Bigger is better

How Lilly, GSK deals allow Novartis to push aggressive growth post-Gleevec

Novartis AG is showing every sign of continuing to think big. Ridding itself of low-performing businesses while doubling down on cancer will help the pharma increase its operating income in the short term and plug some of the revenue loss when Gleevec imatinib goes off patent.

Continuing the pharma's growth trajectory since Joe Jimenez took over as CEO in January 2010 will hinge on whether its commitment to R&D can deliver.

Last week, Novartis said it would sell almost all of its vaccines business to GlaxoSmithKline plc and hive off its consumer health business into a JV that is majority-owned by GSK.

Novartis also acquired GSK's 11 marketed cancer drugs, along with GSK's afuresertib, a protein kinase B (Akt) inhibitor in Phase II for ovarian cancer.

Additionally, GSK said the Swiss company would be the "preferred partner" to commercialize current and future cancer programs in GSK's pipeline.

In a separate deal, Novartis sold its animal health business to Eli Lilly and Co. (see "Deal-tails," A5).

For 2013, Novartis recorded sales of $2 billion for its vaccines business, making it the fifth largest vaccines player by revenue. The animal health business had $1.1 billion in sales, putting it in seventh place worldwide. The consumer health/OTC business was the world's eighth largest, at $2.9 billion.

But vaccines, animal health and consumer health contributed just 3%, 2% and 5% of total sales of $58 billion.

These divisions also provided the lowest returns for the company, with 2013 core operating income of $300 million for vaccines and a core operating loss of $300 million for OTC. The animal health business broke even with an operating profit of zero.

Since day one as CEO, Jimenez has been telling investors he wants to be in businesses with global scale.

On a Jan. 26, 2010, conference call, he said: "I believe that if you look at the portfolio now, it's broadly right, especially with the Alcon acquisition, which will create a new growth platform for us in eye care. What we need to do, though, is we need to go deeper with some of the businesses to gain global scale, and vaccines and diagnostics is one of those areas."

"I do believe we have a very good consumer health business," Jimenez added. "But if you look at it today, particularly the OTC business is subscale, meaning from a global standpoint we

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