By Hester Plumridge
LONDON--GlaxoSmithKline PLC's (GSK) decision to leave the hot
field of cancer drugs narrows the focus of its business to just
four areas: respiratory and HIV treatments, vaccines and
consumer-health products.
The move, included in a series of transactions announced Tuesday
that will reshape both Glaxo and Novartis AG (NVS), is part of a
trend for pharmaceutical companies to focus on a handful of "core
disease areas" to gain scale and unlock value. Recent decisions by
Pfizer Inc. (PFE) Novartis and Merck & Co. (MRK) to divest or
spin off business units are part of the same broader trend.
Four disease areas will now make up 70% of Glaxo's revenue, with
the bulk in respiratory drugs. Of the remaining 30%, half is made
up of Glaxo's "established" products, some around 50 years old,
that it will look to divest. The other half is made up of drugs in
areas such as metabolic or cardiovascular disease, which it is
looking to retain.
The move helps Glaxo bulk up in less-profitable businesses.
Operating margins in its pharmaceutical business are around 37%,
but those in vaccines are 32% and in consumer health around
18%.
Glaxo is selling its portfolio of marketed cancer drugs,
including newly approved melanoma treatments Tafinlar and Mekinist,
to Novartis for up to $16 billion-of which as much as $1.5 billion
is contingent on a late-stage trial combining the two melanoma
treatments. Panmure Gordon analyst Savvas Neophytou said the deal
"crystallizes significant value" from Glaxo's cancer drugs.
Cancer drugs are expected to be a huge and fast-growing market,
as populations in developed markets age and incidence of the
disease rises, but they form a tiny part of Glaxo's current
business. Last year, its oncology sales were just 969 million
pounds ($1.63 billion), or less than 4% of total revenue, driven
mainly by sales of the products Votrient, Promacta, Tykerb, Zofran
and Arzerra.
Glaxo says it is just the 14th-largest player by market share in
cancer. The company also is behind competitors in the hot new field
of cancer immunotherapies, which use the body's immune system to
fight cancer. That field is dominated by Bristol-Myers Squibb Co.
(BMY), Merck and Roche Holding AG (ROG.VX), with U.K. competitor
AstraZeneca PLC (AZN.LN) working on some earlier-stage pipeline
drugs.
Glaxo has also had disappointments in cancer-drug
development-earlier this month, it halted development of a cancer
vaccine called MAGE-A3, once expected to be one of its brightest
pipeline hopes. While the company is still keeping its hand in
cancer-drug research and development, Novartis will have the rights
to commercialize future products.
Novartis is selling its vaccines unit to Glaxo for $5.25
billion, making the U.K. company the undisputed world leader in
vaccines by market share, pulling away from closest rival Sanofi
(SAN.FR) and gaining increased scale in the U.S. market. The deal
also will add Novartis's new meningitis vaccine Bexsero to Glaxo's
portfolio of diphtheria, tetanus, polio and hepatitis products. The
move will reduce the number of large-scale global vaccines
businesses from five to four: GlaxoSmithKline, Sanofi, Merck and
Pfizer.
In consumer health, a new joint venture the companies announced
will create a giant that unites well-known brands including
headache treatments Excedrin and Panadol, with the right for
dominant partner Glaxo-with a 63.5% stake-to buy out its partner,
or sell its holding after three years. The new joint venture will
have the scale to compete more effectively with consumer-product
giants Reckitt Benckiser Group PLC (RB.LN), Colgate-Palmolive Co.
(CL) and Unilever PLC (UN).
Combining the consumer-health and vaccines businesses is also
expected to result in significant cost savings, estimated at GBP800
million a year, from lower manufacturing, sales and administrative
costs. Glaxo also expects to cut overlapping infrastructure from
the two businesses.
For Glaxo shareholders, the deals look set to create a windfall
of GBP4 billion, to be distributed by a B-share program in 2015 if
the deal is approved. Investors welcomed the deal, sending Glaxo
shares up 5.5% in morning trading in London Tuesday.
Write to Hester Plumridge at Hester.Plumridge@wsj.com
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