EC Approves Novartis-GSK Asset Swap With Strings
The European Commission has approved a plan by Novartis and GlaxoSmithKline to swap assets worth more than $20 billion.
The proposed deal dates back to April 2014, when Switzerland's and the UK's respective biggest drugmakers agreed the transaction that foresees GSK buying Novartis' vaccines business, Novartis purchasing GSK's cancer drugs and the two groups forming a joint venture for consumer healthcare.
Under the terms, Novartis will buy GSK's oncology products for $14.5 billion plus another $1.5 billion that depends on the results of a trial in melanoma, and GSK will pay $5.25 billion plus potential milestone payments of up to $1.8 billion and ongoing royalties for Novartis' vaccines, excluding influenza.
In return for permitting the asset swap, the Commission mandated that Novartis divest two cancer treatments, a B-Raf inhibitor and MEK162, an MEK inhibitor, both of which block cell proliferation.
While the Commission said it had harbored concerns that the transaction would have reduced competition and innovation for certain products, it added that the divestment commitments address these concerns.
The British drugmaker has committed to divest one meningitis vaccine, grant a worldwide license of another and offer further concessions in Germany and Italy.
Also, to address the EU regulatory authority's concerns that the deal would hurt competition on developing meningitis and diphtheria tetanus vaccines, as well as over-the-counter products, GSK and Novartis have agreed to sell certain products in Europe and Turkey.
The transaction is planned to be completed during the first six months of 2015.
Novartis meanwhile has launched a cost-cutting program for Switzerland - complementing a global efficiency scheme launched last year. The plan is to offset the negative effects of the Swiss central bank's decision to decouple the franc from the euro.
While saying the decoupling, in particular as it has led to a devaluation of the euro, could shave about 12% off Novartis' 2015 operating profit, CEO Joseph Jimenez said he supports the bank's move. The euro was pulling the franc down to "unsustainable levels," he told the Financial Times.
In any case, foreign exchange fluctuations would not derail improved growth and margins in the underlying business, Mr. Jimenez said. He predicted that, adjusted for currency movements, sales would rise by a mid-single digit and operating profit by high-single digit figure this year.
Jimenez said growth would be driven by product launches and restructuring after the asset swap.
