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October 27, 2014

Novartis Selling Flu Vaccine Business to CSL for $275M

  • Novartis is selling its influenza vaccine business, including its development pipeline, to CSL for $275 million, in a deal announced yesterday that is subject to regulatory approvals and set to close next year.

    CSL will combine its existing subsidiary bioCSL with the Novartis flu vaccine unit, which according to the pharma giant has delivered almost 1 billion doses of seasonal and pandemic influenza vaccines globally over the last 30 years.

    CSL says the combination will create the world’s second largest company in the $4 billion global influenza vaccine market, with manufacturing plants in the U.S., U.K., Germany and Australia, a diversified product portfolio and strong pre-pandemic and pandemic franchises.

    “The combined business will have a strong growth profile and is expected to achieve sales approaching US$1 billion per annum over the next 3 to 5 years,” CSL forecasted in a statement. That is about double the $527 million in sales generated by Novartis’ flu vaccine business for all of 2013.

    “The Novartis influenza vaccine business provides bioCSL with a global leadership position in an attractive sector we understand intimately. It will transform bioCSL by giving it first class facilities and global scale as well as product and geographic diversity,” added Paul Perreault, CSL’s managing director and CEO.

    CSL expects to generate $75 million per year in cost-cutting or “synergies” by the fiscal year ending June 30, 2020. Integration costs are estimated at $100 million, accruing predominantly in FY 2016.

    Among Novartis’ selling points for its influenza business are its distinction as the first and only manufacturer with two production technologies—egg-based vaccines for seasonal, pandemic and pre-pandemic; and cell-culture-based vaccines for antibiotic-free production with the potential for rapid scale-up to protect against pandemic threats.

    Novartis highlighted the latter technology last month when it officially dedicated the first facility of its kind in the U.S., a $1 billion vaccine plant in Holly Springs, NC, which will produce pandemic and seasonal influenza vaccines. These include Flucelvax, the first cell-culture-derived influenza vaccine approved in the US to help protect adults 18 years of age and older against seasonal influenza.

    Development of both Flucelvax and the Holly Springs plant were joint efforts of the company and the Biomedical Advanced Research and Development Authority (BARDA), part of the U.S. Department of Health and Human Services (HHS). HHS spent $487 million toward building and certifying the plant, which is designed to make 150 million doses of monovalent vaccine within six months of the start of a pandemic.

    Novartis flu offerings also include Novartis also offers Fluvirin, an egg-based seasonal influenza vaccine approved for patients four years old and older; and Fluad, an adjuvanted seasonal influenza vaccine approved for more than a decade in Europe to enhance immune response in older adults.

    For the 2014–15 season, Novartis has said it plans to ship about 60 million doses of its seasonal influenza vaccines—of which half or 30 million will go to U.S. customers. The company said the flu vaccine business also benefits from access to its adjuvant platform and leadership in pandemic preparedness.

    Through a (pre)pandemic preparedness contract with HHS, Novartis also funded efforts to develop a vaccine using synthetic genomics for H7N9, a strain of avian flu that emerged in China early last year. The U.S. government ordered a stockpile of the vaccine for $60 million.

    Novartis said it would continue to run the flu vaccine business during the transition period to closing, until the CSL deal is completed—including honoring agreements with customers, R&D for flu vaccines and product launches. Novartis will report flu vaccine results as “discontinuing operations,” and combine those results with its non-influenza business, which the company is set to sell to GlaxoSmithKline (GSK).

    "In CSL, we have found not only an owner for the influenza business that shares our commitment to protecting public health, but also a strong growth platform for the business and our associates," Novartis. CEO Joseph Jimenez said in a separate company statement.

    The flu vaccine deal is separate from Novartis’ sell-offs of other operations.

    On April 22, the Swiss pharma giant said it had hammered out the GSK non-flu vaccine deal and three other deals, all totaling $28.5 billion, in which it bought the cancer business of GlaxoSmithKline (GSK), sold off most vaccine operations except flu vaccines to GSK, formed a consumer health joint venture with GSK, and sold its animal health division to Eli Lilly. More than half of the value of the deals reflected a single transaction—Novartis’ up-to-$16 billion acquisition of GSK oncology products.

    The four deals are intended to leave Novartis with its stronger operations in pharmaceuticals, generic drugs, and eye care.

    Short-term, the flu vaccine deal will also trigger an exceptional impairment charge of about $1.1 billion (pre-tax), as the “book” value of the influenza vaccines assets are above the selling price. This charge is a non-cash accounting impact and will be excluded from the Group's core results.

    Upon closing the deal with GSK for the non-influenza vaccines business, Novartis said it expected to record a “substantial” one-time, non-cash operating income gain, more than compensating for the impairment charge associated with the CSL flu vaccine deal. Novartis also expects to record “significant” additional one-time, non-cash operating income gains upon closing of the other deals involving GSK and Lilly—but will exclude those gains from core earnings results.

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