Joseph Jimenez, Novartis CEO (photo courtesy Novartis Foundation).
Joseph Jimenez, Novartis CEO (photo courtesy Novartis Foundation).

Big Pharma deals are heating up this week.  Following news of a bid by Valeant Pharmaceuticals for Botox maker Allergan on Tuesday, Novartis and GlaxoSmithKline announced an agreement to swap more than $20B in assets.  The deal will enable each of the companies to focus on segments where they already have a strong presence.

Novartis, based in Basel, Swizterland, will purchase Brentford, England-based Glaxo’s oncology unit for around $14.5B, adding significant heft to its portfolio of cancer drugs.

In exchange, Glaxo will pay Novartis $5.4B for its vaccines business, including the Bexsero meningitis B vaccine.

The two companies will also merge and spin out their consumer health care businesses, with Glaxo taking a 63.5 percent ownership stake and management of the new business.  The move will cement Glaxo’s position as a powerhouse in the over-the-counter drugs market.

The deals are subject to regulatory approvals and are expected to be completed by mid-2015.  In a recent New York Times article, Novartis CEO Joseph Jimenez “said he expected few regulatory hurdles because most of the businesses being combined would be complementary.” (See article link below.)

According to another article published on Tuesday in the Wall Street Journal, the massive deal is part of a new outflow of cash in the pharmaceutical industry, resulting from a pay-down on debts incurred in a flurry of mergers in the early 2000s.

In the earlier wave of activity, Big Pharma conglomerates sought to extend their reach into a wide range of sectors, resulting in the creation of a number of “unwieldy giants.”  The current wave is focused on creating businesses that can be market leaders in a narrower field.

On a conference call related to the deal, Glaxo CEO Andrew Witty said:

“M&A is a strategy to be used sparingly.  But it has an extremely valuable role to play if you can find targeted transactions which allow you to strengthen in the places where you have long-term competitive advantage.”

For more information on the deal and the recent uptick in M&A activity, please see the following articles:

Deals Reshape Novartis, Glaxo – Wall Street Journal

Novartis and Glaxo Agree to Trade $20 Billion in Assets – New York Times