The new bosses of two of Europe’s largest drugmakers are pivoting in different directions, with GlaxoSmithKline Plc doubling down on consumer health as Novartis AG narrows its focus on prescription medicines.

Glaxo Chief Executive Officer Emma Walmsley’s US$13 billion deal for Novartis’s stake in a joint venture that includes Panadol pain relievers and Theraflu cold medicine comes only days after the U.K. company abandoned its pursuit of Pfizer Inc.’s consumer unit. The agreement gives Novartis’s Vas Narasimhan more firepower for the Swiss giant’s drug business and acquisitions.

Glaxo rose as much as 7.5 per cent in London, the most in intraday trading since November 2008, while Novartis was up 2.2 per cent in Zurich.

Narasimhan, who rose to the top spot last month, has said the over-the-counter business is no longer central to the strategy as he targets breakthroughs for cancer and other diseases. Walmsley, who took over last year, has emphasized the benefit of combining the more steadily performing consumer and vaccine businesses under the same roof as the more volatile pharmaceutical operations.

Glaxo’s three-pronged strategy means being “leaders in each of those businesses,” said Tara Raveendran, an analyst at Shore Capital in London. “In consumer in particular you need scale, and there aren’t that many assets out there that would have given them momentum to achieve that.”

The consumer health sector’s pricing has come under pressure as drugstores and other retailers vie for shoppers. Glaxo’s investors balked last year when Walmsley mentioned interest in the Pfizer unit, fearing that it might endanger the British drugmaker’s dividend.

Removing Uncertainty

Glaxo’s CEO expects the transaction to boost earnings and cash flow, giving the company flexibility to invest in the pharmaceutical business, which she has called her top priority. While the company is expanding in consumer health, it expects its pipeline of new drugs to serve as the main driver of growth, Walmsley told reporters on a call.

Novartis had the right, starting this month, to trigger a Glaxo purchase of its stake in the venture. The agreement removes uncertainty surrounding that option, the U.K. company said.

Glaxo said it expects operating margins in the consumer business to approach a “mid-20” per cent level by 2022, up from almost 18 per cent last year.

“It allows our shareholders to capture full value” of the consumer business, Walmsley said. “That is a business we know very well, and we are confident in its prospects.”

The sale of the 36.5 per cent stake in the venture, which was formed in 2015, will strengthen Novartis’s ability to drive shareholder returns and make acquisitions, Narasimhan said Tuesday in a statement. The deal should close in the second quarter, Basel, Switzerland-based Novartis said.

“While our consumer health-care joint venture with GSK is progressing well, the time is right for Novartis to divest a noncore asset at an attractive price,” Narasimhan said.

Narasimhan is focusing on its pharma business and R&D. Novartis reiterated in January that a decision on whether to spin off the Alcon eye-care division probably won’t come before the first half of 2019.

The deal with Glaxo may have been prompted by an “imminent bolt-on deal,” analysts at Jefferies said in a note. Another question is what Novartis may do with its stake in crosstown rival Roche Holding AG.

Glaxo is starting a review of its Horlicks unit and other consumer-health nutrition products to help fund the transaction and increase focus on the over-the-counter and oral-health categories. The company expects to conclude that process around the end of 2018.

Indian Subsidiary

Glaxo said it will examine selling the stake it holds in its publicly traded Indian consumer health subsidiary, worth about US$3.1 billion, as it looks for ways to finance the Novartis buyout.

Glaxo pulled out of the contest for Pfizer’s consumer-health unit last week in a development that leaves the U.S. drugmaker with dwindling options to dispose of the business, which is valued at as much as US$20 billion.

One factor in Glaxo’s decision not to pay the price Pfizer wanted was a potential transaction to buy out the Novartis holding, analysts at Bloomberg Intelligence wrote last week. Glaxo had said that acquiring the stake would bolster the consumer-health division if Novartis exercised its option to sell.