Build the Pipeline

In addition to the near-term R&D advantages Novartis receives from GSK, along with opt-in rights to the current and future GSK oncology R&D pipeline, the deal also sets the stage for long-term advantages for Novartis in accelerating the development of new cancer drugs.1 A bigger in-house R&D arsenal “could potentially make it easier for Novartis to create more advanced therapies. It could also mean that Novartis has to do less legwork to create combination therapies or new entities thanks to the large cache of R&D resources it gets from GSK,” Elder told ChemotherapyAdvisor.com.

A Novartis spokesperson told ChemotherapyAdvisor.com that “GSK Oncology strengthens our early- and late-stage pipeline, including a wider range of targeted agents well-suited for combinations. Its deep and broad pipeline of over 30 new molecular entities in development, targeting key molecular pathways in cancer biology, will position Novartis Oncology as a preferred partner for combination agents. It enables us to create a leading oncology pipeline, with a significant amount of planned filings through 2018.”

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Consolidation is a key issue right now as a rise in M&A activity in pharmaceutical companies has been taking place. This includes Pfizer’s’ acquisition of Wyeth in 2009 and its retracted bid for AstraZeneca this month, and Merck’s purchase of Schering-Plough in 2009. More consolidation—known as rationalization to economists—is expected as big company resources trump small company agility in the quest for cancer cures, according to Alastair Flanagan, a senior health care partner at the financial analyst firm Boston Consulting Group, New York, NY.

RELATED: Oncology Drug Shortages Pose ‘Significant Ethical Challenges’

“Oncology is one of the places where there is clearly huge unmet medical need but also a large number of companies active in the field. I would absolutely expect there to be more rationalization,” Flanagan wrote.2

Consolidation between the makers of cancer drugs will result in more consistent pricing and discounting from a single supplier, which will in turn help keep the costs of the drugs low enough for insurers to bear. Here, the oncology drug industry is also beginning to see the value of scale—large companies over smaller start-ups—when it comes to drug pricing, said Seamus Fernandez, an analyst at the brokerage firm Leerink, based in Boston, MA.

“I think scale is starting to be viewed as a critical point in oncology because you need the combinations of drugs from a pricing perspective,” Fernandez wrote.2

Bigger Is Better

Upon completion of the deal in early 2015, GSK will supply their currently marketed oncology products to Novartis for an initial supply term of 5 years, according to Novartis. This will allow sufficient time to transition product and sales teams and prevent any sudden shock to the drug distribution channel.

Bruce Feinberg, DO, chief medical officer at Cardinal Health Specialty Solutions, in Dublin, OH, told ChemotherapyAdvisor.com that he is not concerned with the supply of—or problems in—delivering current cancer medications. “I haven’t historically seen acquisitions create concern for practices before, and I don’t believe this case is likely to be different,” said Dr. Feinberg. 

Both Novartis and GSK are looking “to try to focus their respective strengths in areas the companies feel will bring them better margins in a demanding pharmaceutical environment,” Elder told ChemotherapyAdvisor.com. “These are two of the largest multinational companies that generally only see limited supply disruptions for cancer products.” 

“The economy of scale required to keep up with advances in DNA research and move those discoveries into R&D has enormous requirements. So while it is common to think smaller is better, we should not be afraid of size in the world of big pharma,” said Dr. Kapnick.

References

  1. Novartis AG. Novartis announces portfolio transformation, focusing company on leading businesses with innovation power and global scale: pharmaceuticals, eye care and generics [press release]. April 22, 2014. http://www.novartis.com/newsroom/media-releases/en/2014/1778515.shtml. Accessed May 27, 2014.
  2. Falconi M, Plumridge H. Novartis overhauls portfolio with deals worth $25 billion—3rd update. Wall Street Journal Online. April 22, 2014. http://online.wsj.com/article/BT-CO-20140422-704792.html. Accessed May 27, 2014.
  3. Elder M. Top 25 pharmaceutical company pipeline analysis and sales projections to 2023. Kalorama Information. May 2014. http://www.kaloramainformation.com/Pharmaceutical-Company-Pipeline-8102423/. Accessed May 27, 2014.
  4. Staley O. Novartis to buy Glaxo cancer drugs, sell animal health. Bloomberg News. April 22, 2014. http://www.bloomberg.com/news/print/2014-04-22/novartis-to-buy-glaxo-cancer-drugs-sell-animal-health.html. Accessed May 27, 2014.
  5. Henske P, van Biesen T. Mega mergers can’t cure the pharmaceutical industry. Bloomberg Businessweek Technology. July 26, 2014. http://www.businessweek.com/technology/content/jul2009/tc20090724_243995.htm. Accessed May 27, 2014.

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General Oncology