GlaxoSmithKline (GSK) and Pfizer have agreed to combine their consumer health businesses into a new joint venture, with combined sales of approximately £9.8 billion ($12.7 billion). GSK will have a majority controlling equity interest of 68%, and Pfizer will have an equity interest of 32% in the joint venture. The venture will create an over-the-counter (OTC) product portfolio with a global market share of 7.3%, according to information from GSK. The companies announced their plans on December 19, 2018.

This is the second major recent move GSK has made in its consumer healthcare business. In June 2018, GSK gained full ownership in its consumer healthcare joint venture with Novartis by acquiring Novartis’ 36.5% stake in the joint venture in June 2018 for $13 billion. The joint venture was formed in 2015 as three-part transaction with Novartis, which included the formation of the consumer healthcare joint venture. Novartis also acquired certain oncology products and pipeline compounds from GSK and divested its non-influenza vaccines business to GSK.

GSK’s move to form a new consumer healthcare joint venture with Pfizer gives GSK a new partner for its consumer healthcare business and allows both GSK and Pfizer to execute previously announced strategic goals of finding alternatives respectively for their consumer healthcare businesses to support additional resource allocation in their core prescription pharmaceutical businesses.

“The proposed all-equity transaction represents a compelling opportunity to build on the recent buyout of Novartis’ stake in GSK Consumer Healthcare, to create a new world-leading consumer healthcare business and to deliver further significant shareholder value,” GSK said in a December 19, 2018 company statement. “The proposed transaction also supports GSK’s key priority of strengthening its pharmaceuticals business over the next few years by increasing cashflows and providing an effective pathway through the separation of GSK Consumer Healthcare to build further support for investment in its R&D [research and development] pipeline.”

The combination will bring together two portfolios of consumer health brands, including GSK’s Sensodyne, Voltaren and Panadol and Pfizer’s Advil, Centrum and Caltrate. This proposed transaction is expected to realize substantial cost synergies, according to GSK, with the joint venture expected to generate total annual cost savings of £0.5 billion ($633 million) by 2022 for expected total cash costs of £0.9 billion ($1.1 billion) and non-cash charges of £0.3 billion ($379 million). Planned divestments targeting around £1 billion ($1.2 billion) of net proceeds are expected to cover the cash costs of the integration. GSK says up to 25% of the cost savings are intended to be reinvested in the business to support innovation and other growth opportunities.

“Eighteen months ago, I set out clear priorities and a capital allocation framework for GSK to improve our long-term competitive performance…” Emma Walmsley, Chief Executive Officer (CEO), GSK, said in the company statement. “We have improved our operating performance and have set out a new approach to R&D. We have also started to reshape the Group’s portfolio through prioritization of R&D programs, acquisitions such as that proposed with the oncology biopharmaceutical company, TESARO, the minority buy-out of the consumer healthcare business, and a series of non-core product divestments.”

Within three years of the closing of the transaction, GSK intends to separate the joint venture via a demerger of its equity interest and a listing of GSK Consumer Healthcare on the UK equity market. Over this period, GSK says it will substantially complete the integration and expects to make continued progress in strengthening its pharmaceuticals business and R&D pipeline.

“With our future intention to separate, the transaction also presents a clear pathway forward for GSK to create a new global Pharmaceuticals/Vaccines company, with an R&D approach focused on science related to the immune system, use of genetics and advanced technologies, and a new world-leading Consumer Healthcare company,” Walmsley said in the statement.

Emma Walmsley will be Chair of the new joint venture. Brian McNamara, currently CEO GSK Consumer Healthcare, will be CEO of the new joint venture, and Tobias Hestler, currently Chief Financial Officer (CFO) GSK Consumer Healthcare, will be CFO.

The proposed transaction is subject to approval by GSK shareholders and conditional upon the receipt of certain antitrust authority approvals. Subject to these approvals, the transaction is expected to close in the second half of 2019. The GSK board intends to recommend that shareholders vote in favor of the proposed transaction.

Source: GlaxoSmithKline and Pfizer