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Pfizer, Glaxo Agree to Create Over-The-Counter Drug Giant -- 3rd Update

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12/19/2018 | 06:55am EDT

By Denise Roland

Pfizer Inc. and GlaxoSmithKline PLC plan to combine their consumer health-care units and eventually spin off the joint venture, creating the world's largest seller of drugstore staples like Advil and Sensodyne toothpaste.

The deal, announced Wednesday, is an unexpected conclusion to a yearlong process by Pfizer to shed its consumer business, as it and other pharmaceutical companies focus more on higher-margin prescription drugs. Glaxo has been pursuing the same focus, though has until now stayed committed to its consumer business, which its chief executive led before her promotion to the top job.

Glaxo will hold a 68% stake and Pfizer the remaining 32% in the new joint venture, which generated combined sales of $12.7 billion last year and will be the world's largest over-the-counter medicines business. It also will sell brands like nicotine replacement gum Nicorette, heartburn tablets Tums and Centrum multivitamins.

The British company said it expects to close the deal in the second half of 2019 and then separate the joint venture within three years via a listing on the U.K. stock market.

That planned move will represent a breakup of Glaxo, which currently generates around a quarter of its revenue from such consumer products. For Pfizer, consumer health represents a smaller slice of its overall business, at around 7% of total revenue.

Investors welcomed the news, sending Glaxo shares up 7% in early trading in London.

The deal will free up both companies to concentrate on prescription medicines, which tend to be more profitable, though higher risk. Companies have used the steady revenue of consumer drugs to insulate them from the sometimes boom-and-bust cycles of developing the next blockbuster treatment. For Glaxo, that role will fall to the vaccines business -- which tends to generate steadier revenue flows -- after it sheds consumer healthcare. Pfizer also sells vaccines, as well as generic drugs.

"There are benefits to having a broader structure but these are significantly outweighed by the value creation of the deal we are announcing today," Glaxo Chief Executive Emma Walmsley said on a call with reporters.

She said the increased cash flow from the joint venture would allow the company to invest heavily in its pipeline of new medicines. Bringing the two businesses together will also allow them to cut costs: the companies said they expected savings of GBP500 million ($570 million) a year by 2022.

For Pfizer, the deal represents a late swan song for departing Chief Executive Ian Read, who earlier this year failed to sell the consumer health-care business in an auction. Glaxo had been one of the bidders in that process but walked away because it didn't want to acquire the business outright, according to Ms. Walmsley.

"It became obvious that for both parties there was tremendous value creation opportunity here in an all-equity transaction, and that was the real difference versus where we were earlier in the year," she said.

This deal is Ms. Walmsley's biggest move yet to reshape Glaxo, and builds on the company's $13 billion buyout earlier in the year of Novartis AG's stake in a previous consumer health-care joint venture.

Since taking the helm in April last year, Ms. Walmsley has bulked up the prescription-drug business with the $4.16 billion acquisition of cancer drugmaker Tesaro Inc. and shed Glaxo's nutrition business in a $3.75 billion sale to Unilever PLC.

She has also shaken up the company's top ranks and cut several scientific programs to concentrate on researching drugs that focus on immunology or that have a genetic basis.

Pfizer also is seeking to double down on its pipeline of new drugs, after years of pruning investment in research and development.

Pfizer and Glaxo aren't alone in shedding slower-growing businesses in favor of prescription-drug pipelines. As well as exiting its consumer health-care joint venture with Glaxo, Novartis has sold off part of its generic-drug business. At the same time, the Swiss health-care giant has acquired a series of businesses in cutting-edge areas of medicine.

Sanofi SA earlier this year sold its generic-drug business shortly after buying two biotech companies.

Bristol-Myers Squibb Co. Wednesday morning announced the sale of its French consumer health-care business Upsa to Japan's Taisho Pharmaceutical Holdings.

Write to Denise Roland at Denise.Roland@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
GLAXOSMITHKLINE -0.12% 17.792 Delayed Quote.6.99%
GLAXOSMITHKLINE 0.11% 1584.4 Delayed Quote.6.25%
PFIZER 0.61% 42.76 Delayed Quote.-2.63%
VALUE8 1.82% 5.6 Delayed Quote.18.14%
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EBIT 2019 19 750 M
Net income 2019 13 323 M
Debt 2019 26 335 M
Yield 2019 3,34%
P/E ratio 2019 17,84
P/E ratio 2020 16,29
EV / Sales 2019 4,97x
EV / Sales 2020 4,87x
Capitalization 239 B
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NameTitle
Albert Bourla Director, Chief Executive & Operating Officer
Ian C. Read Executive Chairman
Frank A. D'Amelio Chief Financial Officer & EVP-Business Operations
Freda C. Lewis-Hall Chief Medical Officer & Executive Vice President
W. Don Cornwell Independent Director
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