GlaxoSmithKline in multi-billion asset swap with Novartis

Researchers in a GlaxoSmithKline laboratory (Rex Features)

Drugmaker GlaxoSmithKline is to exchange major assets with Novartis in a multi-billion dollar deals.

Brentford-based Glaxo is selling all of its cancer drugs to Novartis for up to $16 billion (£9.5 billion), buying the Swiss giant’s vaccines operation for $5.25 billion, and merging both of their consumer health divisions to create a £6.5 billion business spanning Aquafresh toothpaste, Tixylix cough mixture and Savlon antiseptic cream.

Glaxo has the bulk of the venture, with a 63.5 per cent stake, and has appointed its consumer boss Emma Walmsley to run it.

Glaxo is dangling £4 billion in cash to tempt investors to approve the deal at an extraordinary general meeting. Shares in the drugmaker rose 5 per cent 85.2p to 1644.2p.

It is a change of strategy for Glaxo, whose chief executive Sir Andrew Witty had shunned expensive deals in favour of starting up tiny, autonomous biotech-style units and small acquisitions aimed at growth in emerging markets.

But it reinforces Witty’s belief that the days of mega-deals to create behemoths covering every division of healthcare are over — in stark contrast with rival Pfizer’s strategy, with the emergence of its £76 billion approach for AstraZeneca.

Witty said today: “The problem with the massive transactions of the past is that all of them will have two or three interesting elements, but they will have seven or eight which actually you would rather not have to worry about.”

In an apparent reference to Pfizer’s approach, he added: “We do not have to be distracted by all the other things that would come along in a typical big merger.”

The City saw Glaxo’s sale of its oncology business as an acknowledgment that the division, which includes treatments for melanoma but is only number 14 in the market, was too small to compete in one of the most competitive areas of Big Pharma.

Glaxo’s purchase of Novartis’s vaccines division, meanwhile, gives it more muscle in a fast-growing sector. Novartis’ portfolio includes inoculations against meningitis, polio, rabies and tetanus as well as flu, and Glaxo’s enlarged division will supply two million vaccines every day to more than 90 countries around the world.

Novartis has been a long-term supplier of vaccine ingredients to GSK, and Witty said today’s deal emerged out of initial talks about a tie-up on inoculations. He added there would be “very minimal” or no job cuts in the UK as a result of the deal, although it would employ another 10,000 people in vaccines and consumer health, mostly overseas.

Novartis also sold its animal health business today, to US rival Eli Lilly for $5.4 billion, while Canadian drugmaker Valeant set out a merger with Botox-maker Allergan worth $42 billion.