Here's a plan that would
kill two birds with one stone: Novartis ($NVS) and Merck ($MRK) are negotiating a swap, Bloomberg
reports. Novartis would trade its animal health and vaccines units for Merck's consumer health business.
And voilá, both companies
solve the thorny problem of what to do with several underperforming business
units. Merck CEO Kenneth Frazier has said his consumer health business needs to
grow or go. Novartis CEO Joe Jimenez has said as much about animal health, vaccines
and consumer health. If those units couldn't vault to a leading place in their
respective fields, then they'd be better off elsewhere.
So, with this potential
deal, Frazier would get a boost for Merck's animal health company, which the
company says is already second-largest in the field. Merck's vaccines business,
already strong, could add products such as Novartis' brand-new meningitis B vaccine Bexsero to the mix.
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Meanwhile, Jimenez could
offload two units at the top of his list for an overhaul. Since Novartis
announced a strategic review last year, analysts have been expecting--and the
company has been hinting--that animal health and vaccines were first in line
for dealmaking.
Plus, Novartis' consumer
health business would add a short list of well-known and broadly used products,
such as Claritin allergy medicines, Chlor-Trimeton cold
remedies and Lotromin anti-fungals. The Swiss drugmaker is still working to
restore supplies of its own over-the-counter products after a major
manufacturing snafu forced a series of recalls. A bigger portfolio could help
the Novartis unit surge out of that slowdown.
Whether the deal would
involve swapping full business units or setting up joint ventures isn't clear.
Jimenez said late last year that, in addition to sales and spinoffs, Novartis
was considering partnerships and joint ventures to "fix" its problem
units. And as Bloomberg notes, nothing is final yet.
But the basic idea falls
right in line with Big Pharma's current streamlining trend. Pfizer ($PFE) spun off its animal health unit, Zoetis ($ZTS), and sold its nutritionals business; Abbott
Laboratories ($ABT) spun off its pharma unit, AbbVie ($ABBV). GlaxoSmithKline ($GSK) has been selling product portfolios, be they
consumer drugs, cardiovascular meds or drinks. More could be on its way, with
Pfizer and GSK both setting up separate financial reporting for various pieces
of their companies.
Merck and Novartis have
plenty of work to do while the dealmaking proceeds. Merck suspended sales of
its Zilmax growth stimulant after key beef processors,
including Tyson Foods, stopped accepting cattle fed with it. Novartis has its
OTC plant problems to work through.