FTC Approves Novartis’ Deal to Buy GSK, But With Conditions

FTC vs NovartisNovartis AG has won the FTC’s approval to buy GlaxoSmithKline’s (“GSK”) oncology drugs, but with certain conditions. In order to win the FTC’s approval for the $16 billion deal, Novartis had to agree to divest all assets related to its BRAF and MEK inhibitor drugs, now in development to fight melanoma, to Boulder, Colorado-based Array BioPharma to settle charges that Novartis’s $16 billion acquisition of GSK’s portfolio of cancer-treatment drugs would likely be anticompetitive. The FTC demanded the divesture from Novartis to curb anti-competitive concerns, which would have risen as a result of the deal between the two giants, involved in marketing or developing these inhibitors.

The FTC’s approval means that the three-tier deal between Novartis and GSK announced in April 2014, can finally go through. Under the deal, GSK will acquire the vaccine business unit from Novartis, except for its flu vaccines, and in exchange it will hand over its oncology products business to Novartis. Furthermore, the two companies have also agreed to merge their consumer healthcare businesses; this merger is expected to emerge as a global leader in that market. The consumer healthcare merger deal and GSK’s acquisition of the Vaccine unit had already received approval. The FTC’s latest approval comes as the final nod for the three-tier deal. The European Union approved all the three deals in January 2014, and the Canadian competition agency has recently approved them as well.

All the approvals were contingent upon divestiture of certain assets by both, Novartis and GSK. Novartis was earlier required to divest its Harbitol business and private nicotine patch brand, as only GSK and Novartis manufacturer this product and the joint venture would have given them the power to charge higher prices. The merged consumer healthcare business is expected to generate revenue of approximately $11 billion.

GSK also had to divest certain products from its vaccine portfolio. As required, GSK agreed to sell its worldwide business of meningitis vaccines, Mencevax and Nimenrix, and two of Novartis’ bivalent vaccines businesses in Italy and Germany.

Finally, the regulatory approval for the third and last part of deal, under which Novartis was to acquire GSK’s oncology business, was contingent upon Novartis’s divesting certain specified oncology products. Now that the deal is almost done, the companies hope the merger makes both companies leaner and provides value to the companies’ stockholders. This deal likely allows both companies to do what they do best and enables GSK to become one of the largest players in the consumer healthcare business. The new business is expected to have category leading positions and brands in wellness, oral health, nutrition, and skin health. The acquisition of the cancer drugs division is expected to drive the top-line growth of Novartis as well. As a result, it appears the merger is a winning combination for Novartis and GSK.