Two of the world’s top drugmakers want to focus on making prescription drugs. Pfizer and GlaxoSmithKline have agreed to merge their consumer health businesses and spin them off into a joint venture, a move that will both create a new consumer healthcare giant and increase the pressure on each company to churn out innovative medicines.
GSK (NYSE: GSK) will hold 68 percent of the new company, with Pfizer (NYSE: PFE) getting the remaining 32 percent. The combined company will have some $12.7 billion in yearly revenue and sell a variety of pain relief products, vitamins, mineral supplements, skin health products and more. The new company will have a 7.3 percent global market share on over-the-counter products. The deal should close in mid-2019.
GSK shares surged 7.3 percent on the news. Pfizer shares climbed 1.3 percent.
The move is part of a string of deals that move some of the world’s top pharma companies away from diversification. Both Pfizer and GSK have had multi-faceted businesses for decades, which has helped provide the companies with stable revenue bases while they develop prescription drugs. But both have made a concerted effort to change that. Pfizer, for its part, has been trying to sell its consumer healthcare business for a year without success (GSK, for one, passed on an offer). And the move signals a breakup of GSK, which has been shaken up considerably under the 18-month tenure of new CEO Emma Walmsley. This year alone, Walmsley has sold off GSK’s gene therapy portfolio and its nutrition business, and bought cancer drug maker Tesaro. GSK will be a pharmaceuticals and vaccines company once the deal is complete. It will list the new consumer health company on the U.K. equity market and may sell some or all of its stake in its eventual IPO.
This merger “represents a shift in strategy for the two big pharma companies” and creates, for each, “a more focused prescription pharmaceuticals business” in addition to providing cost synergies for the combined company, wrote Maura Musciacco, the pharma director at data and analytics firm Global Data. Pfizer pegs those synergies at as much as $650 million at peak.
The two pharma giants aren’t alone in this strategy: Novartis has also offloaded its eye-care business and part of its skincare and generics business this year as part of an effort to home in on cutting-edge medicines for cancer and other diseases; it also sold its stake in GSK’s consumer health business months ago. And just this morning, Bristol-Myers Squibb (NYSE: BMY) got an offer to sell its European consumer health business to Taisho Pharmaceutical for $1.6 billion. Each of these moves have reflected desires by each company to focus more of its efforts on prescription drugs, a more volatile, risky, but high-reward business.
Here’s more on the GSK-Pfizer deal from the Financial Times.