Oncology has big reason to celebrate the unprecedented $20 billion “super-swap” between Novartis and GlaxoSmithKline (GSK), which was announced by the two pharmaceutical giants last month.1
The term “super-swap” refers to the fact that the Novartis/GSK deal is not, in reality, a merger or acquisition. It is what Novartis called a “portfolio transformation”—a common sense trade of business units between two companies acutely aware of their strengths and weaknesses. A major part of the deal delivers the entire GSK oncology unit—a business that brings GSK an estimated $54 billion in annual revenue from cancer drugs—to Novartis.2
This means Novartis, the second most profitable pharmaceutical company in the world behind Pfizer, will add GSK’s development pipeline of oncology drugs to the nearly 18 oncology drugs in Novartis’ current oncology pipeline,3 with the option to rights for future cancer treatments in development at GSK.4 This is a huge leap ahead for Novartis in terms of new drug delivery, and also gives the company a chance to accelerate drug development with one less competitor to have to worry about. In addition, it strengthens Novartis in terms of cancer drugs used in combination treatments because cancer drugs from a single manufacturer can more efficiently be used in combination, a Novartis spokesperson told ChemotherapyAdvisor.com.
What Is the Benefit to the Oncology World?
The Novartis/GSK deal means that the delivery of new and better oncology drugs may be expedited. It is a minimally disruptive agreement in a world where, typically, big money mergers and acquisitions (M&A) between leading competitors typically trigger warnings of disrupted sales channels and a slowed research and development (R&D).5
The deal with GSK now means that Novartis has the sizeable resources needed to drive oncology drug R&D, thus keeping pace with accelerating cancer genetics research while avoiding traditional M&A log jams, said Jason Kapnick, MD, assistant consulting professor at Duke University and a practicing oncologist in Florida.
|Top 7 Pharmaceutical Companies by Revenue3|
|4. Merck & Co|
|7. Johnson & Johnson|
“This deal is unique. You can’t look at it and expect or fear the known results of corporate mergers in other industries,” said Dr. Kapnick. “There won’t be an antitrust issue; it won’t limit the consumer or the provider. So, in fact, this is the opposite of antitrust, particularly in personalized medicine. Competition does not drive big pharma to innovation anymore. That model is obsolete. Big is better.”
Big has better marketing too. Novartis, whose best-selling medicine is the cancer drug Gleevec, will add GSK’s recently approved Tafinlar, a B-RAF inhibitor, and Mekinist, a MEK inhibitor, according to Novartis. These newly approved drugs will likely make their way to patients with cancer sooner given the marketing influence and leadership position of Novartis versus GSK. The end result? Novartis becomes the leader in treating melanoma, said Melissa Elder, an analyst for Kalorama Information, a market analyst group based in New York.
All this begs the inevitable question: In the dispassionate world of big business, why would GSK relinquish such a mature and profitable position in the oncology drug market?
During a conference call on April 22, 2014, GSK CEO Andrew Witty explained, “We’re about number 14 in the world oncology market. Novartis is number two. So I believe that Novartis will do better with these (cancer) medicines. I think more patients who need them have the chance to get them with a stronger company.”
The Novartis/GSK deal gives future M&A deals a more benevolent model to work from compared with traditional M&A deals, said Elder. For example, where traditional M&A deals introduce added risk from the adoption of newly acquired product lines, the new oncology R&D projects Novartis brings into its pipeline from GSK actually reduce risk to Novartis because the bigger the pipeline, the more breadth Novartis has to “balance stages of drug development and high- and low-risk projects, including innovative drugs and follow-on products.”3