Drugmakers to merge consumer-health arms

The plan by drugmakers GlaxoSmithKline and Pfi zer is expected to provide combined annual sales of $12.7 billion.
The plan by drugmakers GlaxoSmithKline and Pfi zer is expected to provide combined annual sales of $12.7 billion.

Drugmakers GlaxoSmithKline and Pfizer plan to merge their consumer health businesses into a world leader in sales of over-the-counter medicines such as pain relievers, vitamins and cold remedies.

The new joint venture would have combined annual sales of $12.7 billion.

British-based GlaxoSmithKline will own 68 percent of the venture, and New York-based Pfizer, the biggest U.S. drugmaker, will own the remaining 32 percent stake.

The business will sell products under GlaxoSmithKline brands like Sensodyne tooth paste, Panadol pain tablets, Tums stomach tablets, Nicorette nicotine gum and Voltaren pain tablets and ointment, along with Pfizer's Advil and Anbesol pain relievers, Chapstick, Centrum and Caltrate supplements and Nexium heartburn treatment.

The companies said the joint venture will have a worldwide market share of 7.3 percent, ahead of the nearest competitor at 4.1 percent. It will have the No. 1 or 2 market-share positions in key countries and regions, including the U.S., Europe, China and India, and in categories including pain relief, respiratory medicines, vitamins and supplements, and digestive health products.

The venture will operate under the GlaxoSmithKline Consumer Healthcare name worldwide. The deal is expected to close in the second half of 2019, after which the two businesses will be integrated and packaging likely will be altered to add the GlaxoSmithKline Consumer Healthcare name where needed.

Spokesmen for both GlaxoSmithKline and Pfizer on Wednesday said they couldn't comment yet or had no information on changes consumers might see in the combined product lineup, whether product prices might be changed and whether the new business would be developing additional consumer items.

It is expected to take three years to merge the businesses across some 100 countries as well as to wait for the uncertainties surrounding Britain's departure from the European Union to subside. The companies eventually plan to spin off the joint venture into an independent company, likely in several years, and list its stock in the U.K.

"I'm confident we'll be in a more settled environment than we are in today," GlaxoSmithKline PLC Chief Executive Officer Emma Walmsley said.

Some planned divestments of $1.3 billion would be expected to cover the costs of the integration. Annual costs will be slashed by $630 million.

Shareholders had long pressured GlaxoSmithKline to split up, mindful of the complexities of trying to create blockbuster drugs while selling lower-profit consumer products. But the move surprised analysts because Walmsley, who took over in April, had seemed at first to be following in the footsteps of her predecessor, Andrew Witty, in resisting such a change.

Walmsley said the deal presents a way forward for GlaxoSmithKline to become a global pharmaceuticals and vaccines company focused on advanced technologies.

"Ultimately, our goal is to create two exceptional U.K.-based global companies with the right capital structures, both of which are well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers worldwide," she said.

Pfizer, the maker of Viagra and nerve pain treatment Lyrica, has been under similar pressure from shareholders to split up. It had been planning to exit consumer health, putting that business up for sale just over a year ago. It found no takers, but in July it announced yet another minor business reorganization to occur in 2019, under the watch of Albert Bourla, who will succeed Ian Read as CEO in January.

This rearrangement will leave Pfizer with an Innovative Medicines segment that sells and develops new drugs and vaccines such as its blockbuster Prevnar vaccine, and an Established Medicines business that sells older drugs, like the cholesterol pill Lipitor, that have lost patent protection. The GlaxoSmithKline deal resolves the future of the consumer health business.

Drugmakers had once envisioned controlling every corner of home medicine cabinets, from everyday personal-care items to therapies for cancer and cardiovascular disease. The steady revenue produced by consumers restocking toiletries and headache remedies was seen as a stabilizer for the more volatile -- though vastly more lucrative -- business of developing and selling treatments prescribed by a doctor.

Recent shifts in the health care business and in the broader economy, however, have challenged that model. Big pharmaceutical companies are increasingly focused on developing high-priced new drugs that draw on cutting-edge research in genetics and other fields. At the same time, the cost of researching new cures is climbing even as insurers and governments demand lower prices.

Meanwhile, profits in many consumer businesses have been compressed by competition and the growing power of companies like Amazon.com and Walmart to drive prices for a range of goods ever lower.

Information for this article was contributed by Danica Kirka, Linda A. Johnson and Tom Murphy of The Associated Press and by Timothy Annett and James Paton of Bloomberg News.

Business on 12/20/2018

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