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* Novartis to buy GSK's oncology assets for up to $16 bln
* Combines consumer unit with GSK's in joint venture
* To sell GSK its vaccines business for up to $7.1 bln
* Lilly to buy Novartis' animal health arm for $5.4 bln
* Deals, plus talk of Pfizer-Astra deal, lift sector shares (Adds details on Lilly animal health unit, updates sharemovement)
By Caroline Copley and Paul Sandle
ZURICH/LONDON, April 22 (Reuters) - Novartis andGlaxoSmithKline agreed to trade more than $20 billionworth of assets on Tuesday to bolster their best businesses andexit weaker ones as the drug industry contends with healthcarespending cuts and generic competition.
The deals, which include Novartis' purchase of GSK's cancerdrugs and GSK's acquisition of Novartis' vaccines business, camejust after a newspaper report that AstraZeneca Plc hadturned down a $101 billion bid approach from Pfizer Inc,a story that sent shares up across the sector.
In addition, Novartis is selling its animal health arm toIndianapolis-based Eli Lilly for about $5.4 billion incash. That would make Lilly's Elanco unit the world'ssecond-largest animal health business when that deal closesearly next year.
A flurry of dealmaking has overtaken the globalpharmaceutical industry recently as most large companies try tofocus on a small number of leading businesses, while smallerspecialty and generic producers seek greater scale.
Deal values have almost doubled since the start of 2014 to$77.9 billion from a year earlier, according to Thomson Reutersdata.
The overhaul at Novartis marks the end of a yearlong reviewof its sprawling portfolio after the departure of longtimeChairman and Chief Executive Officer Daniel Vasella, thearchitect of the merger of Ciba-Geigy and Sandoz that led to thecompany's formation in 1996.
The Swiss drugmaker said it would buy London-based GSK'soncology products for $14.5 billion plus another $1.5 billionthat depends on the results of a trial in melanoma.
The deal will strengthen Novartis's world No. 2 position incancer behind crosstown rival Roche Holding AG.
Novartis said GSK was buying its vaccines, excluding flu,for $5.25 billion plus potential milestone payments of up to$1.8 billion and ongoing royalties. The companies also will forma joint venture in consumer healthcare.
The transactions, and their hint of more deals ahead for thedrug sector, lifted the ARCA Pharmaceutials Index 1.8percent.
Lilly's Elanco animal health unit will acquire about 600animal health brands from Novartis, including vaccines andanti-parasite medicines that will allow it to enter theacquaculture, or fish farming, market.
This would be the eighth and largest acquisition since 2007for Elanco, which by global sales would trail only Zoetis Inc, which also specializes in products for farm animals andpets.
"With this transaction, we'll go from being No. 5 to No. 3 onthe pet side globally and become a top 2 or 3 player in everysegment" of products for farm animals, Jeff Simmons, Lilly'shead of animal health, said in an interview.
Last year Elanco had sales of $2.15 billion, compared with$1.1 billion for Novartis Animal Health.
"Novartis has agreed (to) an elegant set of transactionsthat either removes or strengthens its underperforming assets,while boosting its oncology portfolio," Jefferies analysts said.
In afternoon New York Stock Exchange trading, Novartisshares were up 1.4 percent at $86.63, while GSK rose 4.2 percentto $55.34. Lilly dipped 0.9 percent to $60.32.
FIGHTING FIT
Novartis CEO Joe Jimenez said the revamp would help make thecompany "fighting fit" to meet the challenges of the globalhealthcare industry over the next 10 years.
He told reporters the deals would lower overall sales byabout $4 billion but result in higher profits as the companyswaps lower-margin vaccines for higher-margin oncology drugs.
Cancer is a particular focus for some drugmakers as novelmedicines show promise by boosting the body's immune system.
"We reckon the real value of the (cancer) deal should besearched for in the pipeline and the newly launched products,strengthening Novartis' position in melanoma and hematology,"Vontobel analyst Andrew Weiss said.
Analysts at Swiss broker Notenstein were also upbeat, sayingthe new cancer drugs would help Novartis to navigate patentexpiries on top-selling medicines more easily.
However, analysts at Barclays described the price tag of asmuch as $16 billion for the oncology assets as "rather hefty."
Drugmakers are stocking up their oncology pipelines as theybet that combinations of drugs will become the future of cancercare. A desire to boost its oncology business is seen as a keyfactor behind Pfizer's reported interest in AstraZeneca.
Cancer is an extremely competitive marketplace, however, andsome analysts said it was right for GSK to exit a field where itwas only No. 14 in the world.
GSK boss Andrew Witty said the company did not have thescale to compete in cancer drugs, so it made sense to put theminto "the hands of somebody who is a world leader in oncology."
Conversely, he said the deals with Novartis strengthened twoof GSK's core businesses: vaccines, given in more than 2 millionshots every day, and consumer health, where the company willtake the lead in running a business worth about $10 billion inannual revenue with the Swiss group.
The deals were another step in his strategy of focusing onareas of strength, he said, moving further away from themonolithic model of drugs companies that tried to do everything.
After the deal, GSK will get 70 percent of sales from itsfranchises in respiratory, HIV, vaccines and consumer health.
Novartis said it would start a separate sale process for itsflu business immediately, which was not part of the GSK deal.
Lilly said it would fund its animal health transaction with$3.4 billion of cash and $2 billion of loans, and it expectedcost savings of about $200 million per year within three yearsof closing the deal.
Bank of America Merrill Lynch advised Lilly, whileGoldman Sachs Group Inc advised Novartis on the animalhealth deal. GSK said Lazard and Zaoui & Co were itsjoint financial advisers.
($1 = 0.5951 British Pounds) (Additional reporting by Alice Baghdjian, Ben Hirschler, AnjuliDavies, Ransdell Pierson and PJ Huffstutter. Writing by CarolineCopley; Editing by Noah Barkin, Mark Potter and Lisa Von Ahn)
