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Ranjith Gopinathan, Life Sciences Programme Manager at Frost & Sullivan, comments on the Novartis – GSK deal

The pharmaceutical industry is witnessing a new wave of mergers and acquisitions activities, especially mega M&As. Big pharma companies have historically been fighting, albeit with little success, on various issues such as patent expiry of blockbuster molecules, regulatory hurdles, generics competition, under utilization of resources, declining pipeline due to a low R&D productivity and governmental price control. Biopharmaceutical companies with a strong biologics pipeline and low exposure to patent expiries have become the most attractive acquisition targets.

Clearly, big pharma companies are now seeking to strengthen their core business and divest the weak ones. For instance, GSK is exiting its oncology business for approximately $14.5 billion, in return acquiring Novartis’ vaccines business for about $7.1 billion plus royalties. It must also be noted that GSK recently stopped its late stage trial of MAGE-A3 for cancer therapy due to poor clinical trial data.  In addition to this, Novartis is divesting its animal health division to Eli Lilly for approximately $5.4 billion.  

Vaccines are a low margin business and gaining scale is a critical requirement for GSK. On the other hand,  this is a non-priority segment for Novartis. Similarly, Novartis will be able to consolidate its already strong position in the highly lucrative oncology business. Hence, this is a win-win deal for both companies.  

Another M&A likely to happen soon is Pfizer’s acquisition of Astra Zeneca. The key driver is Astra Zeneca’s strong pipeline in immunotherapies, which would help Pfizer increase its market share in the lucrative oncology segment. It must be noted that Pfizer’s $68 billion acquisition of Wyeth in 2009 was due to Wyeth’s strong biologics pipeline particularly in CNS.

Moreover, companies such as Shire, Actelion and UCB represent potential acquisition targets, given their promising drug pipeline. One possible outcome of this rapid consolidation is the augmented bargaining power of big pharma against payers and government.”

For more information on this subject and other healthcare topics, please contact anna.zanchi@frost.com