InvestorsHub Logo
Boards
News
Market Data
Markets
Discover
Discover
Subscribe Login/Register account icon
S&P 500
5,505.00
(
-0.71%
)
US TECH 100
19,000.00
(
-0.94%
)
Dow Jones
40,287.53
(
-0.93%
)
Brent Oil
81.88
(
0.00%
)
Bitcoin
66,635.00
(
-0.12%
)
Post# of 252642
Next 10
Reply Private New
Public Reply Private Reply New Post
Keep Last Read
Keep Next 10 Report Keyboard Shortcuts
Next 10 Prev Next

DewDiligence

Send PM Follow Ignore
Followers 831
Posts 120081
Boards Moderated 16
Alias Born 09/05/2002

DewDiligence

Member Level

Re: DewDiligence post# 76089

Thursday, 04/16/2009 4:10:49 PM

Thursday, April 16, 2009 4:10:49 PM

Post# of 252642
Musings on the GSK-PFE HIV JV from Dow Jones:

http://online.wsj.com/article/BT-CO-20090416-715245.html

›DEALWATCH: Dull Pharma JV May Become Alluring Spin-Off, Sale

By Naomi Nikolajsen and Robert Armstrong
DOW JONES NEWSWIRES
APRIL 16, 2009, 3:51 P.M. ET

Pfizer Inc.'s (PFE) and GlaxoSmithKline PLC's (GSK) plan to combine their HIV franchises in a joint venture may look like a humdrum piece of restructuring designed to optimize two relatively small assets. A closer look suggests the drug makers might have something more radical in mind: selling or spinning off the JV altogether.

Glaxo CEO Andrew Witty cites reasons for the combination that make good sense. A company with a single focus could be marginally more productive in science, sales and sniffing out M&A opportunity. Presumably, managerial and operational overlaps could create savings.

But there are also odd things about the deal. The contribution Glaxo is making to the JV, measured in terms of sales, is much larger than Pfizer's. The companies stated that the 2008 sales of the JV would have been 1.6 billion British pounds ($2.4 billion). In that year, Glaxo reported GBP1.5 billion in HIV product sales, implying that Pfizer will contribute only GBP100 million. Given this, how much does Glaxo stand to gain?

It doesn't gain near-term pipeline possibilities. Neither company has an HIV product in phase III trials, meaning a new product is two to three years away -- if the phase II projects make it to market at all. As Witty points out, "All research in HIV is pretty risky, and there are many examples of projects not making it."

The joint venture will not create a scale advantage relative to the big players in the space. Gilead Sciences Inc. (GILD) sold $4.3 billion in HIV medication in 2008. Bristol-Myers Squibb Co. (BMY) has two big HIV drugs, Reyataz and Sustiva, which together generated 2008 sales equal to the JV. [Sustiva is the drug IDX899 is designed to supplant.] And importantly, Gilead and Bristol's HIV products have had strong growth: 38% and 17%, respectively.

Gilead and Bristol, therefore, will only grow their lead on the new JV. In the last three quarters, sales of Glaxo's HIV products declined, and in each quarter the rate of decline has accelerated [they are mostly obsolete drugs from the 1990’s that continue to have sales due to inertia], to -9% in the fourth quarter. Pfizer's products are growing, but off a small base. Adding to the pressure, Combivir, the biggest product in the Glaxo HIV portfolio, loses U.S. patent protection in 2012.

All this indicates that creating the JV is not much of a strategy for long-term competitiveness in the HIV space. But it may do something else: create an entity that can be neatly sold to another player or spun off as an independent company. The combination of the two companies' assets, along with any savings realized, would fetch a price greater than the two franchises sold individually.

The natural buyer would be another company with HIV assets that could attain significant scale by combining what was previously three portfolios. If the price was right, Abbott Laboratories (ABT), for example, could add the JV's assets to its HIV drug Kaletra, which had $1.5 billion in sales in 2008. This would provide Abbott's existing HIV sales force with a larger range of products to sell.

A spun-off company would face the same challenges as the JV on its own but would offer investors significant near-term cash flows and the possibility of research upside.

A Pfizer spokesperson, when asked about such a strategy, said, "At this point there are no plans for a publicly traded company, or selling to one."

However, if Pfizer and Glaxo are entertaining the idea of such a strategy for the long term, they are to be commended. The environment in the pharma industry is increasingly difficult. To survive, companies must focus on the areas where they have sustainable competitive advantages. Assets that are doomed to finish second should be turned into cash.‹


“The efficient-market hypothesis may be
the foremost piece of B.S. ever promulgated
in any area of human knowledge!”

Public Reply Private Reply New Post
Keep Last Read
Keep Last Read Next 10 Report Keyboard Shortcuts
Next 10 Prev Next
Join InvestorsHub

Join the InvestorsHub Community

Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.

Sign Up