In an attempt to realign its portfolio,
) announced that it has entered into an agreement with
) for the exchange of certain assets.
Under the terms of the agreement, Novartis would acquire
GlaxoSmithKline's oncology products for $14.5 billion and up to
$1.5 billion as milestone payments. The agreement also provides
Novartis with opt-in rights to GlaxoSmithKline's current and
future oncology R&D pipeline. In exchange, Novartis would
divest its Vaccines business (excluding flu) to GlaxoSmithKline
for $7.1 billion (of which $5.25 billion is upfront and up to
$1.8 billion in milestone payments) along with royalties.
We note that the Vaccines Division generated sales of $1.4
billion in 2013.
Meanwhile, Novartis has initiated a separate sales process for
its flu business.
Novartis expects to close the deal with GlaxoSmithKline by the
first half of 2015. In addition, the two companies will create a
joint venture (JV), thereby combining their consumer divisions
(Novartis OTC and GSK Consumer Healthcare) to form a larger
consumer healthcare business. Novartis will own 36.5% share of
the JV and will have four of eleven seats on the JV's's
In order to focus on its core portfolio of pharmaceuticals,
eye care and generics, Novartis also entered into a definitive
Eli Lilly and Company
) to divest the Animal Health Division for $5.4 billion in a
separate transaction. Novartis expects to close this transaction
by the first quarter of 2015. We note that the Animal Health
Division generated sales of $1.1 billion in 2013.
Novartis has a strong oncology portfolio with drugs like
Afinitor, Exjade, Femara, Gleevec, Jakavi among others. The
pipeline at Novartis includes 25 new molecular entities targeting
key oncogenic pathways and 24 pivotal trials are underway
exploring 16 new candidates for various indications. The addition
of oncology products from GlaxoSmithKline will further strengthen
its oncology business as it expands Novartis' position in
targeted therapies and small molecules.
In particular, the addition of two recently approved products
for metastatic melanoma, Tafinlar and Mekinist along with
Votrient for renal cell carcinoma will strengthen Novartis'
position as a leader in treating melanoma. Novartis also acquired
Tykerb for HER2+ metastatic breast cancer, Arzerra in chronic
lymphocytic leukemia, and Promacta for thrombocytopenia. Total
sales of the acquired oncology products from GlaxoSmithKline in
2013 were approximately $1.6 billion.
Meanwhile, the JV of Novartis OTC and GlaxoSmithKline's
Consumer Healthcare would establish a business with approximate
annual sales of $10 billion with strong focus in four key OTC
categories - Wellness, Oral Health, Nutrition and Skin
We are positive on Novartis' efforts to transform its
portfolio. We remind investors that Novartis divested its blood
transfusion diagnostics unit to Grifols S.A., for approximately
$1.7 billion in cash in Jan 2014. The acquisition of oncology
products from GlaxoSmithKline and divestment of Vaccines business
is a step in the right direction. It will broaden Novartis'
portfolio and enable it to focus better on its core capabilities
besides contributing immensely to the top line. Margins are also
expected to get a significant boost.
Novartis currently carries a Zacks Rank #3 (Hold). Investors
looking for better-ranked stocks may consider
Johnson & Johnson
) with a Zacks Rank #1 (Strong Buy).
GLAXOSMITHKLINE (GSK): Free Stock Analysis
JOHNSON & JOHNS (JNJ): Free Stock Analysis
LILLY ELI & CO (LLY): Free Stock Analysis
NOVARTIS AG-ADR (NVS): Free Stock Analysis
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