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GlaxoSmithKline (GSK) May Separate Businesses

7/28/2014 6:23:08 AM

GlaxoSmithKline May Separate Businesses
GlaxoSmithKline Announces Possibility Of Consumer Healthcare Break-Off
July 28, 2014
By David Sohn, Breaking News Staff

GlaxoSmithKline's (GSK) chief executive officer, Andrew Witty, announced that a consumer healthcare break-off in the U.K.-based company may be an option in the future. A recent asset swap to acquire Swiss pharmaceutical group Novartis’ consumer health-care division would make GlaxoSmithKline one of the largest consumer healthcare brands in the world. According to Witty, the break-off would be contingent on whether their consumer healthcare division would be more valuable as a stand-alone.

The 20 billion dollar agreement with Novartis, completed earlier this year, secured the rights to a joint-venture deal with the Swiss group, giving GlaxoSmithKline a 63.5 percent stake in the to-be-formed entity. The combined venture would generate 10 billion dollars’ worth of annual sales in the sector. The U.K.-based company is currently the owner of a variety of consumer healthcare brands, which include Aquafresh and Nicorette. The acquisition will add several more brands to their portfolio: “The Novartis OTC portfolio is highly complementary to GlaxoSmithKline’s and has many well-known, widely recommended brands such as Voltaren, Excedrin, Otrivin, and Theraflu. Together, we will create the world’s premier OTC business with clear opportunities to accelerate revenue growth,“ says Witty.

The acquisition of Novartis’ consumer healthcare division was part of a larger deal, which also transferred ownership of Novartis’ vaccination and oncology divisions to GlaxoSmithKline. “The acquisition of Novartis’ Vaccines business will significantly enhance the breadth of our vaccines portfolio and pipeline, notably in meningitis, with the addition of Bexsero, an exciting new vaccine for prevention of meningitis B”, Witty added.
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Analysts, however, remained cautious about GlaxoSmithKline (GSK) amidst recent allegations of corruption and the underperformance of sales this quarter. The British pharmaceutical manufacturer is currently under investigation for the alleged bribery of doctors and officials in several countries, including China and Syria, for the preferential sales of their products. Shares in the company traded at $48.36 this morning, down more than 10 percent from last week’s high of $53.59.

Several firms reiterated their neutral to cautious ratings regarding the company last week. JPMorgan Chase & Co. issued a statement Friday maintaining their “neutral” rating and suggesting a 3% downside risk from the current price. Deutsche Bank lowered their price target 8 percent last Thursday, but analysts at DB believe that shares in the company may currently be undervalued. Among other agencies, Jeffries Group reissued their “hold” rating, while Zacks reiterated their “underperform” rating for GlaxoSmithKline.

The British pharmaceutical company also failed to meet analysts’ expectations last week for the second fiscal quarter. GlaxoSmithKline reported an earnings per share of $0.65 last Wednesday, missing the consensus forecast of $0.71. Pharmaceutical sales in the U.S. declined 10 percent according to the report. Revenue from their proprietary asthma inhaler, Advair, which accounts for nearly one-fifth of sales, fell 19 percent this quarter.

Read more recent GSK stories here.

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