Novartis, Valeant bids herald new deal-making era for pharma

Tue Apr 22, 2014 5:55pm EDT
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By Caroline Humer

April 22 (Reuters) - A series of agreed or proposed drug company deals may herald a new era of acquisitions not seen since last decade as pharmaceutical companies improve their best businesses and exit weaker ones.

Novartis and GlaxoSmithKline agreed to trade more than $20 billion worth of assets, boosting Novartis' cancer-drug business and Glaxo's vaccines business. Valeant Pharmaceuticals made a $47 billion unsolicited offer for Allergan Inc, the maker of Botox, to boost its skin care business. Reports that Pfizer Inc was rebuffed earlier this year in discussions to buy AstraZeneca Inc for more than $100 billion only fed anticipation that more mergers are ahead.

Linking this activity together is a combination of economic conditions and industry- specific developments including low interest rates, a desire by U.S. firms to make overseas acquisitions to shield foreign profits from U.S. taxes, and the realization that deals can be made to focus on a drugmaker's specific strengths, investors, analysts and investment bankers said on Tuesday.

"The rumor about Pfizer's possible deal with Astra demonstrates the industry is moving perhaps into another period of consolidation," said Richard Purkiss, an analyst with Atlantic Equities in London. "Large cap pharmaceutical compared to more mature global industries is still fragmented and so can continue to concentrate."


Tuesday's deals also included a transaction in which Novartis is selling its animal health arm to Indianapolis-based Eli Lilly for about $5.4 billion in cash. That would make Lilly's Elanco unit the world's second-largest animal health business when that deal closes early next year.

Large drug companies are focusing on a small number of leading businesses, while smaller specialty and generic producers seek greater scale. Deal values have almost doubled since the start of 2014 to $77.9 billion from a year earlier, according to Thomson Reuters data.   Continued...