Deals fever grips pharma industry

A near $50 billion (€36 billion) takeover battle for the maker of Botox and a multibillion-dollar asset swap between Novartis and Glaxo-SmithKline have intensified the deals frenzy that is gripping the pharmaceuticals industry.

The day of deals took the total for global pharma transactions so far this year to $140 billion, representing about 13 per cent of total mergers and acquisitions activity, according to data from Dealogic. Activity in the cash-rich sector ranks second only to telecommunications, media and technology deals in terms of the value of transactions announced this year.

This sum included GSK’s agreement to sell its portfolio of cancer drugs to Novartis for up to $16 billion and to buy the Swiss group’s vaccines unit for up to $7.1 billion. The pair will also combine their consumer health businesses in a joint venture controlled by the UK group.

Separate deal
Separately, Novartis will sell its animal health business to Eli Lilly of the US for $5.4 billion.

The deal tally will rise further still if Valeant Pharmaceuticals and activist investor Bill Ackman succeed in their battle for control of Allergan, the maker of Botox. Allergan claimed to have had no warning about the unsolicited $45.6 billion bid.

Meanwhile, shares in AstraZeneca rose almost 5 per cent yesterday after it emerged Pfizer had made a tentative $100 billion takeover approach that would have resulted in the biggest pharmaceuticals deal on record.

Several analysts predicted the US drugmaker would make another push for its Anglo-Swedish rival.

The GSK-Novartis deal represents the most significant move so far by Novartis chief executive Joe Jimenez and GSK chief executive Sir Andrew Witty to restructure their companies. Investors welcomed the shake-up, with shares in GSK up more than 5 per cent and Novartis more than 2 per cent yesterday.

'Targeted transactions'
"M&A is a strategy to be used sparingly. But it has an extremely valuable role to play if you can find targeted transactions that allow you to strengthen in areas where you have long-term competitive advantages," said Mr Witty.

The deal will leave GSK focused on four main businesses – respiratory conditions, HIV, vaccines and consumer healthcare – and reduce the company’s dependence on high-risk drug development.

Mr Witty announced he was launching a strategic review of the company’s established products operation with a view to selling some assets. A full disposal was possible but unlikely, he said.

For Novartis, Mr Jimenez said the deal would strengthen the company's position in the high-value market for cancer drugs, where it is number two to Swiss rival Roche.

Meanwhile, the cash and stock offer for Allergan, confirmed yesterday morning, sent shares in the Botox maker up 16 per cent, giving the company a market value of $49.4 billion. That was 8 per cent above the value of the cash and stock bid, signalling that investors are betting on a higher offer emerging.

In a brief statement acknowledging the offer, Allergan said it had had no contact concerning the bid with Valeant or Mr Ackman, the activist investor who owns almost 10 per cent of its shares and who is backing Valeant’s bid. – (Copyright The Financial Times Limited 2014)

In Focus: Joe Jimenez

The multibillion-dollar reshaping of Novartis announced yesterday is easily the most significant move that Joe Jimenez, the group’s American chief executive, has made in his four-year tenure at the Swiss pharma giant.

Mr Jimenez took on the top job in 2010 after Daniel Vasella, who helped create the Basel-based pharma group by merging two Swiss chemicals companies, San- doz and Ciba-Geigy, stepped down as chief executive.

One of Mr Jimenez’s first jobs as chief executive was to complete the integration of Alcon, the $50 billion (€36 billion) eyecare business that Novartis bought from Nestlé in 2009.

He also launched a drive to cut costs in a bid to combat the revenue pressures that Novartis was facing as a result of the loss of patent protection for key drugs . The cost-cutting drive included a 10 per cent reduction in Novartis’s Switzerland-based staff. But a more radical overhaul of its portfolio, which stretched from oncology to animal health, was off the table as long as Mr Vasella – an advocate of diversification – stayed on as chairman.

Following Mr Vasella’s departure last year as chairman, Mr Jimenez has moved to refocus Novartis around the three divisions – pharmaceuticals, eyecare and generics – in which it has global scale. – Copyright The Financial Times Limited 2014