Novartis bids farewell to vaccines with $7.1B sale to GSK

After years of struggles and months of speculation, Novartis ($NVS) is finally kissing its vaccines unit goodbye. As part of a company-wide revamp, the Swiss drugmaker will send the division to the U.K., where GlaxoSmithKline ($GSK) will be waiting with open arms to take on a vaccines business that will give it an edge in meningitis and bolster its pipeline.

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.

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 ($MRK) and Sanofi ($SNY) at the top of the vaccines food chain--has the tools to improve its sales potential.

On the meningitis front, Glaxo will also inherit late-stage combo candidate MenABCWY. It's one of 20 in-development vaccines the company will now have in its pipeline, and it will be joined by vaccine hopefuls to prevent hospital infections, tuberculosis, and a wide range of maladies in between.

Benefits for GSK will also come in the form of a beefed-up vaccines manufacturing network, adding new 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.

Novartis CEO Joe Jimenez

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