GlaxoSmithKline and Pfizer merge healthcare arms

Grant Boone
December 22, 2018

Pharmaceutical giants GlaxoSmithKline (GSK) and Pfizer yesterday announced a merger of their consumer healthcare units that produce over-the-counter medicine, to create a new business with nearly £10 billion (S$17.3 billion) in annual sales.

In addition, it represents "a compelling opportunity" to build on GSK's buyout of Novartis' 36.5% stake in a consumer healthcare JV in March of this year, said the UK-headquartered firm.

Other buyers such as Procter and Gamble also pulled out of the bidding, and Pfizer has gone back to GSK and negotiated this new joint venture deal, which has been unanimously approved by both companies' boards.

"The new Joint Venture will be well-positioned to deliver stronger sales, cash flow and earnings growth driven by category leading Power Brands, science-based innovation and substantial cost synergies", read GSK's press release.

The new joint venture will see GSK hold a majority shareholding of 68%, with Pfizer controlling the remaining 32%.

The combined sales of consumer healthcare units at the two companies exceed $12.7 billion a year.

GSK CEO Emma Walmsley said a statement the move will allow the company to strengthen its ability to produce new drugs and improve healthcare products.

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Shareholders had long pressured GSK to split up, mindful of the complexities of trying to create blockbuster drugs while selling lower-profit consumer products.

GSK and US drug maker Pfizer announced on Wednesday that they'll pool together their formidable consumer health divisions before spinning it off into an independent company that will carry a heavyweight portfolio of over-the-counter products like Advil, Nicorette, and Excedrin.

Walmsley also said there would be an inevitable impact on jobs as the company aimed for cost savings in procurement and across the supply chain.

That has been viewed with scepticism by some analysts, but investors seemed to be happy with the latest announcement - shares in GSK were up more than 7% in early morning trading today.

The deal paves the way for a break-up of Glaxo into two separate UK-based companies - one focused on pharmaceuticals and vaccines, and the other on consumer healthcare - within three years of the completing joint venture.

"The separation is expected to take place within three years of this so we will have a lot of time to understand the implications, if any, for our sites in Ireland", a spokesperson for GSK said. GSK plans divestments of some 1 billion pounds.

It will lead to the creation of a consumer health giant with a market share of 7.3 per cent, well ahead of its nearest rivals Johnson & Johnson, Bayer and Sanofi, all on around 4 per cent. Earlier this month, GSK struck deals to buy United States cancer-treatment specialist Tesaro for $5.1 billion and sell the night-time hot drink brand Horlicks to Unilever for 3.3 billion euros.

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