Big Pharma Cures Its Consumer Headache by Splitting Off Painkillers

(Bloomberg) -- It looks like the marriage between toothpaste and prescription drugs has run its course.

GlaxoSmithKline Plc on Wednesday announced plans to split up by creating a consumer-health venture with Pfizer Inc., cleaving brands like Sensodyne and Aquafresh from medicines for HIV and asthma. Chief Executive Officer Emma Walmsley’s resolve to break off the unit she used to lead sends a strong signal to others in the pharma industry: bulk up or get out.

Other drugmakers still housing a consumer division, like Johnson & Johnson, Bayer AG and Sanofi, will face heightened competition from the new entity, which brings together global painkiller brands Advil and Panadol. Like Glaxo and Pfizer, the companies face diverging demands from pharma, where focus and innovation are key, and consumer operations, where heft is what matters to gain negotiating power with advertisers and drugstores.

“You need to be big to compete,” said Adam Barker, an analyst with Shore Capital Group in London. “I wouldn’t be surprised to see more consolidation as once a larger player like GSK does it, there is an incentive to compete on scale.”

Walmsley’s Priority

Walmsley on Wednesday repeated her top priority was to strengthen the company’s pipeline of prescription drugs -- suggesting the goal is at odds with the demands of running consumer health. The Glaxo deal also solves a headache for Pfizer, whose over-the-counter business was too small and didn’t attract enough buyers when it was put on the market.

Novartis AG reached a similar conclusion about its own consumer operations this year. The Swiss drugmaker sold its stake in a consumer venture with Glaxo to the British company as Chief Executive Officer Vas Narasimhan focuses on prescription medicines in areas such as cell and gene therapies.

Tough price competition online from the likes of Inc. as well as own-brand store products have dented consumer-health margins in the U.S. and parts of Europe, prompting consolidation even from companies not dealing with prescription drugs.

Bayer’s Troubles

A month after Reckitt Benckiser Group Plc ended talks to acquire the Pfizer business this year, Procter & Gamble Co. agreed to pay about $4.2 billion to acquire Merck KGaA’s consumer-health unit and gain brands such as Seven Seas vitamins.

Bayer, whose shares fell as much as 4.5 percent in Frankfurt, may be next in line to make a move after seeing a $14.2 billion bet on consumer health go sour. The German company bought Merck & Co.’s brands --- including Coppertone and Claritin -- in 2014.

Merck plowed the money from the sale into new drugs, including Keytruda, an innovative cancer medicine expected to churn out more than $10 billion in sales next year. Bayer, by contrast, is facing its third straight year of declining over-the-counter sales.

Backpedaling, the German company said last month it would sell brands including Coppertone and Dr. Scholl’s. Bayer is cutting 1,100 jobs in the unit, part of an attempt to pare some 500 million euros ($570 million) in costs by 2022.

©2018 Bloomberg L.P.