Novartis and GlaxoSmithKline sent a strong signal on their future strategy with the sale by the Swiss pharmaceuticals group of a stake in a consumer health joint venture between the companies to the British firm for $13bn.
The sale of the 36.5 per cent stake in the joint venture which sells products such as Sensodyne toothpaste and the painkiller Panadol is an early move by Vas Narasimhan, the new chief executive of Novartis, to focus the company on its core pharmaceuticals business.
For GSK, the deal strengthens the group’s bet on consumer health less than a week after pulling out of the auction to acquire Pfizer’s business in the area for $20bn.
Emma Walmsley, who took the reins as GSK’s chief executive almost a year ago after heading its consumer division, had made no secret of her desire to buy Novartis’s share in the joint venture should it choose to sell. She had named this as her priority for capital allocation, second only to investing in the company’s pharmaceuticals business and ahead of any other large-scale acquisitions.
Shares in GSK rose 4 per cent to £13.40 on the news while Novartis shares firmed 1.6 per cent to Sfr75.64.
Ms Walmsley said the proposed transaction would “allow GSK shareholders to capture the full value of one of the world’s leading consumer healthcare businesses”. More importantly, she said, “it also removes uncertainty and allows us to plan use of our capital for other priorities, especially pharmaceuticals R&D [research and development]”.
In a further potential shake-up of GSK’s consumer business, Ms Walmsley also announced that the company was beginning a “strategic review” of Horlicks and its other consumer healthcare nutrition products to help fund the Novartis transaction.
She said the move also would allow it to “drive increased focus on [over the counter] and oral health” products. Combined sales of these products were about £550m in 2017, GSK said.
Novartis said the cash offer from GSK represented “attractive value”. Mr Narasimhan said that while the consumer healthcare joint venture with GSK was progressing well, “the time is right for Novartis to divest a non-core asset at an attractive price”.
“This 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,” he said.
Ian Hilliker, an analyst at Jefferies, said Novartis appeared to have secured “a strong price”. He said the most recent valuation in GSK’s fourth-quarter results release valued the joint venture stake held by Novartis at about £8.6bn.
With the consumer healthcare sector facing more difficult times, with increased competition or price pressure from e-commerce, “this looks to be a strategically well-timed decision for Novartis”, he added.
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Mr Narasimhan took over as Novartis’s chief executive in February. He was previously head of drugs development. Joe Jimenez, his predecessor, had restructured and streamlined the Basel-based drugmaker following its rapid global expansion through mergers and acquisitions under his predecessor Daniel Vasella.
Mr Narasimhan told the Financial Times soon after his appointment last year that he saw Novartis’s future as a “medicines and data science company, centred on innovation and access”.
When the deal that brought the consumer joint venture into being was announced four years ago, it was hailed as part of a trend for big pharma companies to focus on their core strengths, while shedding aspects of the business in which they were not globally competitive.
GSK swapped its sub-scale cancer drugs business for its Swiss rival’s vaccines division, while the pair pooled consumer healthcare assets in a new joint venture. Mr Jimenez, then Novartis chief executive, later described this to the FT as “precision M&A”.
The majority of Horlicks and other nutrition products sales are in India, through GlaxoSmithKline Consumer Healthcare, a public company listed on the National Stock Exchange and Bombay Stock Exchange. The strategic review, expected to be concluded around the end of the year, will include an assessment of GSK’s 72.5 per cent shareholding in the company, GSK said.
There was “no assurance that the review process will result in any transaction”, it added.
The disposal of the stake in the GSK venture could heighten speculation that Novartis will also sell its 6 per cent stake in Swiss rival Roche, worth about $14bn.
Novartis has already announced plans to spin off and list its underperforming Alcon eyecare business, which could be worth more than $25bn, but has delayed any move until 2019.
The Swiss drugmaker has seen revenues hit in the past two years by the expiry of patents on some of its best-selling medicines. But in January Mr Narasimhan said he expected 12 “major” product launches by 2020 would “fuel the next growth phase for the next five years”.
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