4.7 billion in 2012. The company receives a further $2.3 billion annually from two other leading drugs. However, despite all this the company still trails after Swiss company Roche, which dominates the top three positions in terms of drug sales.

In contrast GlaxoSmithKline’s cancer division is far from satisfactory. The company currently ranks 14 in the cancer therapy list and has yet to produce a top selling cancer drug. Although the company has several potential showstoppers in the pipeline, the lack of results from one of the biggest pharmaceutical companies is disheartening. And the cost of conducting research without results naturally put investors in a grim mood. In such a scenario Novartis’ acquisition remedies both their problems.

GSK acquires vaccines

While GSK is divesting its oncology assets on one hand, it is simultaneously relieving Novartis of its vaccine departments. In a $5.3 billion deal, GlaxoSmithKline is acquiring Novartis’ share of vaccines, excluding the flu vaccines.

Compared to other departments, sale of vaccines is on the lower end of the price spectrum. However the onslaught of maladies certifies that vaccine business will only grow in the years to come. Vaccine sales may grow by 10% a year, some claim.

The vaccine business is controlled mainly by a handful of pharmaceutical companies, and GSK has the largest share (23% according to WHO). By acquiring Novartis’ vaccine market, GSK will now hold a third of the market and will be the dominating factor in this industry.

The two pharmaceutical giants will also launch a joint “consumer health care business”. This means that the new company will be combination of both their assets and will focus on vitamins, over the counter drugs etc. The venture will put the group in the leading position of over the counter drug, GSK officials claimed with the top line going as high as $11 billion annually.

Lilly’s Animal Care

Eli Lilly, by far, plays the smallest role in this joint venture. Lilly will purchase Novartis’ Animal Health division and will acquire all assets from pet medicines to animal vaccines. The deal, which went through for $5.4 billion, will put Elanco, Lilly’s Animal Health business at the forefront of the competition, second only to Pfizer’s (PFE) Zoetis.

Lilly will acquire nine manufacturing sites, six research facilities, global infrastructure and numerous projects, as well as, an experienced team of 3,000 employees from Novartis. By efficient planning and cost reduction techniques, Lilly plans to shape Novartis’ struggling business into well-organized division within three years of the deal.

Parting Thoughts

The response to this multi-part deal has generally been favorable. GSK and Novartis’ stocks jumped early in the trading day when the deal was announced and have been going strong. Feedback for Lilly’s stocks too showed a positive signs.

Each of the companies has shed their excess baggage and is on the path to creating something innovational. Novartis’ acquisition is expected to drive up its top line by creating strong commercial growth in the company. GlaxoSmithKline, in turn, received four experimental vaccines from Novartis which show huge potential in becoming market success. Eli Lilly’s financial deal has propelled the company over market leaders like Merck and Merial and sealed the company’s financial status.

These three companies have their sights focused on the future and are making the most of the advantageous deals. In our opinion, it is the perfect time for investors to make the most of these deals too.


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