Sales for the pharma majors in most developed markets have flattened or are growing at a slower pace. Now, emerging markets are playing a crucial role as a market survey predicts this region would contribute 50% growth in 2009.
With this backdrop, we are happy to find GlaxoSmithKline (GSK) acquiring the branded generics business of Bristol Myers Squibb (BMY) in the countries of Lebanon, Jordan, Syria, Libya and Yemen for a cash consideration of $23.2m (£14.2m). This transaction consists of a portfolio of 13 branded pharmaceuticals with annual sales of $11.8 million in 2008.
GSK is the world’s second largest pharmaceutical company, with operations primarily based in the U.K. and the U.S. This move is seen as the company’s strategy to expand its presence in branded products in emerging markets. Emerging markets have witnessed robust demand for branded products driven by a large population and middle class prosperity.
GSK is trying to expand its footprint into emerging markets for quite some time. In 2008, the company acquired businesses in Pakistan and Egypt from BMS (BMS), including a manufacturing plant in Giza, Greater Cairo. BMS will continue to supply the acquired products till 2011, after which the manufacturing will shift to the Giza plant of GSK.
GSK has entered a number of collaborations in the last few months. In June, it entered into a partnership deal with Dr. Reddy’s Laboratories (RDY) involving a pipeline of more than 100 branded pharmaceuticals (some of these are still in developmental stage) covering wide segments such as cardiovascular, diabetes, oncology, gastroenterology as well as pain management. The products would be manufactured by RDY and would be licensed and supplied to GSK in various emerging markets such as Africa, the Middle East, Latin America and Asia Pacific excluding India.
Earlier in January 2009, Glaxo signed an agreement with UCB S.A for its marketed product portfolio in Africa, Middle East, Asia Pacific and Latin America, for a cash consideration of €515 million. In May, GSK acquired a 16% stake in Aspen Pharmacare Holdings Ltd, a South Africa-based generic drug maker in exchange for transfer of specialist products and a manufacturing facility in Bad Oldesloe, Germany.
Glaxo has to deal with the generic erosion of a number of drugs including Coreg IR, Flonase, Wellbutrin XR, Paxil, Lamictal, Requip, Valtrex and Imitrex. In order to recoup some of the losses caused by the patent expiry of these products, Glaxo has chosen the inorganic route to growth through acquisitions and partnerships.
Management has made it clear during the last quarter of 2008 conference call that while they will be looking for strategic acquisitions, they are not interested in doing a large deal. While the company faces a number of challenges, we continue to like the fundamentals at GSK. We have a Hold recommendation on the stock.
Read the full analyst report on “GSK”
Read the full analyst report on “BMY”
Read the full analyst report on “BMS”
Read the full analyst report on “RDY”
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