Small is beautiful for Glaxo

Analysis

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.

Global Pharma M&A in 2008
 
  M&A Deal Date Target Company or Business Unit Deal Value ($m) Deal Count
         
 Bayer AG  2008  DIREVO Biotech  319  
   2008  Maxygen's Hematology Development Portfolio  120  
   2008  Topsun Science & Technology's OTC  177  
   2008  Sagmel's OTC Business  -  
 Total      616  4
         
 Boehringer Ingelheim  2008  Actimis Pharmaceuticals  515  1
         
 Bristol-Myers Squibb  2008  Kosan Biosciences  190  1
         
 Eli Lilly  2008  SGX Pharmaceuticals  64  
   2008  ImClone Systems  6,500  
 Total      6,564  2
         
 GlaxoSmithKline  2008  Genelabs Technologies  57  
   2008  Sirtris Pharmaceuticals  720  
   2008  AstraZeneca Nordic OTC Portfolio  253  
   2008  BMS Pakistan  37  
Total     1,067 4
         
 Johnson & Johnson  2008  Omrix Biopharmaceuticals  438  1
         
 Novartis  2008  Nektar Therapeutics Pulmonary Business Unit  115  
   2008  Protez Pharmaceuticals  400  
   2008  Alcon  10,400  
   2008  Speedel  880  
 Total      11,795  4
         
 Pfizer  2008  Encysive Pharmaceuticals  195  
   2008  Serenex  -  
   2008  CovX  -  
 Total      195  3
         
 Roche  2008  Chugai  -  
   2008  Piramed  175  
   2008  Mirus Bio  125  
   2008  ARIUS Research  188  
   2008  Genentech  43,700  
   2008  Memory Pharmaceuticals  50  
 Total      44,238  6
         
 Sanofi-Aventis  2008  Symbion Consumer  539  
   2008  Zentiva  2,590  
   2008  Acambis  544  
 Total      3,673  3
         
 Wyeth  2008  Thiakis  150  1
         
Total     68,147 30

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.

Total deal value in 2008 - top 10 companies Product Count Deal Value ($m) Upfront Payment ($m)
 GlaxoSmithKline 22 6,766 548
 Genzyme  3  2,837  275
 Pfizer  9  1,900  340
 Bristol-Myers Squibb  4  1,747  250
 Celgene  2  1,004  45
 Astellas Pharma  4  978  94
 Takeda  11  953  276
 Johnson & Johnson  6  931  78
 AstraZeneca  4  900  40
 Eli Lilly  15  829  49

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.

Largest Deals (Last 12 months) - By Disclosed Deal Value ($m)
 
Rank Company Deal Type Product Deal Partner/ Product Source Status on Deal Date Deal Date Upfront Payment Deal Value
1 GlaxoSmithKline In-licensed Almorexant (ACT-078573) Actelion Phase III  14/07/2008  101  2,451
2 GlaxoSmithKline In-licensed Aptamer Inflammatory Disease Project Archemix Research project  23/12/2008  25  1,298
3 Johnson & Johnson In-licensed GT418 Galapagos Research project  24/10/2007  87  1,211
4 GlaxoSmithKline In-licensed TC-2696 Targacept Phase II  27/07/2007  15  1,158
5 GlaxoSmithKline In-licensed OMP-21M18 OncoMed Pharmaceuticals Pre-clinical  10/12/2007  -  1,040
6 Roche Joint venture Alnylam/Roche RNAi collaboration Alnylam Pharmaceuticals/Roche Research project  09/07/2007  286  1,025
7 Merck & Co In-licensed Deforolimus (MK-8669) ARIAD Pharmaceuticals Phase II  12/07/2007  75  927
8 AstraZeneca In-licensed Unit Dose Budesonide (UDB) MAP Pharmaceuticals Phase III  19/12/2008  40  900
9 GlaxoSmithKline In-licensed Elesclomol Synta Pharmaceuticals Phase II  08/10/2007  61  770
10 GlaxoSmithKline In-licensed GlaxoSmithKline/Dynavax Research Collaboration Dynavax Technologies Research project  17/12/2008  9  737

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.

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