GSK, Novartis complete $20bn asset swap deals

GLAXOSMITHKLINE ( GSK) and Novartis had completed a series of asset swaps worth more than $20 billion (R233bn) that would reshape both drugmakers, they said yesterday.

GSK is forming a consumer health joint venture with Novartis, while at the same time buying the Swiss firm’s vaccines business and divesting its cancer drugs portfolio to Novartis.

The two firms originally announced the transactions in April last year to bolster their best businesses and exit weaker ones as the drugs industry contends with healthcare spending cuts and increased generic competition.

GSK, which now plans to return £4bn (R72bn) to shareholders, said it would provide an in-depth view of its prospects at an investor meeting to be held when it reported first-quarter results on May 6.

The complex deals are more significant for GSK than for Novartis, reflecting the fact that the British group’s market value is less than half that of its Swiss rival.

The transactions come at a critical time for the British drugmaker, which will see new chairman Philip Hampton take over on May 7.

Hampton, who chairs Royal Bank of Scotland, takes the reins following a tough year at GSK, which has been hit by a record fine of almost $500 million in China for bribing doctors and has disappointed investors with weak lung drug sales. The poor performance resulted in the bonus paid to chief executive Andrew Witty for 2014 being cut by 51 percent.

GSK is receiving net after tax proceeds from the Novartis transactions of $7.8bn, the majority of which will be distributed to shareholders through a so-called B share scheme. For Novartis, the asset swaps will boost its already substantial presence in oncology and are expected to lift core margins immediately.

The Swiss drugmaker now has a portfolio of 22 oncology and haematology medicines, with the GSK deal providing new therapies in melanoma, kidney and blood cancers.

Novartis is paying $16bn for GSK’s cancer drugs, although up to $1.5bn of this may have to be returned to Novartis if GSK’s melanoma drugs fail to meet expectations. GSK believes the necessary conditions will be satisfied, after recent positive clinical trial results.

On top of the transactions with GSK, Novartis also sold its animal health business to Eli Lilly. – Reuters