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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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« Funding Undergraduate Summer Research | Main | Days Off »

April 22, 2014

Shuffling the Departments

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Posted by Derek

So word comes this morning of some big transactions between Novartis, GlaxoSmithKline, and Eli Lilly:

Novartis said it had agreed to buy GlaxoSmithKline's oncology products for $14.5 billion, while selling to GSK its vaccines, excluding flu, for $7.1 billion plus royalties and creating a joint venture with GSK in consumer healthcare.

Novartis also said it had agreed to sell its animal health arm to Eli Lilly for approximately $5.4 billion.

The global pharmaceuticals sector has seen a flurry of deal-making recently as large companies seek to focus on a small number of leading businesses, while smaller specialty and generic producers seek greater scale.

Coming right after that Pfizer/AZ news the other day, this makes a person wonder what else is in the works. What's not clear (in what I've seen so far) is how this will work - for example, is Novartis just buying the existing drugs and the pipeline, and incorporating those into its existing research? What happens then to all the people in GSK's oncology? And so on. We'll see what details emerge. Any info on this is welcome in the comments, as well as speculations on why GSK is giving up the whole oncology area.

Comments (42) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Anonymous on April 22, 2014 8:33 AM writes...

What it will mean is lots of people will lose their jobs

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2. PharmaHeretic on April 22, 2014 8:34 AM writes...

Shuffling deck chairs on the Hindenburg?

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3. Anonalso on April 22, 2014 8:40 AM writes...

+1 to PharmaHeretic! Absolutely correct. To me this sounds like...

"We merging...kinda sorta, but not really. By the way did we tell you about the new Consumer company we are starting (just to see how well we work together)"

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4. Bring the Movies on April 22, 2014 9:03 AM writes...

"Shuffling deck chairs on the Hindenburg"

I think you mean Titanic. There was no deck on the Hindenberg. Oh, the humanity.

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5. John Wayne on April 22, 2014 9:04 AM writes...

Sounds like a great way to merge without merging; you still get to improve efficiency in core areas (while firing the rest) and convince the shareholders that you are doing something.

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6. anonymous on April 22, 2014 9:07 AM writes...

Ah, springtime, when the thoughts of big pharma companies turn to trysts. The Pfizer/AZ courtship may have failed, but look at Novartis, scattering its seed widely among the herd.

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7. wei on April 22, 2014 9:13 AM writes...

this reminds me stories where two husbands make pact to kill each other’s wives and provide alibi

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8. Quintus on April 22, 2014 9:14 AM writes...

No comment!

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9. Anonymous on April 22, 2014 9:16 AM writes...

Apparently GSK also tried to unload Sirtris but found no takers....

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10. LeftField on April 22, 2014 9:29 AM writes...

To me, this looks like good business for both Novartis and GSK. A clear win-win that will allow each company to focus on core competencies. Perhaps people are put off by the novelty of this approach but inter-company cooperation has become an established driver of pharmaceutical R&D and this trend is likely to accentuate in the medium-term.

As for #9's comment "Apparently GSK also tried to unload Sirtris but found no takers....", I think they are what Wikipedia call "weasel words".

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11. anon on April 22, 2014 9:44 AM writes...

hah "put off by novelty"

ahhahahahahahahhah

thats a good joke

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12. Magrinho on April 22, 2014 9:48 AM writes...

Uttering the word "Sirtris" was used in the NVS-GSK negotiations as comic relief; a way to break the tension when things heated up. So the acquisition did, in the end, provide some value to GSK.

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13. Anonymous on April 22, 2014 9:54 AM writes...

I like to think 'Leftfield' (or Agilist, or whatever) is some past employee with a sense of humour... But deep down I suspect not.

It's been an fascinating couple of days of news. I find Novartis' purchase of GSK's onc product line bizarre, and Pfizer's interest in AZ (at a very significant premium) even stranger.

The next few months are going to be interesting, that is for sure

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14. pharmacology rules on April 22, 2014 10:33 AM writes...

The company store have just gotten better for GSK and Novartis

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15. Anonymous on April 22, 2014 11:01 AM writes...

Individual pharmas is starting to specialize in their area of expertise and only where they have or can obtain critical mass. Everything else is being stripped out. Oncology has separated out into the BIG TWO, Roche and Novartis with Merck, Bristol and AZN now needing to make a counter move.

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16. anon on April 22, 2014 11:42 AM writes...

@4 Bring the Movies:

you'll find that in aero-nautics they still cling to, well, nautical terminology. Thus airliners have "flight decks". And so did Hindenburg.

Oh, and well done Mr. PharmaHeretic!

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17. Harrison on April 22, 2014 11:44 AM writes...

@4: It's a Stephen Colbert reference from his "roast" of G.W. Bush:

So, the White House has personnel changes. And then you write, "Oh, they're just rearranging the deck chairs on the Titanic." First of all, that is a terrible metaphor. This administration is not sinking. This administration is soaring! If anything, they are rearranging the deck chairs on the Hindenburg!

@5: Exactly. It seems like GSK is second only to Pfizer in terms of reorganizing in ways that will eventually lead to lay-offs.

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18. exGlaxoid on April 22, 2014 12:05 PM writes...

Since GSK laid off almost everyone associated with the current cancer pipeline, that won;t be much of a problem, the remaining people have not discovered much, so they can be "redeployed" with little fear.

The move does make some sense in the consolidation of expertise at each company, but it remains to be seen if the FTC and european trade group will look favorably on such a consolidation of therapies into the companies. But if they want to keep any R & D going they may have to allow it.

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19. annon on April 22, 2014 12:36 PM writes...

Let's see:

GSK gets some net cash for "something". They have been doing this for the last several years (eg raising cash), and where has it gone? How has it helped increase shareholder value with buying HGS, Sirtris, etc.

GSK gets more of vaccine business, high volume, low margin, just like the consumer business.

GSK in the past few years looked to be divesting parts of their consumer operations. What does this mean? A spin off?

Where is GSK going with all this? What is left? What are they actually going to be doing except for vaccines, HIV, and respiratory? Are they going to sell their new diabetes drug too?

By the way, there have been plans to announce the consolidation of R&D in the Philly area to one of the two current sites. By cutting out oncology, does this make the consolidation easier? Seems there may be more "to go" in the Phiily area, yet to be announced (or simply not announced, but made "gone".)

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20. Anon on April 22, 2014 12:50 PM writes...

Shuffling risk between the top companies does nothing for the outcome. Those M&A guys must LOVE all this brokerage business they are getting.

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21. Bobby Shaftoe on April 22, 2014 1:15 PM writes...

@17, thanks for clarifying on the Colbert reference. I would have done that, but as Austin Powers lamented, "that train had sailed."

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22. dlib on April 22, 2014 1:18 PM writes...

Non-founding CEOs only have a few levers to pull to show the street they are doing stuff to justify their positions. 1) Stock buy back 2) M&A 3) restructure (layoff). That's it, they could be run by a computer algorithm. CEOs with vision ( typically the founder) can take risks and can move quickly (Jobs, Brin, Zuckerberg, Ellison....) all other simply don't want to screw up in the eyes of wall street on their watch. What's interesting is talking to employees of these companies like apple and google (I live in the bay area so i've done this alot), most of them love being in a company with vision and being part of something larger than themselves...when I talk to employees at Agilent they can get into a 20minute talk on the org chart and who reports to whom....Blech!!!

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23. Anonymous on April 22, 2014 1:21 PM writes...

And all of this deal-making creates value how? Improves R&D productivity how? Helps patients how? Good grief!

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24. watcher on April 22, 2014 3:02 PM writes...

I don't understand how this is good for GSK. Consolidation of products into fewer therapeutic areas means that when your blockbuster patents expire and there's no diversity to pick up some of the slack, your company implodes. It's something that's been seen several times in Pharma. But of course, Witty will no longer be around by then, so that won't be his problem to fix.

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25. Anonymous on April 22, 2014 3:17 PM writes...

"Focusing" is just an excuse for turning down opportunities in other areas when they do arise.

Anyway, let's see how this put-all-your-eggs-in-one-basket strategy works out...

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26. dearieme on April 22, 2014 4:23 PM writes...

"A clear win-win that will allow each company to focus on core competencies." It gets harder and harder to tell what is sarcasm and what isn't.

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27. Emjeff on April 22, 2014 7:24 PM writes...

So #10', is it a "clear win" for those employees who lead the projects that are being sold to Novartis? Because Novartis is deciding who they take along with the products, and if you don't get picked, you are fired( no severance). If you are asked to come to Novartis, and decide against it, you are fired ( again, no severance). So, who is this actually good for?

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28. PIN on April 22, 2014 7:38 PM writes...

This has recently happened with Bristol as well. A few months ago they divested their diabetes franchise to Astra.

It will be interesting so see how the big players respond.

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29. Avon on April 22, 2014 9:20 PM writes...

All of GSK R&D is now on notice.

The challenges of converting approvals to sales is true across the pharmaceutical organization.

Moving your money into consumer and vaccines are low margin businesses, heavily reliant on emerging markets for growth.

Again, GSK R&D is now on notice. The GSK Board has indicated that it does not have the patience or vision for pharmaceuticals.

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30. DTX on April 22, 2014 10:17 PM writes...

Sometime during his time as CEO of Merck (maybe 2007?), someone asked Dick Clark about Merck merging with another company.

He said that history has shown pharma mergers to be value destroying, not value creating and he was against them. Too bad more don't realize his cogent perspective.

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31. Alex S. on April 23, 2014 12:41 AM writes...

Novartis goes for the more risky high margin businesses, GSK goes for less risky, low margin, high volume business. And each thinks their strategy is the correct one. Interesting experiment about to start.

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32. Romul on April 23, 2014 12:49 AM writes...

@ 19. One possible explanation for GSK raising cash in this manner - all those incoming fines for corruption.

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33. Anonymous on April 23, 2014 4:34 AM writes...

what does it mean for Onco CEDD? Before they booted me 5 years ago, the legacy MMPD CEDD was the only one discovering drugs! And just like with my old dept. they seem to like killing the goose that lays the golden eggs. It really does seem like the G/SK merger has truly imploded now: merging to cover more ground in a bigger company, and now they probably cover less ground than their 2 legacy organisations.

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34. Nuclear Option on April 25, 2014 1:17 AM writes...

I am flat out surprised by this move. But we should have seen it coming when the most productive Epigenetics group in Pharma left GSK en bloc for JNJ a year ago. #DashDhanak #EZH2 #LSD1 #BRD4

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35. ex-GSK on April 25, 2014 11:20 AM writes...

Seems like a sign that GSK will eventually fold all of small molecule discovery. The oncology group has been scientifically and DD productive despite frequent moves from site-to-site over the years - the value placed on it by NV supports this assertion. Meanwhile, the current bread winners are based around 40 year old approaches to asthma etc.

I think the current GSK R&D leadership has no intellectual (cf. Sirtris purchase) comprehension of small molecule DD so this may ultimately be the 'right' business move. Selling vaccines and Ribena is their core strength.

Per DTX, mergers are value destroying if you value competent R&D over quarterly sales. I think we can see where GSK comes down on this choice.

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36. anon on April 27, 2014 8:36 AM writes...

GSK don't sell Ribena anymore, try to get at least one fact right ;)

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37. Anon on April 27, 2014 10:12 PM writes...

This deal was entirely predictable. Andrew has underperformed (not necessarily his fault), with earnings being flat during his tenure and the constant headlines of corruption, bribery, Avandia, CIA, etc, etc. Meanwhile, you have a head of R&D that has had a string of mega, multimillion failures (Sirtrus, MAGE-3, Darapladib) that is looking to jump back to vaccines after he turns the ship over to his replacement. The DPU model has been a disaster but PV has been too proud to admit his failure. So you put a deal with Novartis in play and distract the investors. There is a short-term pop in stock price but long-term you have created huge risk for the company in concentrating its bets in area of limited future growth. We'll see how this plays out. I hope it is the right bet!

And #10, you are smoking something only legal in Colorado if you truly believe what you have noted.

If indeed GSK is selling off the onc drugs believing that they will never be market leaders and are now recalibrating oncology with development of novel, first in class drugs AND using the development and commercial arms of Novartis as partners, then this could be an absolutely brilliant move.

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38. Nick K on April 27, 2014 11:41 PM writes...

#37; LeftField used to be called Agilist. He pops up every time GSK is mentioned on Pipeline to offer effusive praise for the senior management of that company. He's a standing joke on this blog.

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39. emjeff on April 28, 2014 9:02 AM writes...

#37 - where are the data which point to the DPUs being a failure? I think it's the only thing that has worked at GSK...

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40. Bobby Shaftoe on April 28, 2014 4:22 PM writes...

@39: where are the data which point to the DPUs being a success? From what I've seen, the jury's still out.

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41. AndD on April 29, 2014 2:11 PM writes...

Given the time from initating a research program to market, at least 10 years before it's possible to even get a rough idea if the DPUs are a success, I would suggest.

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42. GSKZombie on May 1, 2014 7:32 PM writes...

RE: "The GSK Board has indicated that it does not have the patience or vision for pharmaceuticals."

???HUH??? GSK is a pharmaceutical company. Nothing else. OTCs are mostly ex-Rx products. If someone on the board was not interested in pharmaceuticals - perhaps they shouldn't be on the board.


RE DPUs: Nothing novel about the GSK DPUs. There was/is no experiment re 'creating the DPUs' - just another re-org and just another name change.

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