By Marta Falconi and Hester Plumridge 

ZURICH--Drug companies are back in deal mode.

On Tuesday, Novartis AG and GlaxoSmithKline PLC unveiled a series of transactions worth more than $20 billion that fundamentally transform both companies, more tightly focusing Novartis's scope without significantly crimping its revenue, while turning Glaxo into a vaccines-and-consumer-drug powerhouse.

The deals, announced before trading opened in Europe, follow news that activist investor William Ackman and Valeant Pharmaceuticals International Inc. had hatched plans to buy Allergan Inc., the maker of Botox wrinkle treatment. That deal, if completed, would create a behemoth in the eye-care and skin-care drug sectors.

The planned transactions come amid a resurgence of deal-making in the pharmaceutical sector, which is pumping out cash after having paid down debt shouldered in the last surge of merger activity in the early 2000s. Unlike that wave, in which drug companies merged into unwieldy giants, the new generation of deals is narrower, focused on transactions that create businesses capable of competing as leaders in their fields, rather than simply staking a presence.

"M&A is a strategy to be used sparingly," said Glaxo Chief Executive Andrew Witty on a conference call Tuesday. "But it has an extremely valuable role to play if you can find targeted transactions which allow you to strengthen in the places where you have long-term competitive advantage."

Becoming more focused has helped create value for investors. Pure-play drug companies such as Bristol-Myers Squibb Co. and AstraZeneca PLC, which lack large generics, consumer-health or diagnostics businesses, are currently valued higher than very diversified rivals. Shares of Pfizer Inc. have risen sharply since it floated Zoetis, its animal-health business, in a $2.2 billion initial public offering last year, as has Abbott Laboratories since it spun off its pharmaceutical unit AbbVie in 2012.

Among the deals that have captured attention: AstraZeneca paying $2.7 billion to buy Bristol-Myers Squibb's share of a diabetes joint venture--part of AstraZeneca's efforts to focus on the disease--and GlaxoSmithKline selling off noncore businesses, like its drinks brands Ribena and Lucozade, where it doesn't have the heft to compete.

In the first quarter, health-care deal activity jumped 40% from the same period a year earlier to $16.9 billion, according to Dealogic, a data tracker.

Mr. Ackman's unusual partnership with Valeant is another example of the targeted deal-making trend that characterizes the current wave of activity. Mr. Ackman's Pershing Square Capital Management LP is working with Valeant to buy Allergan, a competitor in the market for eye care and cosmetic drugs. Valeant sees potential cost savings of $2.5 billion if its pairs up with Allergan, while also expanding the portfolio of products it can sell.

The Novartis-Glaxo transactions fall squarely in the new style of deal-making, allowing each company to build on its strengths, while removing smaller noncompetitive businesses.

Since former Chairman Daniel Vasella left Novartis last year, Chief Executive Joe Jimenez has repeatedly said he wanted to refocus Novartis on areas in which it has the scale to compete, rather than maintain small presences in a host of markets. The company has been reviewing its businesses and sold a diagnostics business to Spain's Grifols SA last year.

The deals with Glaxo, and a separate deal by Novartis to sell its animal-health business to Eli Lilly & Co. for about $5.4 billion, accomplish that goal, focusing Novartis on pharmaceuticals, eye care and generics. Analysts at Sanford C. Bernstein & Co. estimate sales will fall a little more than 6.5% to $53.5 billion while operating margin will rise 2.5 percentage points to 27.2%.

"The transactions mark a transformational moment for Novartis," said Chief Executive Joe Jimenez.

Basel-based Novartis will acquire Glaxo's oncology unit for around $14.5 billion, adding strength to the company's already potent lineup of cancer products. After the deal closes, Novartis will get roughly a fifth of its nearly $54 billion in estimated annual revenue from cancer drugs.

In return, London-based Glaxo will pay $5.25 billion for Novartis's vaccines business, acquiring the company's promising Bexsero meningitis B vaccine. Both deals could carry higher price tags if certain milestones are met.

The two companies have also agreed to merge their consumer-health businesses under Glaxo's management, combining franchises that own some of the world's best-known brands, including Excedrin, Panadol and Aquafresh.

"The scale of the changes is really astonishing," said Birgit Kulhoff, a fund manager with private bank Rahn & Bodmer in Zurich, which owns Novartis and Glaxo shares. Ms. Kulhoff said Novartis's risk profile would increase "slightly" because of the new setup, but said the challenges, such as patent expirations that the company is facing or will face in the future, are manageable.

Shares of Novartis rose more than 2.3% to 76.40 Swiss francs ($86.32) on Tuesday, reflecting enthusiasm for the deals. Glaxo shares rose 5.2% to GBP16.40 ($27.54) in London.

The deals also transform Glaxo, focusing its business on respiratory, HIV, vaccines and consumer health products. Those four areas will account for roughly 70% of the British company's total sales.

Glaxo will take charge of the combined consumer-health operation, which will be one of the world's largest over-the-counter drugs businesses, with annual revenue of around GBP6.5 billion ($10.9 billion). Glaxo will own 63.5% of the business, which will be run by its current consumer-health head, Emma Walmsley.

The deal will also widen Glaxo's lead as the world's largest provider of vaccines, strengthening its position in the meningitis vaccine market and the U.S. The new business will have more than 20 vaccines in development.

Write to Marta Falconi at marta.falconi@wsj.com and Hester Plumridge at Hester.Plumridge@wsj.com

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