GlaxoSmithKline bulks up in OTC after all, handing Novartis $13B for its JV stake

GlaxoSmithKline CEO Emma Walmsley has agreed to a $13 billion deal for Novartis' share of the pair's consumer health joint venture. (GlaxoSmithKline)

Turns out there was a reason GlaxoSmithKline ended deal talks for Pfizer’s consumer health unit last week—and it wasn't just the New York drugmaker’s asking price.

Tuesday, the British pharma giant said it had struck a deal with partner Novartis to take full control of their shared OTC portfolio. It’ll hand Novartis £9.2 billion ($13 billion) for its 36.5% share, in a transaction that GSK expects to start padding earnings this year.

The way Glaxo CEO Emma Walmsley sees it, the most important part of the pact is that it “removes uncertainty and allows us to plan use of our capital for other priorities, especially pharmaceuticals R&D,” she said in a statement. And the company’s hoping the certainty factor will comfort shareholders, who celebrated last week when GSK withdrew from the Pfizer OTC conversation.

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Novartis, for its part, said it would put the money toward bolt-on acquisitions. "The time is right for Novartis to divest a non-core asset at an attractive price," CEO Vas Narasimhan said in a statement.

Glaxo and Novartis teamed up on the consumer joint venture back in 2015 as part of the pair’s multibillion-dollar asset swap, which also sent GSK’s oncology assets to Switzerland and took Novartis’ vaccines to London.

RELATED: Glaxo CEO: Consumer health can stand on its own, but don't expect a quick spinoff

That asset swap ignited spinoff talk among GSK’s investors—some of whom didn’t much care for the company’s newfound focus on a low-margin business like consumer health—almost immediately, but then-CEO Andrew Witty tamped it down. Though the consumer JV had the necessary scale for a spinoff, the timing wasn’t right, Witty maintained.

Whether GSK's latest move reignites that consumer-spinoff chatter remains to be seen. But to help fund the buy, Glaxo is definitely looking into asset sales, it said. It’s kicking off a review of malted milk drink Horlicks and other nutrition products that raked in a combined £550 million last year, with India generating most of that haul.

GlaxoSmithKline Consumer Healthcare Ltd.—a public company listed on India’s stock exchanges—sells the products in that country, and GSK will be weighing its 72.5% holding in that company, too. It expects to wrap up the review process around the end of the year, it said.

RELATED: Sorry, Pfizer. GlaxoSmithKline doesn't want your OTC unit either

That’s not to say the drugmaker isn’t focusing on the Indian market, however. On the contrary, India “remains a priority market for GSK investment and growth,” the company said. It’ll continue to put money behind OTC and oral health brands in the country, and it’s “actively investing” in pharmaceuticals and vaccines there, too.

Meanwhile, in the U.S., online retailers are threatening consumer health sales, and may have helped scuttle interest in the Pfizer unit. A handful of bidders—including Johnson & Johnson and Reckitt Benckiser—reportedly dropped out of the race before Glaxo did, dashing Pfizer's hope of a sale. Now, the New York company may pursue a spinoff instead, industry watchers say.