GSK Split: New Joint Venture with Pfizer for Consumer Healthcare

GSK Split: New Joint Venture with Pfizer for Consumer Healthcare

GSK is spinning off a consumer healthcare-focused joint venture with Pfizer. In 2017, the companies' combined sales were $12.7 billion.

Pharma giant GlaxoSmithKline (GSK), known for products like Ceravix and Polident, announced its split into two companies in partnership with Pfizer Inc.

The ever-volatile pharmaceutical industry sees frequent mergers, acquisitions, and dissolutions. GSK alone bought out Novartis’ stake in their joint consumer health business, and more recently acquired oncology-focused TESARO to continue growing its consumer health and pharmaceutical empire. Other large companies have diversified their portfolio into consumer health, including Johnson & Johnson, Bayer and Sanofi.

However, GSK’s exponential growth combined with rising research costs might have rocked its existing capital structure. When you’re this big, sometimes it’s better to break off into two.

The new joint venture will assume the name GSK Consumer Healthcare, and will exist independently on the UK equity market in three years’ time. By breaking off into two specialty companies, each can implement effective capital structures to fund important research while balancing leverage ratios. This venture is part of an 18-month plan of GSK’s CEO, Emma Walmsley.

“Through the combination of GSK and Pfizer’s consumer healthcare businesses we will create substantial further value for shareholders. At the same time, incremental cashflows and visibility of the intended separation will help support GSK’s future capital planning and further investment in our pharmaceuticals pipeline,” said Walmsley.

Greater investment into pharmaceuticals and vaccines is a welcome sign for GSK after the company announced a shortage of their recently approved shingles vaccine, Shingrix.

Additionally, the joint venture will greatly benefit Pfizer, who previously struggled to sell its consumer business earlier in the year.

“Pfizer realized it was too small and that it was facing increasingly tough competition,” Timo Kuerschner, an analyst at Landesbank Baden-Wuerttemberg, told BNN Bloomberg.

GSK will hold 68 percent equity of the joint venture while Pfizer will maintain the remaining 23 percent. The leadership team will be comprised of GSK executives, including Emma Walmsley as Chair, Brian McNamara as CEO and Tobias Hestler as CFO. The board will be made up of six GSK members and three Pfizer members.

“Pfizer and GSK have an excellent track record of creating successful collaborations, and we look forward to working together again to unlock the potential of our combined consumer healthcare businesses,” stated Ian Read, Chairman and current Chief Executive Officer, Pfizer.

The joint venture is anticipated to become a market leader in over-the-counter drugs with a focus on pain relief, vitamin and mineral supplements, oral care and more. Pfizer’s Advil, ChapStick and Dristan, and GSK’s Sensodyne, Nicorette, Voltaren and Abreva are included in the conglomerate’s product list.

The decision to break up GSK is not shocking to some investors. Reuters reported back in July that investors believe there are “limited synergies between consumer and pharma.”

The new joint venture signifies continued growth and adaptation in the face of uncertainty at to how Brexit will impact pharmaceutical companies in the UK.