Glaxo Exits Cancer Drugs
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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(NVS) 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(NVS) 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, 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., Merck and Roche Holding AG, with U.K. competitor AstraZeneca PLC 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(NVS) will have the rights to commercialize future products.
Novartis (NVS) 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 and gaining increased scale in the U.S. market. The deal also will add Novartis's(NVS) 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, Colgate-Palmolive Co. and Unilever PLC.
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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04-22-140749ET
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