GlaxoSmithKline (GSK) recently announced that its subsidiary, Stiefel, has entered into an agreement with Basilea Pharmaceutica Ltd. to acquire its product, Toctino (alitretinoin). Toctino, approved for severe chronic hand eczema in patients above 18 years who are unresponsive to potent topical steroids, is currently approved in 29 countries (marketed in 14 countries). The drug recorded worldwide sales of ?22 million in 2011. Toctino is currently in phase III development in the US.
As per the terms of the agreement, Glaxo will get exclusive worldwide rights (including patent rights, trademarks, product registrations) to Toctino. Glaxo will undertake the future development, production and marketing duties of Toctino. In exchange, Glaxo will make an upfront payment of ?146 million in cash to Basilea. Additionally, Glaxo will pay up to ?50 million upon the US approval of Toctino and double-digit payments for three years post-launch, on net US sales.
Our Take
A major part of Glaxo’s revenues will be exposed to generic competition as multiple drugs are scheduled to lose exclusivity in the next few years.
We expect the company’s top line as well as gross margins to remain under pressure in the coming quarters. In addition to generic competition, EU pricing pressure will continue to affect sales.
Glaxo is looking towards deals and acquisitions to drive growth. The company is focusing on increasing the rights on its partnered products and promising pipeline candidates, so that it stands to benefit more from their success. Glaxo’s acquisition of Cellzome and increasing investment in Theravance Inc. (THRX) indicate its efforts in this direction.
Apart from this, Glaxo has launched a hostile bid to acquire the outstanding shares of Human Genome Sciences, Inc. (HGSI) for a cash payment of $13 per share.
Glaxo would get exclusive rights to Benlysta as well as other candidates such as darapladib and albiglutide, if it succeeds in acquiring Human Genome.
We currently have a Neutral recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold rating) in the short run.
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