GlaxoSmithKline pledges $7.1B to add Novartis vaccines to its leading lineup

In an announcement full of surprises from Novartis ($NVS) and GlaxoSmithKline ($GSK), the sale of the Swiss company's vaccines division to Glaxo may have been the least surprising part. Novartis CEO Joe Jimenez has long said the struggling unit could be on its way out, and now it's bringing both its operating losses and its opportunities to the British pharma giant--a global vaccines player better equipped to handle them.

Novartis will ship its vaccines unit to GSK--excluding its flu business, with Glaxo already sporting its own--for $7.1 billion, comprising a $5.25 billion upfront payment and up to $1.8 billion in milestones. At the center of the deal is Bexsero, Novartis' jab for the deadly meningitis B, which currently boasts EU approval and orphan drug designation in the U.S.

"Opportunities to build greater scale and combine high quality assets in vaccines … are scarce," Glaxo CEO Andrew Witty said in a statement. "The acquisition of Novartis' vaccines business will significantly enhance the breadth of our vaccines portfolio and pipeline, notably in meningitis."

Novartis has long pinned its vaccine hopes on Bexsero, talking up 2014 as the year it would deliver. Still, as Bernstein analyst Tim Anderson wrote in a note to investors, the shot's commercial opportunity would "likely be modest." And with its global vaccines heft, Glaxo--who competes with Merck and Sanofi at the top of the vaccines food chain--has the tools to improve its sales potential.

Benefits for GSK will also come in the form of a beefed-up vaccines manufacturing network, adding sites in India and China, and reduced supply costs, both of which the company believes will help reshape its revenue base. Vaccines will kick in 14% of Glaxo's top-line tally going forward, the company figures, with the business serving as one of four key franchises that will together drive 70% of sales.

For Novartis, the move will take some weight off its shoulders. The vaccines division, formed in 2006 with the company's $7.5 billion buyout of Chiron, has foundered through the last several years, posting a $165 million operating loss in 2013. Now, it will only have its $500 million flu business left to unload.

"We believe the divestment of our smaller vaccines and animal health divisions will enable us to realize immediate value from these businesses for our shareholders, and those divisions will benefit from being part of large, global businesses that are also leaders in their segments," Novartis CEO Joe Jimenez said in a statement, adding, "Looking ahead, this positions Novartis well for future healthcare industry dynamics."

- read the release from Novartis
- see Glaxo's release

Special Reports: Top 5 Vaccine Companies by Revenue - 2012 - Novartis | The top 10 pharma companies by 2013 revenue - Novartis - GlaxoSmithKline

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