Glaxo, Novartis in Pharma Deal Frenzy
Drug Companies Announce Flurry of Mergers and Acquisitions Worth at Least $65 Billion
In less than 24 hours, executives at some of the world's biggest pharmaceutical firms have launched or announced a flurry of complex, multi-company deals worth, conservatively, $65 billion, as they seek to either bulk up or retool. And that isn't counting reports over the weekend of a $101 billion approach by Pfizer PFE +0.19% for Britain's AstraZeneca. AZN.LN +6.44%
Drug makers globally have plowed into mergers and acquisitions. Equity-capital markets activity in the health-care sector are up 40% globally in the first quarter, according to Dealogic data.
Why?
Many drugs companies have paid down debt from big acquisitions in the early 2000s and are generating a lot of cash. Generic drug makers are seeking to gain scale as their competitors and customers bulk up. For prescription-drug makers, pressure on pricing in the U.S. and Europe has forced many to cut costs, scale back research and development activities, and think about joining with rivals.
Activist investor William Ackman has teamed up with serial pharma acquirer Valeant Pharmaceuticals International Inc., VRX.T 0.00% seeking to buy Allergan AGN +14.87% Inc. according to a filing late Monday with the U.S. Securities and Exchange Commission.
The deal, if successful, would create a behemoth in the global eye-care and skin-care drug industries. Each company has a stock-market capitalization of more than $40 billion. It would be Montreal-based Valeant's biggest deal ever, capping a string of smaller acquisitions over the years.
Then, Tuesday morning, Novartis, NOVN.VX +2.41% GlaxoSmithKline GSK.LN +5.52% and Eli Lilly, three of the world's biggest drug giants, announced a complicated set of deals, trades and joint ventures—all worth at least $25 billion, that is likely to significantly alter the global pharma landscape.
Here are highlights of that deal:
Swiss giant Novartis, in the middle of a strategic rethink after an acquisition binge by its previous chairman, Daniel Vasella, agreed to buy GlaxoSmithKline's high-margin oncology unit for $14.5 billion. That deal value would rise to $16 billion if certain development milestones are met.
Novartis will sell its lower-margin vaccines division to GSK for $5.25 billion. The business, which relies on scale, is a better fit for GSK, and slims down the world's ranks of big vaccine makers from five to four.
Novartis will also sell its animal-health division to Eli Lilly for $5.4 billion.
Finally, GSK and Novartis will create a joint venture, majority owned by GSK, for its consumer business—essentially those drugs that can be bought over the counter, creating a new giant in that business. The combined companies will have revenue of about $11 billion, and include household names like Excedrin and Panadol.