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CMOs could potentially benefit from multi-pronged asset deal involving Novartis and GlaxoSmithKline

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by Sakthi Prasad
24 April 2015

Swiss drug maker Novartis went in for a multi-billion dollar revamp, swapping assets with Britain's GlaxoSmithKline. The company also sold off its animal health business to Eli Lilly.

As part of the deal, Novartis would 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.

By initiating all these moves Novartis aims to increase its focus on high-margin cancer medicines and transform into a prescription-based firm, Beroe's B. Hariharan said.

The move also stems from the general trend where major drug firms were seen simplifying their business models by focusing only on human prescription medicines, Hariharan said.

He also expects Novartis to sell its diagnostics division and its stake in LTS Lohmann.

Eli Lilly picked up the animal health unit from Novartis as the company is looking to expand its footprint in the sector. Also, the animal health products of Novartis complement that of Eli Lilly and could be a potential revenue booster, he said.

The deal envisages Novartis transferring all its vaccine producing sites to GlaxoSmithKline. From procurement perspective, GSK may look to consolidate its manufacturing facilities of vaccines. Eli Lilly may also do the same by consolidating all its animal health manufacturing units.

Hariharan said there could be two scenarios once GSK effectively sells off its oncology division to Novartis. GSK currently manufactures its oncology products in house. And after the sale, GSK may continue manufacturing the drug, while Novartis could take care of marketing.

Another scenario would be Novartis assuming the responsibility of manufacturing all oncology products. If that materializes, Novartis may either end up manufacturing the drug in house, or perhaps would outsource it to Contract Manufacturing Organizations (CMOs), as per Hariharan's estimation.

Whatever the case maybe, Hariharan concludes this multi-pronged deal could potentially translate into some form of business opportunity for third party CMOs. However, the players will have to wait and watch as to how the companies' manufacturing strategy pans out.

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