Let's take a look at today's top stories in biotech and health care. Keep an eye out for Eli Lilly (NYSE: LLY ) , GlaxoSmithKline plc (NYSE: GSK ) , Novartis AG (NYSE: NVS ) and Gilead Sciences (NASDAQ: GILD ) .
Novartis brokers multibillion dollar deals with Eli Lilly and GlaxoSmithKline
Fresh off the rumor that Pfizer was looking to buyout fellow pharma behemoth AstraZeneca, Novartis pushed through two major deals yesterday with Eli Lilly and GlaxoSmithKline. In its deal with GlaxoSmithKline, Novartis purchased the company's high margin oncology unit for $14.5 billion, plus $1.8 billion in potential milestone payments, and subsequently sold its vaccine business to GlaxoSmithKline for $7.1 billion, plus royalties. However, Novartis retained its lucrative flu vaccine portfolio, which it plans to sell in another deal.
The two companies also agreed to join forces to launch a new health care business that will combine Novartis' OTC drug business with GlaxoSmithKline's consumer health care business. Novartis will own 36.5% of this joint venture. Per the release, Novartis believes this new business could generate upwards of $10 billion a year in revenue.
In a separate deal, Novartis divested its animal health division to Eli Lilly for $5.4 billion. Eli Lilly will fund the deal using a combination of cash and loans. Eli Lilly doesn't plan on modifying its dividend after closing this deal, which is always a concern when a company uses a large portion of its cash to acquire another business.
What you need to understand is that this megadeal is all part of a broader scale restructuring process that is occurring within the health care sector, and driven, in part, by the patent cliff. Companies have been divesting certain ancillary units and focusing on their core areas of expertise for a few years now. Put simply, major deals like this one are executed primarily to create cost savings, which is particularly important in a time of falling revenue. So, you shouldn't be surprised if more billion dollar deals come down the pike in the health care sector.
Eli Lilly receives approval for its gastric cancer drug
Another reason to keep a close watch on Eli Lilly today is that the U.S. Food and Drug Administration approved the company's stomach cancer drug, ramucirumab, yesterday. Ramucirumab blocks the blood supply to tumors, causing them to shrink. Because the drug will be a front-line therapy for a particularly hard to treat form of cancer, experts believe it will ultimately reach blockbuster status within five to six years.
Gilead will report earnings after the bell
What was supposed to be the top story in health care today was Gilead's first quarter earnings, but it was overshadowed by Novartis' wheeling and dealing. That said, we shouldn't forget that Gilead will report earnings after the bell today and all eyes will be on sales of the company's hepatitis C drug, Sovaldi. What's interesting is that first quarter sales estimates for the drug are all over the map, from $800 million up to nearly $2 billion. And this high degree of uncertainty is certainly reflected in analysts' shifting consensus for Gilead, which has risen from $0.66 per share up to $0.89 a share in the last 90 days.
Gilead also announced yesterday that it has refiled two New Drug Applications for its boosting agent cobicistat for HIV patients taking the protease inhibitors atazanavir and darunavir, as well as elvitegravir for the treatment of HIV-1 infection in treatment-experienced adults. Cobicistat is a potent liver enzyme inhibitor that slows that breakdown of antiviral medications, allowing them to be dosed less often. Elvitegravir is an integrase inhibitor that reduces viral load. Both drugs are approved as components of Gilead's Stribild. The FDA notified Gilead that cobicistat's PDUFA target action date is set for October 3, and elvitegravir's will be the following day.
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