Pharma Landscape Shifts as GSK Unloads Non-Core Brands

With the end of a calendar year comes a flurry of corporate divestitures and acquisitions, designed to improve a company's bottom line going into the next year. Procter & Gamble, for instance, recently sold the PUR brand to Helen of Troy Limited, a "serial acquirer" of P&G brands who, in addition to PUR, owns Infusium23, Pert Plus and Sure.

So no surprise in 2011's 11th hour deal by GlaxoSmithKline to transfer 17 of its North American consumer OTC healthcare brands to a new owner, as was announced by Prestige Brands and GSK. Prestige Brands will acquire brands including Beano, Goody's, Ecotrin, Fiber Choice, Sominex, and Tagamet from GSK for a total of $660 million in cash, with all transactions expected to be completed in the first half of 2012.

For Prestige Brands, the acquisition is the largest in the company's history, following on the heels of their recent acquisitions of five brands from Blacksmith Brands and Dramamine from Johnson & Johnson. The company expects the acquired GSK brands to generate annual corporate revenues of about $600 million, "with an OTC business segment representing 85 percent of revenues and 90 percent of profits," according to Prestige Brands CEO Matthew M. Mannelly.

Prestige already owns a broad portfolio of well-known healthcare brands, including Chloraseptic, Clear Eyes, Compose, Efferdent, Luden's, Murine and PediaCare. It also owns a number of household brands, including Comet. The company's brands have done well, even in challenging economic times; in the OTC healthcare segment, Prestige Brands saw net revenues of $79.2 million for its second fiscal quarter of 2012, ending September 30, 2011, according to company financial reports. This was 55.7 percent higher than the prior year second quarter. Overall, Prestige Brands had net revenues of $105.5 million in its fiscal Q2, a 34.8 percent increase over the prior year.

GSK, headquartered in the UK, is one of the world's leading pharmaceutical companies. It manufacturers hundreds of prescription medicines, vaccines, and consumer healthcare products. While GSK plans to retain fast-growing non-prescription brands such as Panadol, a pain reliever, and Sensodyne toothpaste, the company wants to focus on its "priority" brands, according to Bloomberg. Those brands include some of the North American OTC brands it didn't sell to Prestige, including Alli, Nicorette and Contac.

Chances are the OTC brands will get more attention from Prestige, which has a greater stake in them, than from GSK, which divested them because it needs to be more focused on core products. Still, Prestige is swallowing 17 brands all at once. Apportioning marketing dollars across each of them — or at least those brands that are deemed to need the most support — could be a challenge. Hopefully, it will not lead to a case of corporate indigestion.

GSK CFO Simon Dingemans stated: "The disposal of our non-core consumer brands is about realising attractive value for shareholders as well as simplifying our ongoing Consumer business and allowing it to focus on its priority brands and markets. I am pleased that we have achieved such a good result for our US and Canadian assets, especially in such difficult market conditions. Active discussions continue with other potential buyers for the remaining assets."

Cue GSK's other late 2011 move, in which it sold five pharma brands to Covis: Fortaz (ceftazidime), Zinacef (cefuroxime), Lanoxin (digoxin), Parnate (tranylcypromine sulfate) and Zantac Injection (ranitidine hydrochloride) in the USA and Puerto Rico. According to The Pharma Letter, "GSK will retain the existing rights for these products in countries outside the USA. Financial terms of the agreement have not been disclosed. The agreement has received Hart-Scott-Rodino regulatory clearance in the USA."