GlaxoSmithKline CEO Andrew Witty said Tuesday that following a deal with Novartis to bolster two of its four key areas, the company's established products portfolio "is not part of our future." The executive commented "you should not be surprised if we were able to transact a disposal of some of that established product portfolio in the next year or two."
The transaction with Novartis includes the purchase of the Swiss company's vaccines unit, excluding its influenza business, for $7.1 billion plus royalties, consisting of $5.25 billion upfront and up to $1.8 billion in milestones. Included in the deal are the meningitis B vaccine Bexsero and a further candidate vaccine in late-stage development, MenABCWY. The two drugmakers also agreed to create a consumer health joint venture (JV), in which GlaxoSmithKline will own a 63.5 percent stake.
In addition, GlaxoSmithKline agreed to sell its oncology products portfolio to Novartis for $14.5 billion, in addition to up to $1.5 billion in milestone payments. As part of the deal, which includes GlaxoSmithKline's marketed oncology drugs, related R&D activities and rights to its AKT inhibitor, the Swiss company will have opt-in rights to the UK drugmaker's current and future oncology pipeline. The milestone payments are tied to results of the Phase III COMBI-d trial, which is evaluating the combination of the BRAF inhibitor Tafinlar (dabrafenib) and the MEK inhibitor Mekinist (trametinib) versus BRAF monotherapy. GlaxoSmithKline indicated that its own oncology research will continue with programmes to investigate new treatments in areas of cancer immunotherapy, epigenetics and tumour environment.
Witty remarked that "opportunities to build greater scale and combine high quality assets in vaccines and consumer healthcare are scarce," adding "with this transaction we will substantially strengthen two of our core businesses." The CEO commented "what this transaction does...is it takes one of the leading position in consumer health care and truly elevates us to a global leadership position. It gives us a very rare, extremely rare opportunity to substantially strengthen our vaccine business. And it finds a home for our nascent oncology business."
According to GlaxoSmithKline, the consumer health JV will have annual revenues of around 6.5 billion pounds ($10.9 billion), while the transaction will increase the drugmaker's annual sales by 1.3 billion pounds ($2.2 billion). The company indicated that following completion of the transaction, its revenues would be split across pharmaceuticals 62 percent, consumer healthcare 24 percent and vaccines 14 percent. GlaxoSmithKline added that around 70 percent of its revenues would be focussed around the four key franchises of respiratory, HIV, vaccines and consumer healthcare. The company said that approximately 14 percent of sales would be represented by its established products portfolio.
According to GlaxoSmithKline, the deal is expected to be accretive to earnings per share from the first year, and is forecast to make "a growing contribution" to earnings thereafter, particularly from 2017 due to cost savings, new product launches and as the re-introduction of Novartis over-the-counter products accelerates. The UK drugmaker indicated that cost savings of 1 billion pounds ($1.7 billion) could be achieved by the fifth full year following closing, with approximately 50 percent delivered by year three. "We also expect to return 4 billion pounds ($6.7 billion) to shareholders following completion of this transaction," Witty added.
For related analysis, read ViewPoints: GlaxoSmithKline, Novartis embrace home comforts via innovative $25 billion deal.
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