- GlaxoSmithKline plc will pay Novartis AG $13 billion to acquire the Swiss pharma's 36.5% stake in the two companies' consumer healthcare joint venture, solidifying full ownership of the business just days after dropping a bid to buy Pfizer's consumer unit.
- The deal signals GSK's continued commitment to the steadier, but lower-margin, consumer market, even as company CEO Emma Walmsley seeks to revitalize lagging R&D productivity in pharmaceuticals.
- Last year, sales of consumer healthcare products earned GSK roughly $10 billion, or about 25% of its total group revenues. GSK expects securing 100% ownership of brands sold under the joint venture will boost adjusted earnings this year.
Acquiring Novartis' stake in the joint venture is Walmsley's first major transaction since she became CEO of the drugmaker last year. GSK characterized the deal as an crucial step, enabling Walmsley and her executive team to better plan future capital investment in their broader restructuring efforts.
In a complex asset swap three years ago, GSK traded its oncology business to Novartis in return for majority ownership of the consumer joint venture and Novartis' vaccines unit. As part of the deal, Novartis retained a put option, or the right to require GSK purchase its minority stake, that it could choose to exercise between March 2018 and March 2035.
"Most importantly [the transaction] also removes uncertainty and allows us to plan use of our capital for other priorities, especially pharmaceuticals R&D," said Walmsley in a March 27 statement.
Soon after becoming CEO last year, Walmsley cut 30 R&D programs and announced plans to focus 80% of R&D spending on core therapeutic areas like HIV and respiratory diseases.
In the near term, GSK hopes three new pharmaceutical products, including the recently approved HIV medicine Juluca (dolutegravir/rilpivirine), will offset expected heavy sales declines when a copycat version of GSK's flagship asthma drug Advair (fulticasone/salmeterol) enters the market. (Johnson & Johnson markets rilpivirine monotherapy as Edurant).
Once the deal with Novartis closes, GSK will retain all revenues from consumer products previously sold under the joint venture, such as the pain reliever Excedrin and the over-the-counter flu medicine Theraflu.
In general, consumer healthcare products return less profit than higher-margin prescription drugs or vaccines. GSK aims, however, to boost operating margins for its consumer business to the mid-20s by 2022 — a goal likely aided by buying Novartis' stake.
GSK's financial performance in 2017, by business unit
*Converted at $1.30/£1 **At constant exchange rates SOURCE: Company reports
GSK will tap a committed facilities agreement to fund the transaction and is considering strategic options for its Horlicks brand and other consumer nutrition products to potentially add further financial support for the deal.
For Novartis, sale of its stake gives the Swiss drugmaker an influx of cash just months after its new CEO Vas Narasimhan took over as company head.
"This [transaction] will strengthen our ability to allocate capital to grow our core businesses, drive shareholder returns, and execute value creating bolt-on acquisitions as we continue to build the leading medicines company, powered by digital and data," said Narasimhan in a March 27 statement.
Investors in GSK cheered the deal, sending shares in the drugmaker up more than 2.5% in Tuesday trading on the New York Stock Exchange.