Glaxo buys Stiefel for $3.6bn as diversification strategy continues

Fresh from forming a new HIV-focused business with Pfizer, (Glaxo and Pfizer to join forces on HIV, April 16, 2009), GlaxoSmithKline forged ahead with its diversification strategy, this morning announcing the acquisition of dermatology specialist Stiefel Laboratories, in a deal worth up to $3.6bn.

On a proforma basis the combined businesses had sales of $1.5bn last year, capturing 8% of the global prescription dermatology market, Glaxo said. The move will make the new entity the biggest player in the therapy area (see table), and will be run by Stiefel's existing chief executive, Charles Stiefel, who built up the private company swiftly over the last few years, through R&D and acquisition. Given Glaxo’s desire to build strong, diverse businesses, that growth is likely to continue.

Stiefel’s business is almost double the size of Glaxo’s dermatology operations, generating sales last year of around $900m. Five years ago the group generated sales of around $400m, and the impressive growth rate since then has largely been driven by acquisitions.

Top 10 dermatology companies Sales ($m) Market Share (OTC and prescription) Market Rank
2008 2014 2008 2014 2008 2014
     Galderma 1,194 1,566 12.0% 12.4% 1 2
 Stiefel Laboratories 900 1,567 9.9% 12.4% 3 1
     Bayer AG 1,093 1,334 11.0% 10.6% 2 3
     Merck+Schering-Plough 835 632 8.4% 5.0% 4 6
     Taro Pharmaceutical Industries  324 891 3.3% 7.1% 10 4
     Medicis Pharmaceutical 471 705 4.7% 5.6% 5 5
     Warner Chilcott 436 530 4.4% 4.2% 6 7
     Allergan 345 520 3.5% 4.1% 8 8
     GlaxoSmithKline 342 347 3.4% 2.7% 9 9
     Reckitt Benckiser 316 325 3.2% 2.6% 11 10

In 2006, the group struck its most significant deal, buying Connetics Corp for $640m. As well as a strong pipeline and several topical delivery technologies, the NASDAQ-listed company gave Stiefel what are now some of its biggest selling products, including the topical corticosteroid Olux and acne treatment Evoclin. Last year Stiefel moved again, buying another US listed company, Barrier Therapeutics, for $150m.

The Glaxo brands, including Batroban, Cutivate and Altabax, will now be sold under the Stiefel banner. Cost savings of up to $240m by 2012 are being targeted, costing $325m over the next three years. After the integration has bedded down, Stiefel will be a leaner operation and dominant force in dermatology. Those acquisitions, particularly with the clearly ambitious Mr Stiefel at the helm with a much bigger cheque book in his pocket, are likely to continue.

Market rumours earlier this year linked Glaxo with a bid for Allergan, better known for its brands such as Botox, and operating more in the cosmetic end of the dermatology market. With a market cap of $15bn, this would clearly be a much bigger move and possibly too large for Glaxo’s “bolt-on” strategy. However, the Stiefel move certainly signals an intention to keep growing in the area.

According to EvaluatePharma, dermatology is one of the smallest therapy areas in terms of value, with many remedies sold over-the-counter and therefore relatively low price. The majority of the market is consolidated in the hands of a number of large players, which means if Glaxo’s ambitions in the area do extend beyond Stiefel, it will have to be prepared to do larger acquisitions.

WW Rx & OTC Sales By Therapy Area 2008 2014 CAGR
     Blood 40,249 44,782 2%
     Cardiovascular 79,217 66,517 (3%)
     Central Nervous System 93,288 80,728 (2%)
Dermatology 9,966 12,610 4%
     Endocrine 33,892 49,950 7%
     Gastro-Intestinal 31,113 26,534 (3%)
     Genito-Urinary 25,108 25,110 0%
     Musculoskeletal 40,272 59,260 7%
     Oncology & Immunomodulators 67,018 99,288 7%
     Respiratory 43,307 41,927 (1%)
     Sensory Organs 11,357 13,746 3%
     Systemic Anti-Infectives 69,558 93,338 5%
     Various 12,058 16,860 6%
     Other Rx & OTC Pharma 87,203 121,806 6%
     Total WW Rx & OTC Sales 643,605 752,456 3%

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