Glaxo plans breakup after Pfizer deal combines Panadol, Advil

GLAXOSMITHKLINE Plc. paved the way for a split into two companies, agreeing to create a consumerhealth joint venture with Pfizer Inc. that the pharma giants plan to list on the stock market.

Glaxo will have a 68-percent controlling stake in the new entity, with combined sales of $12.7 billion. The UK drugmaker’s shares surged as much as 7.8 percent in London trading, the biggest gain in a decade, as it eyes a listing of the new business within three years.

The transaction creates the world’s biggest supplier of over-the-counter medicines with brands of painkillers such as Advil and Panadol, and marks a shift from Glaxo Chief Executive Officer Emma Walmsley’s previously stated strategy of keeping the steadily performing consumer and vaccine businesses under the same roof as the more volatile pharma operations.

The benefits of separating into two companies—one focused on prescription medicines and the other on consumer health— outweigh the advantages that come with a more diversified structure, Walmsley told reporters on a conference call.

Glaxo, Pfizer and others are grappling with surging research costs to develop new medicines, even as insurers and governments demand lower prices for the finished product. A split will help focus resources on separate businesses with different needs.

The deal will help “support our No. 1 priority, which is strengthening the pharma business,” Walmsley said. When the split occurs, “we then are able to reset the balance sheet of two focused companies with the appropriate capital structures.”

In the business of selling over-thecounter remedies, where brands and heft are key, New York-based Pfizer made the bet that it wasn’t big enough on its own. An earlier attempt to sell the consumer business failed after potential buyers dropped out of the bidding process.

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

That could be a harbinger of things to come for the consumer health market as rivals weigh how to react to the creation of a leader in the field, according to Kuerschner. Other drugmakers with integrated consumer-health divisions include Johnson & Johnson, Bayer AG and Sanofi. In another industry shift, General Electric Co. has filed confidentially for an initial public offering of its health-care unit, according to people familiar with the matter. Bloomberg News