The year 2018 might be remembered by the pharma world for a deluge of consumer health castoffs. And one doesn’t really need a crystal ball to see the trend continue into the near future as drugmakers turn their focus to higher-margin, innovative medicines.
Novartis, Merck KGaA, Bristol-Myers Squibb, Bayer and Pfizer each sold off all or pieces of their consumer franchises in 2018—and more deals are expected in the future, with Bayer and GlaxoSmithKline each expected to make additional divestment moves.
It started off with Novartis handing its stake in a consumer joint venture formed in 2015 with GlaxoSmithKline to the British pharma for $13 billion and culminated with GSK forming another consumer JV with Pfizer—only as a prelude to an eventual spinoff that'll separate the business in three years.
The Novartis-GSK transaction came as a bit of a surprise to some, as then-Bernstein analyst Tim Anderson had reported only a few months before that outgoing CEO Joe Jimenez and successor Vas Narasimhan had told him they’d like to give the venture a few more years to grow in value before punting the company's stake to GSK.
Clearly, Narasimhan’s intentions changed. Soon after taking the reins, he announced plans to focus the Swiss drugmaker as a "medicines company." That meant the consumer franchise needed to go, and the time was "right for Novartis to divest a non-core asset at an attractive price," the Novartis chief said in a statement.
Instead, the company is now allocating capital to bolt-on acquisitions in the innovative drug field. Just days after the consumer announcement, Novartis picked up AveXis for $8.7 billion for a spot in the hot-and-new gene therapy arena. The pharma giant says its lead candidate, AVXS-101, could potentially be a better option than Biogen’s Spinraza for spinal muscular atrophy patients. Later in October, Novartis put down another $2.1 billion for radiopharmaceutical player Endocyte.
For GSK, the Novartis deal served as a harbinger of a large consumer merger with Pfizer and a spinoff down the line.
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After walking away from a chance to buy up Pfizer's consumer business, citing a risk that it would "compromise our priorities for capital allocation," as CEO Emma Walmsley put it at the time, GSK returned in December with an all-equity transaction to combine the two pharmas' consumer portfolios into a new JV that will take GSK's name.
Yet with a leading 7.3% share of the market, well ahead of competitors Johnson & Johnson, Sanofi and Bayer, and a combined $12.7 billion in sales by 2017 numbers, the scale of the combined business put it in line for a spinoff. GSK will split up to focus on pharmaceuticals and vaccines within three years, Walmsley said, providing music to investors' ears. The consumer business will then become a separate shop and be listed on the London market. The move could free up cash for GSK to invest further in pharma R&D, a top priority Walmsley outlined soon after she took over.
GSK had already agreed to sell GSK's Indian consumer business to Unilever for £3.1 billion ($3.9 billion). As Novartis did, it'll plow some of the sale proceeds into pharma deals, such as the one it recently struck for cancer-focused Tesaro for $5.1 billion.
Concurrently with the GSK-Pfizer announcement, Bristol-Myers Squibb said it had found its French OTC business, Upsa, a buyer in Japan's Taisho Pharmaceutical. Just like deals did for its Big Pharma peers, the $1.6 billion deal will free up some cash for BMS, which said it will use the money to "further refine its portfolio to focus on transformational medicines for patients facing serious diseases." Those include lung cancer, a lucrative area BMS is looking to expand in with immuno-oncology duo Opdivo and Yervoy.
Perhaps a less-expected intent-to-sell announcement came from Bayer in 2018, although industry watchers had been buzzing about a selloff of some sort amid concerns that the German conglomerate's pharma pipeline couldn't pull off enough long-term growth.
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