Novartis Gets FTC Nod To Buyout Glaxo Smithkline's Cancer Drugs

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Feb 25, 2015

The US Federal Trade commission has given its approval to Novartis AG (NVS, Financial) for the purchase of Glaxo Smithkline’s (GSK, Financial) oncology drugs business, with certain conditions. In addition, the competition agency of Canada has also agreed to allow the deal to proceed.

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Novartis reckoner

Novartis International AG is one of the largest pharmaceutical companies in the world. It is based out of Basel in Switzerland and ranked number one in sales in the industry in 2013. It is known for the manufacturing of drugs like clozapine (Clozaril), diclofenac (Voltaren), carbamazepine (Tegretol), valsartan (Diovan) andimatinib mesylate (Gleevec/Glivec) among many others. The company was formed with the merger of Cibe-Geigy and Sandoz in 1996. It currently employs over 1.2 million people all over the world. This billion-dollar company was ranked by IMS as the biggest pharmaceutical company in 2012.

The deal

In April 2014, it was announced that Novartis and GlaxoSmithkline will engage in a 3-part inter-conditional transaction with Novartis AG. The deal would be focused on the Consumer Healthcare, Vaccines and Oncology businesses. As part of the deal, GSK and Novartis will create a new consumer healthcare business in which Glaxo Smithkline will have a majority control. Their equity stake will be 63.5%. Novartis will buy Glaxo Smithkline’s Oncology business (cancer related drugs) and Glaxo Smithkline would in-turn purchase Novartis’ global vaccine business with the exception of the flu vaccines. The deal was expected to be finalized by the first half of 2015 subject to approvals.

One of the biggest challenges and delay for the deal was the complaint to and the approval from the United States Federal Trade Commission. As per the complaint, Novartis and Glaxo Smithkline were two of the very few companies that manufactured BRAF and MEK drugs that are used in the treatment of a variety of cancers. These drugs are used individually and in combinations as well and Novartis and Glaxo Smithkline are two of only three companies marketing or developing a combination drug. The proposed merger between the two firms might have resulted in Novartis delaying or altogether terminating their development of the inhibitors and combination products. This would have harmed the competitive scenario in the United States and raised the prices of these essential drugs.

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However, the US FTC has now given their go-ahead not only to Novartis’ acquisition of the oncology division of Glaxo Smithkline, but they have cleared all the three parts of the deal. The approvals are conditional and Novartis will have to provide transitional services to Array Biopharma (ARRY, Financial) to continue the development of the two drugs and ensure that there is enough competition in the inhibitors market.

Conclusion

The objective of this merger was to make both the companies lean and provide value to their shareholders. This deal allows both companies to do what they do best and enable Glaxo Smithkline to become one of the largest players in the consumer healthcare business. The new business is expected to have category leading positions and brands in Wellness, Oral health, Nutrition and Skin health, combining OTC and FMCG capabilities and expertise. The acquisition of the cancer drugs division is expected to drive the top-line growth of Novartis. The terms of the divestment of the Vaccines business would maximize the value of its pipeline and the divestment of Animal Health would help recognize its full value. The transactions are expected to improve Novartis' sales, core operating income growth rates and margins. Glaxo Smithkline too is expecting to increase their overall revenues by ÂŁ1.3 billion to ÂŁ26.9 billion, on a 2013 pro forma basis.