PHARMA DEALS DURING APRIL 2014
(Part 1 out of 3)

As is customary, April's Deal Watch is restricted to deals with disclosed financial terms but what a month it has been!  Not surprisingly the Novartis/ GSK/ Lilly tripartite deal has dominated, however having said that, there has been no let up in the “acquisition feeding frenzy” seen across the industry throughout the month.

Novartis, GSK and Lilly drill down and focus

Just like Alice in her Wonderland relying on transformative potions and cakes we have over recent decades watched large companies in their “Pharmaland” expand and contract as they re-invent their modus operandi.  Most notable has been the wholesale closure of R&D facilities, but did anyone anticipate the game of musical chairs that came to light with the April GSK-Novartis-Lilly deal?

This series of asset-swapping deals, with a total combined value of some $28.5bn, will realign the corporate and marketing landscape for each of these big pharma players. In one fell swoop three new giant specialists will emerge: Novartis claims the cancer crown; GSK vaccines; Lilly Animal Health. In addition, it will see the birth of a new consumer health giant, a joint venture between GSK and Novartis.

So the bottom line is:

• Novartis acquires GSK's oncology products for $14.5bn plus $1.5bn contingent on development milestones in the melanoma space.  Novartis also gains option rights to GSK's current and future oncology R&D pipeline becoming its preferred commercialisation partner.
• GSK acquires Novartis' vaccine business for $7.1bn ($5.25bn upfront; up to $1.8bn in milestones) plus on-going royalties, excluding its influenza business.
• Lilly acquires Novartis' Animal Health franchise for $5.4bn cash.
• Novartis OTC and GSK Consumer Healthcare to form a joint venture, a world leading healthcare business of which Novartis will have a 36.5% share; 4/11 seats on the Board.

It changes here, it changes there, the landscape changes everywhere

Oncology: 

This is the “hot field” in the industry and of course Novartis, a cancer heavyweight is ideally placed to maximise the potential of GSK's, by Andrew Witty's own admission, “nascent oncology business”. Novartis' pipeline includes more than 25 new molecular entities targeting key oncogenic pathways including: Gleevec and its follow-up Tasigna (blood-cancer); Afinitor (kidney cancer and recently approved for breast cancer); Jakavi (rare bone marrow disorder); Signifor (Cushing's disease) plus 16 products in 24 pivotal trials.

GSK's recently approved MEK inhibitor Mekinist and BRAF inhibitor Tafinlar will position Novartis to become a leader in the potential blockbuster market for metastatic melanoma, neglected by their current portfolio. Additional revenues for these two drugs are also promised in other cancer types not to mention their “combo” potential. Indeed a whopping $1.5bn payment depends on the results of the on-going combination trial against Roche's Zelboraf.

Additional GSK products include the VEGFR inhibitor, Votrient (renal cell carcinoma), Tykerb (HER2+metastatic breast cancer), Arzerra (chronic lymphocytic leukaemia) and Promacta (thrombocytopenia).  GSK will continue with its immunotherapy and epigenetics research programmes so in effect will provide a further pipeline source for Novartis which will have co-marketing opt-in rights for any future products.

Vaccines:

Along with Merck & Co and Sanofi, GSK enjoys big player status in the vaccine space and as such can “return the honours” in transforming the commercial prospects of Novartis' vaccine franchise. The icing on the cake is Bexsero for the prevention of meningitis B, which has EU approval and orphan drug designation in the US.  Also included in the meningitis “goodie bag” is the late-stage combo candidate MenABCWY. The new GSK vaccine business will have more than 20 different vaccines in development, including assets to prevent hospital and maternal infections and diseases prevalent in developing countries such as malaria and tuberculosis.  GSK will also acquire additional manufacturing capability in India and China.  Upon closure of the deal GSK will have 29% of the global vaccine market and vaccines will account for 14% of Glaxo's top-line revenues.

Animal health:

The Novartis Animal Health franchise transaction is the 8th and largest acquisition for Elanco, Lilly's Animal Health arm, since 2007 and catapults it to the global number 2 spot in terms of sales, second only to Zoetis. The acquired business includes a portfolio of some 600 products including vaccines and anti-parasite medicines that will provide access to the fish farming market, more than 40 development projects, 9 manufacturing sites, 6 dedicated R&D facilities, and a commercial infrastructure in 40 countries.

Consumer healthcare:

The joint GSK/ Novartis Consumer Healthcare business inherits a leading position in four key OTC categories - Wellness, Oral Health, Nutrition and Skin Health. According to GSK it will generate approximately $10.9bn in annual sales, second only to Johnson & Johnson (J&J). Well-known brands include:

• Pain: Excedrin (Novartis), Beecham's headache powder and Panadol (GSK)  
• Smoking cessation: Nicorette and Nicoderm (GSK), Nicotinell (Novartis) 
• Cold-and-flu: Theraflu and Triaminic (Novartis), Coldrex (GSK)
• Oral care products: toothpastes (Sensodyne), denture adhesive etc (GSK)
• Nutritional supplements: Horlicks (GSK) a big seller in emerging markets, Benefiber (Novartis) fibre supplement.

GSK will be responsible for the OTC manufacturing network, a bonus for Novartis that no doubt will be relieved to be off-loading its troubled Lincoln, NE plant. GSK believes that sales, administrative and overlapping infrastructure synergies for this and the vaccines operations with amount to £1bn savings, 40% of which will be attributed to the consumer business.

Will all this impact on Merck & Co's rumoured sale of its consumer healthcare arm?  Interested parties are thought to include Bayer, Sanofi and Reckitt Benckiser.

And in the end

GSK's transformation will result in a shift away from prescription drugs, restricting its activities to respiratory and HIV, and towards consumer products and vaccines which are less vulnerable to the patent life cycle. All told 24% of its revenues will come from in consumer health, 62% pharmaceuticals and 14% vaccines.

At $16bn Novartis on the surface is paying way over the odds for oncology products that currently bring in $1.6bn, however, replacing low-margin vaccines with high-margin oncology medicines may be well worth the price. Since sinking $7.5bn in the 2006 Chiron buyout, vaccines have been an unhappy place for Novartis eventually making a $165m operating loss in 2013. This deal places Novartis 2nd only to Roche in oncology, an area in which it has a proven track record and which will now generate 20% of total sales. Remaining revenues will come from pharmaceuticals, eye care (Alcon) and generics (Sandoz) and of course its stake in GSK Consumer Health.

Lilly will continue to focus on prescription drugs (diabetes, oncology, neuroscience, cardiovascular, urology etc) but will now also have a world leading position in Animal Health. The Novartis/ Lilly transaction is expected to close by the end of the first quarter 2015 and the Novartis/ GSK transaction during the first half of 2015.

And now for something completely different..

Takeover fever goes wild with April seeing virtually all sectors of the industry affected.  Of the remaining 18 top 21 deals this month, 12 involved wholesale takeovers with deals in Devices (Biomet/ Zimmer Holdings, AccessClosure/ Cardinal Health; New Wave Surgical/ Covidien), Generics/ Speciality Pharma (Questcor/ Mallinckrodt, Ranbaxy Laboratories/ Sun Pharmaceuticals; Silom Medical Company/ Actavis), Pharmaceuticals/Biologics (Furiex/ Forest Laboratories, Andromeda Biotech/ Hyperion Therapeutics), OTC (Insight Pharmaceuticals/ Prestige Brands), Diagnostics (Iquum/ Roche), CRO (Aptiv Solutions/ ICON) and even Stem Cells (California Stem Cell/ NeoStem). Four of these takeovers were in the multi-billion dollar league.

Fuente: PMLiVE

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