Wanna trade? Novartis and Merck are reportedly negotiating a $5B unit swap

Here's a plan that would kill two birds with one stone: Novartis ($NVS) and Merck ($MRK) are negotiating a swap, Bloomberg reports. Novartis would trade its animal health and vaccines units for Merck's consumer health business.

Novartis CEO Joseph Jimenez

And voilá, both companies solve the thorny problem of what to do with several underperforming business units. Merck CEO Kenneth Frazier has said his consumer health business needs to grow or go. Novartis CEO Joe Jimenez has said as much about animal health, vaccines and consumer health. If those units couldn't vault to a leading place in their respective fields, then they'd be better off elsewhere.

So, with this potential deal, Frazier would get a boost for Merck's animal health company, which the company says is already second-largest in the field. Merck's vaccines business, already strong, could add products such as Novartis' brand-new meningitis B vaccine Bexsero to the mix.

Meanwhile, Jimenez could offload two units at the top of his list for an overhaul. Since Novartis announced a strategic review last year, analysts have been expecting--and the company has been hinting--that animal health and vaccines were first in line for dealmaking.

Plus, Novartis' consumer health business would add a short list of well-known and broadly used products, such as Claritin allergy medicines, Chlor-Trimeton cold remedies and Lotromin anti-fungals. The Swiss drugmaker is still working to restore supplies of its own over-the-counter products after a major manufacturing snafu forced a series of recalls. A bigger portfolio could help the Novartis unit surge out of that slowdown.

Whether the deal would involve swapping full business units or setting up joint ventures isn't clear. Jimenez said late last year that, in addition to sales and spinoffs, Novartis was considering partnerships and joint ventures to "fix" its problem units. And as Bloomberg notes, nothing is final yet.

But the basic idea falls right in line with Big Pharma's current streamlining trend. Pfizer ($PFE) spun off its animal health unit, Zoetis ($ZTS), and sold its nutritionals business; Abbott Laboratories ($ABT) spun off its pharma unit, AbbVie ($ABBV). GlaxoSmithKline ($GSK) has been selling product portfolios, be they consumer drugs, cardiovascular meds or drinks. More could be on its way, with Pfizer and GSK both setting up separate financial reporting for various pieces of their companies.

Merck and Novartis have plenty of work to do while the dealmaking proceeds. Merck suspended sales of its Zilmax growth stimulant after key beef processors, including Tyson Foods, stopped accepting cattle fed with it. Novartis has its OTC plant problems to work through. 

- read the Bloomberg news

Special Reports: Top 10 Pharma Companies by 2012 Revenue - Merck - Novartis | 20 Highest-Paid Biopharma CEOs of 2012 - Kenneth Frazier, Merck - Joe Jimenez, Novartis

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