Region’s drug firms can learn from big link-up

GlaxoSmithKline CEO Andrew Witty
GlaxoSmithKline CEO Andrew Witty
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YORKSHIRE companies who focus on specialised drug production should be able to benefit from the latest round of consolidation in the global pharmaceuticals industry, it was claimed yesterday.

Professor Christopher Bovis, of Hull University Business School, said Yorkshire companies can learn valuable lessons from the anticipated “spree” of big deals in the pharmaceuticals sector.

Yesterday, it was revealed that GlaxoSmithKline and Swiss rival Novartis are to create a consumer healthcare powerhouse as part of a string of deals in the pharmaceuticals sector.

The tie-up will create a world-leading business with annual revenues of around £6.5bn from Glaxo products such as Aquafresh and Beechams and antiseptic range Savlon and cough and cold brand Tixylix from Novartis.

In addition, Glaxo is selling its oncology portfolio and related research and development activities to Novartis for up to 16 billion US dollars (£9.5bn) and buying the Swiss firm’s vaccines business for an initial 5.25 billion US dollars (£3.1bn).

Separately, Novartis is to sell off its animal health division to Lilly for about 5.4 billion US dollars (£3.2bn) and also plans to sell its flu business.

The three-part transaction involving Glaxo and Novartis is expected to complete during the first half of next year and will result in a 4 billion US dollars (£2.4bn) return of capital to Glaxo shareholders.

Mr Bovis, a professor of international and European business law, at Hull University Business School, told The Yorkshire Post: “The deal reflects a ferocious appetite of the pharmaceutical sector to focus on specialised drugs production which is protected by long-term patents and has traditionally outperformed generic drugs production.

“In addition, the ability of global pharmaceutical companies to have a stable of specialised drugs offers a significant competitive advantage in procurement exercises by national health sectors across the world.

“Novartis did the deal to enhance shareholder value and concentrate on higher quality margins. The deal represents best practice in corporate asset swaps and, subject to any regulatory clearance and global anti-trust regulation, it will herald a spree of similar deals which will see advanced concentrations in the sector. Yorkshire pharmaceutical companies will have to learn from such international corporate practices.

“Although it may be good value to accumulate pharma-derivative companies, such as animal drugs and care products, in the long run, the industry will be focusing on specialised drugs production, which is underpinned by research and development.

“Yorkshire pharmaceutical companies have all the capability in moving to such an environment for themselves, and their shareholders.”

Glaxo chief executive Sir Andrew Witty said: “Opportunities to build greater scale and combine high quality assets in vaccines and consumer healthcare are scarce. With this transaction we will substantially strengthen two of our core businesses and create significant new options to increase value for shareholders.”

Panmure Gordon analyst Savvas Neophytou said: “Today’s transaction shows management will not sit idly by waiting for the pipeline to mature but will take brave decisions to unlock shareholder value.”