Future of Novartis in Holly Springs in question

dbracken@newsobserver.comApril 23, 2014 

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The Novartis plant in Holly Springs.

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  • About the players

    GlaxoSmithKline: The London-based drugmaker has the largest presence in the Triangle, with nearly 5,000 employees and contractors. The company is refocusing its business around vaccines, consumer products and the development of respiratory and HIV drugs.

    Novartis: The Basel, Switzerland-based company is refocusing its business around three areas: innovative drugs, eye care and generics. In 2011, the company acquired the eye care company Alcon, which accounted for 18 percent of its revenues last year.

    Eli Lilly: The Indianapolis-based company’s animal health business, Elanco, will become the second-largest by sales after its acquisition of Novartis’ animal health unit. The unit has 600 products and more than 3,000 employees, including about 250 in Greensboro.

The future of drugmaker Novartis in Holly Springs is in question following an announcement of company plans to reshuffle its assets.

The Swiss company has begun soliciting bids for its influenza business, which includes the $1 billion vaccine plant in Holly Springs that employs more than 500 people.

Novartis is also selling its Animal Health Division, which has its U.S. headquarters in Greensboro, to Eli Lilly.

Novartis and GlaxoSmithKline, which also has major operations in the Triangle, announced Tuesday a three-part deal that involves swapping business units and the creation of a new joint venture focused on over-the-counter medicines.

The transactions are the latest indication of how the pharmaceutical industry is being radically restructured. After watching many of their best-selling drugs lose patent protection in recent years, large pharmaceutical companies are seeking to stabilize their revenues by selling underperforming assets and focusing on their most promising businesses.

For Novartis that means cancer drugs. Novartis is acquiring GSK’s oncology business for $14.5 billion, plus up to $1.5 billion more if certain milestones are met.

Meanwhile, GSK is narrowing its focus to vaccines, consumer products and select pharmaceuticals in areas such as respiratory and HIV. The company is acquiring most of Novartis’ vaccine business for $7.1 billion, plus royalties.

GSK will also own 63.5 percent of the new consumer health care business that it is creating with Novartis. The business will bring together 19 brands of oral, skin, nutrition and wellness products, including Excedrin, TheraFlu and Sensodyne toothpaste, that have about $10 billion in annual sales.

GSK sold a portfolio of poor-performing over-the-counter medicines in 2012. The 17 brands were sold for $660 million.

“What this transaction does for GSK is it takes what is already one of the leading positions in consumer health care and truly would elevate us to a global leadership position,” GSK CEO Andrew Witty told analysts.

Investors appeared to like the three deals. GSK shares rose 4 percent, or $2.18, to close Tuesday at $55.30. Novartis shares edged up 1 percent, or $1.10, to $86.56.

The Novartis-GSK deals are expected to be completed by the first half of next year.

Novartis is selling its animal health unit to Eli Lilly for $4.5 billion. The unit employs about 250 people in Greensboro. Not affected by the deals announced Tuesday is the Novartis facility in Wilson, which is part of its Sandoz unit that makes generic drugs. The unit also has a subsidiary in Morrisville.

Speculation about whether Novartis would sell its vaccine production business has been rampant for more than a year. Large investors have been pressuring the company to sell the division, which has reported operating losses for four consecutive years.

Taken together, the deals will reduce Novartis’ sales by about $4 billion, from $60 billion down to $56 billion, CEO Joseph Jimenez said, but the company’s “absolute profit goes up and that’s partly because we’re acquiring the oncology products and we are divesting products that have lower profit.”

The transactions affect some 15,000 of the company’s 135,000 employees globally, he said, and “they will move with the divestitures or into that joint venture.”

Jimenez, however, said Novartis won’t lay off anyone. All Novartis employees whose units are being sold off “will be fully transferred to the new owners,” he said.

As for the sale of its flu business, including the Holly Springs plant, that process has just begun.

“Novartis has initiated a process to invite bids to sell the influenza business separately to maximize total value,” said Eric Althoff, a company spokesman.

‘Not a disaster’

Dick Sears, longtime mayor of Holly Springs, said he learned of the pending sale early Monday morning.

“I would say that would be a keen disappointment, but it’s not a disaster,” Sears said of Novartis’ potential departure. “I think the worst-case scenario is somebody buys it and the Novartis name goes off it.”

To lure Novartis to town, Holly Springs borrowed $8.3 million to buy the company 167 acres and spent $12 million on road improvements and other infrastructure upgrades.

Novartis built the plant after signing a contract with the U.S. Department of Health and Human Services to develop and manufacture vaccines for a chemical and biological threat response program. The government contributed $487 million to the cost of the plant, and its contract with Novartis could run up to 25 years.

“I can’t conceive that somebody would spend that kind of money and then say, ‘Well, let’s just clean out the plant and get all new people,’ ” Sears said. “So I think our people will be OK.”

The Associated Press contributed to this report.

Bracken: 919-829-4548; Twitter: @brackendavid

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