Small is beautiful for Glaxo

While Pfizer’s expected $68bn deal for Wyeth could trigger the long called for, if ill advised, chain reaction of more mega-mergers, one company at least is sticking to its knitting, for now.

GlaxoSmithKline’s announcement on Friday that it would be paying $667.2m to acquire some of the operations of UCB in parts of Africa, the Middle East, Asia Pacific and Latin America plays into the strategy outlined by new chief executive, Andrew Witty, to look at both emerging markets and create smaller more focused units at the business rather than look to large acquisitions. The table below shows that Glaxo has kept its word.

Last year, the company bought four companies, while this was higher than the average, the deal values were not. The UK company spend a modest $1.07bn on acquiring companies last year compared with the $44.2bn and $11.8bn that Roche and Novartis respective splashed out in 2008. The figure for Roche does, however, include its $43.7bn bid for Genentech, which has yet to complete. Glaxo’s spend included buying Bristol Myer-Squibb's operations in Pakistan, further underlining Mr Witty's commitment to under developed markets.

Rather than spending on companies, Glaxo has instead in-licensed a number of products and platform technologies. The company is currently leading the pack when it comes to striking deals for new therapies, with 22 acquisitions under its belt in 2008, compared with the 15 deals that Eli Lilly, the second most acquisitive company struck in the year.

Glaxo has also not scrimped on its spending for products, even if it has steered clear of big company acquisitions. The company was behind six of the top 10 most valuable drug deals signed last year, including the most valuable individual product acquisition, with its $2.45bn play for Actelion’s Almorexant. But this was unusual, as the majority of the other deals were completed to allow the group get its hands on either multiple products or platform technologies, like Archemix’s Aptamer expertise in inflammatory diseases.

Glaxo’s spending spree, that as well as giving it technology platforms has given it access to the emerging markets of Brazil, and South Africa and over-the-counter products, is one that it hopes will diversify its business and make it less reliant purely on drug discovery, which many in the industry are struggling with. It is also a scheme that Mr Witty has committed to, claiming in January that he would continue to look for assets in emerging markets.

So while Pfizer has chosen a mega-merger, a move that looks as if it was chosen solely to prop up the bottom line by cost savings over a number of years, Glaxo will be hoping that its strategy of building share in smaller markets and spreading risk will be the answer it needs.

But if others do follow Pfizer’s lead and merge so they will not be left behind, it will be interesting to see if Mr Witty, who has relatively less cash than his peers with $8.61bn on the balance sheet, holds his nerve and clings onto his new scheme for long-term growth.