* 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 share movement)
By Caroline Copley and Paul Sandle
ZURICH/LONDON, April 22 Novartis and GlaxoSmithKline agreed to trade more than $20 billion worth of assets on Tuesday to bolster their best businesses and exit weaker ones as the drug industry contends with healthcare spending cuts and generic competition.
The deals, which include Novartis' purchase of GSK's cancer drugs and GSK's acquisition of Novartis' vaccines business, came just after a newspaper report that AstraZeneca Plc had turned 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 to Indianapolis-based Eli Lilly for about $5.4 billion in cash. That would make Lilly's Elanco unit the world's second-largest animal health business when that deal closes early next year.
A flurry of dealmaking has overtaken the global pharmaceutical industry recently as most large companies try to focus on a small number of leading businesses, while smaller specialty 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 Reuters data.
The overhaul at Novartis marks the end of a yearlong review of its sprawling portfolio after the departure of longtime Chairman and Chief Executive Officer Daniel Vasella, the architect of the merger of Ciba-Geigy and Sandoz that led to the company's formation in 1996.
The Swiss drugmaker said it would buy London-based GSK's oncology products for $14.5 billion plus another $1.5 billion that depends on the results of a trial in melanoma.
The deal will strengthen Novartis's world No. 2 position in cancer 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 form a joint venture in consumer healthcare.
The transactions, and their hint of more deals ahead for the drug sector, lifted the ARCA Pharmaceutials Index 1.8 percent.
Lilly's Elanco animal health unit will acquire about 600 animal health brands from Novartis, including vaccines and anti-parasite medicines that will allow it to enter the acquaculture, or fish farming, market.
This would be the eighth and largest acquisition since 2007 for Elanco, which by global sales would trail only Zoetis Inc , which also specializes in products for farm animals and pets.
"With this transaction, we'll go from being No. 5 to No. 3 on the pet side globally and become a top 2 or 3 player in every segment" of products for farm animals, Jeff Simmons, Lilly's head 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 transactions that either removes or strengthens its underperforming assets, while boosting its oncology portfolio," Jefferies analysts said.
In afternoon New York Stock Exchange trading, Novartis shares were up 1.4 percent at $86.63, while GSK rose 4.2 percent to $55.34. Lilly dipped 0.9 percent to $60.32.
Novartis CEO Joe Jimenez said the revamp would help make the company "fighting fit" to meet the challenges of the global healthcare industry over the next 10 years.
He told reporters the deals would lower overall sales by about $4 billion but result in higher profits as the company swaps lower-margin vaccines for higher-margin oncology drugs.
Cancer is a particular focus for some drugmakers as novel medicines show promise by boosting the body's immune system.
"We reckon the real value of the (cancer) deal should be searched 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, saying the new cancer drugs would help Novartis to navigate patent expiries on top-selling medicines more easily.
However, analysts at Barclays described the price tag of as much as $16 billion for the oncology assets as "rather hefty."
Drugmakers are stocking up their oncology pipelines as they bet that combinations of drugs will become the future of cancer care. A desire to boost its oncology business is seen as a key factor behind Pfizer's reported interest in AstraZeneca.
Cancer is an extremely competitive marketplace, however, and some analysts said it was right for GSK to exit a field where it was only No. 14 in the world.
GSK boss Andrew Witty said the company did not have the scale to compete in cancer drugs, so it made sense to put them into "the hands of somebody who is a world leader in oncology."
Conversely, he said the deals with Novartis strengthened two of GSK's core businesses: vaccines, given in more than 2 million shots every day, and consumer health, where the company will take the lead in running a business worth about $10 billion in annual revenue with the Swiss group.
The deals were another step in his strategy of focusing on areas of strength, he said, moving further away from the monolithic model of drugs companies that tried to do everything.
After the deal, GSK will get 70 percent of sales from its franchises in respiratory, HIV, vaccines and consumer health.
Novartis said it would start a separate sale process for its flu 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 expected cost savings of about $200 million per year within three years of closing the deal.
Bank of America Merrill Lynch advised Lilly, while Goldman Sachs Group Inc advised Novartis on the animal health deal. GSK said Lazard and Zaoui & Co were its joint financial advisers.
($1 = 0.5951 British Pounds) (Additional reporting by Alice Baghdjian, Ben Hirschler, Anjuli Davies, Ransdell Pierson and PJ Huffstutter. Writing by Caroline Copley; Editing by Noah Barkin, Mark Potter and Lisa Von Ahn)