Novartis Announces Completion of Transactions with GSK?

Novartis has completed a series of transactions with GlaxoSmithKline (GSK), including the acquisition of certain oncology products and pipeline compounds from GSK, the creation of a world-leading consumer healthcare business through a joint venture that combines the two companies' consumer divisions, and the divestiture of the Novartis non-influenza vaccines business to GSK. The transactions were announced in April 2014 as part of the Novartis global portfolio transformation.

"The completion of the GSK transactions focuses Novartis, and further establishes our leading positions in key growing business segments," said Joseph Jimenez, CEO of Novartis. "We expect this evolution of our strategy to improve margin performance and position us well to meet future changes in the healthcare industry."

Since the end of 2013, Novartis has engaged in a series of transactions to sharpen the company's focus on three core business segments with global scale: innovative pharmaceuticals, eye care and generics.

As a result of today's announcement:

• Novartis Oncology now manages a portfolio of 22 oncology and hematology medicines to treat more than 25 conditions worldwide. Newly-acquired therapies in melanoma, renal cell carcinoma and hematology complement Novartis Oncology's existing group of practice-changing medicines to create a large portfolio of drugs in oncology and hematology targeting important biological disease pathways.

• Based on the depth and breadth of the Novartis Oncology R&D and commercial capabilities, it is anticipated that Novartis will be able to optimize the therapies acquired from GSK. These include:
     • Tafinlar, a BRAF inhibitor, and Mekinist(TM), a MEK inhibitor, both approved for the treatment of metastatic melanoma. On 6 February 2015, GSK announced overall survival results from the COMBI-d trial, which demonstrate a statistically significant reduction in the risk of death (Hazard Ratio [HR] 0.71 [95% Confidence Interval (CI): 0.55, 0.92], p=0.011) for the combination of Tafinlar and Mekinist compared to Tafinlar monotherapy in patients with BRAF V600E/K mutation-positive metastatic melanoma.
     • Votrient, a VEGFR inhibitor for renal cell carcinoma, which has shown significant efficacy as first-line treatment for renal cancer.
     • Promacta for thrombocytopenia, Tykerb for HER2+ metastatic breast cancer and Arzerra in chronic lymphocytic leukemia are also included in the transaction.

• Novartis also has opt-in rights for GSK's current and future oncology R&D pipeline (excluding oncology vaccines), which could be a source of new compounds and new targets. Sales of the acquired GSK oncology products in 2014 were approximately USD 2.0 billion and grew approximately 32% in local currency against 2013.

• Novartis OTC and GSK Consumer Healthcare jointly form a global consumer healthcare leader (GSK Consumer Healthcare) in which Novartis maintains significant interest through the ownership of a 36.5% share. GSK Consumer Healthcare is expected to have leading positions in four key OTC categories — Wellness, Oral Health, Nutrition and Skin Health. The joint venture has scale and commercial presence in the developed world as well as in key emerging markets.

• The Novartis non-influenza vaccines business has been divested to GSK. 

Since 2013, Novartis has executed other strategic transactions to transform the company's portfolio. In January 2015, the company completed the sale of its Animal Health business to Eli Lilly and Company for approximately USD 5.4 billion. As a result of the transaction with Eli Lilly, Novartis will show in the first quarter of 2015 an exceptional pre-tax gain of approximately USD 4.7 billion.

In October 2014, the company announced an agreement to divest its influenza vaccines business to CSL Ltd for USD 275 million, a transaction that is expected to close at the end of 2015. In January 2014, Novartis completed the sale of its blood transfusion diagnostics unit to Grifols S.A. for USD 1.7 billion.

Deal Terms and Financial Impact
As a result of the divestment of the non-influenza Vaccines business to GSK and the creation of the Novartis OTC and GSK Consumer Healthcare joint venture, Novartis will record a substantial exceptional gain, which will be reported with the release of the Company's 2015 first quarter results.

GSK Oncology Products
Novartis has acquired GSK's oncology products, including two pipeline candidates, for an aggregate cash consideration of USD 16 billion. Up to USD 1.5 billion of this amount is contingent on certain development milestones.

Novartis OTC and GSK Consumer Healthcare Joint Venture
Novartis now owns a 36.5% share of the joint venture between Novartis OTC and GSK Consumer Healthcare. The investment will be accounted for using the equity method of accounting and will be reported as income from associated companies. Novartis also has four of eleven seats on the joint venture's Board. Furthermore, Novartis has certain minority rights and exit rights, the latter of which would be executed using a pre-defined, market-based pricing mechanism.

Divestment of Non-Influenza Vaccines to GSK
Novartis has divested its Vaccines business (excluding its vaccines influenza business) to GSK for up to USD 7.1 billion plus royalties. The USD 7.1 billion consists of USD 5.25 billion paid upon completion and up to USD 1.8 billion in future milestone payments.