A top executive at GSK reveals why it's prepared to ditch the brands that helped turn it into a $95 billion powerhouse
- British drugmaker GlaxoSmithKline in December laid out its plans to combine its consumer health business with Pfizer's, and then spin out the new company.
- The new business will include products like GSK's Tums and Excedrin and Pfizer's Advil and vitamins business.
- At this point, it's getting harder to have that business exist within a pharmaceutical company that prioritizes making cutting-edge new treatments, GSK's Chief Strategy Officer David Redfern explained.
Over the past few years, pharmaceutical giants have been shedding their over-the-counter businesses.
That now includes British drugmaker GlaxoSmithKline and drug giant Pfizer, which in December laid out plans to combine and then spin out their consumer health businesses. Eventually, the goal is to form a new, separate company for those products.
Combined, the business will incorporate products like GSK's Tums and Excedrin with Pfizer's Advil and vitamins business.
For years, the businesses had been a sure and steady income stream for the pharmaceutical giants. Combined, Pfizer and GSK's consumer health businesses make about $13 billion in annual sales.
But at this point, it's getting harder to have that business exist inside a pharmaceutical company that's trying to prioritize making cutting-edge new treatments, GSK's chief strategy officer David Redfern explained.
"To have a world-leading business with margins in the mid-to-high 20s in three years time that's potentially worth in today's multiples £40-50 billion sitting in a group where you say 'The first priority for capital allocation is pharma,' it's quite a tough proposition," Redfern told Business Insider at a meeting on the sidelines of the J.P. Morgan Healthcare Conference in San Francisco. "That's just not efficient. You can't say, 'We have this world-leading group, it's just not a priority.' The right thing to do is spin it."
After GSK and Pfizer combine their consumer businesses, they'll spend the next three years working on the spin-out, making sure the new company is running smoothly before it becomes independent. The deal is expected to lead to about $500 million in synergies, or opportunities to cut costs out of the two businesses once they combine.
Read more: How drugs like Tylenol and Flonase are saving the US $102 billion
Pfizer and GSK aren't alone in thinking of their consumer health businesses in a different light.
Novartis had a consumer healthcare joint venture with GSK, but in March agreed to sell its stake back to GSK for $13 billion. Novartis is focused on becoming a "breakthrough medicines companies."
Also in December, Bristol-Myers Squibb got an offer for its consumer health business. A few weeks later, BMS made a $74 billion bet on its cancer drug portfolio with its deal for biotech Celgene. In April, the German pharmaceutical company Merck sold its consumer health business to Procter & Gamble.
In some ways, owning both businesses that make prescription drugs and over-the-counter drugs makes sense. Companies like Johnson and Johnson and Bayer still have a large presence in the consumer health business as part of their corporations' respective operations.
In many parts of the world, the distinction between prescription drugs and over-the-counter ones is less clear than it is in the US or UK. And, Redfern said, having the business as part of GSK gave it more stability, letting the pharma side of the business take more risks.
Once the consumer health business spins out, though, it'll be all on the pharmaceutical business at GSK to keep the company growing.
On the pharmaceutical side, GSK has been refocusing its research efforts on developing new treatments that act on the body's immune system, including an emphasis on cancer treatments.
"Because we've now lit the fuse on when we're going to spin it, it puts real pressure on the pharma business to make progress really fast," Redfern said.
- Read more:
- GlaxoSmithKline will be broken up in a megadeal with Pfizer that could change the face of global healthcare
- Two huge drugmakers are spinning off iconic brands like Advil, ChapStick and Emergen-C with nearly $13 billion in sales - and it's part of a growing trend
- A 237-year-old Japanese drug company just combined with a rival halfway around the world. Here's how they're confronting the challenge of merging 2 cultures.
- Biotech companies looking for cancer and Alzheimer's treatments are hoping to raise $422 million amid treacherous markets and a government shutdown
