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FOCUS 14


BUOYANT M&A MARKET, WITH DEAL VALUES UP ON 2013 I


n a groundbreaking three-part swap, GlaxoSmithKline (GSK) and Novartis tidied up their portfolios by trading more than £11 bn1


of assets. GSK switched its


cancer treatment division for Novartis’ vaccine units, with both parties acknowledging that the other was


stronger in these respective areas. The third part of the deal involved a groundbreaking joint venture (JV) between the two giants’ over-the-counter (OTC) divisions. GSK, which has a bigger presence in this sector, takes a 63.5 percent share of the new entity. Novartis also sold its animal health business to Eli Lilly. This innovative arrangement offers a new template for deal making and paves the way for further asset swaps.


These events refl ect a growing trend, in Europe at least, towards strategic assessment of portfolios, in the wake of a patent cliff, rising R&D costs, pressure on healthcare spending and a realisation that the days of the blockbuster are over, with new drugs likely to be niche treatments for smaller patient populations. We are moving into an era of portfolio rationalisation and consequently we can expect to see further asset swaps, JVs and partnerships to realise better value from non-core businesses, and help companies become less product-oriented and get closer to the customer.


1 reuters.com/article/2014/04/23/us-novartis-gsk-assetswaps-idUSBREA3M1KX20140423


The GSK/Novartis link-up also


signals a potential sea change in the nature of alliances, with a shift towards partnerships between major players


The GSK/Novartis link-up also signals a potential sea change in the nature of alliances, with a shift towards partnerships between major players. Up to now, most JVs have been between established pharma companies and small, academic based start-ups, which eventually get assimilated into the larger group. However, JVs come with a warning sign borne of a high failure rate, so both parties must work hard to achieve success.


With the likes of Sanofi , GSK and Merck trying to optimise mature portfolios, many older drugs could be up for sale, in some cases as sweeteners to ease the purchase of other assets. One route is to form a JV with a rival to house older products, with the intention of taking on the generics. Other brands may possibly be purchased by private equity houses, who in turn would need help with manufacturing, which could be outsourced back to the seller.


© 2014 KPMG LLP, a UK limited liability partnership, and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.


DEAL CAPSULE


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