British drug major GlaxoSmithKline Plc (GSK,GSK.L), Monday, said it signed an agreement to acquire US-based privately held dermatology company Stiefel Laboratories Inc. in a deal valued at up to $3.6 billion, including $2.9 billion in cash, thus to create a new world-leading specialist dermatology business.
The deal, which is part of the company's strategy to grow and diversify its business, is expected to close in the third quarter of 2009, subject to certain conditions.
Under the terms of the agreement, approved by the Stiefel stockholders, GlaxoSmithKline, a research-based pharmaceutical and healthcare company, expects to assume $0.4 billion of net debt upon closing, and will pay potential further $0.3 billion in cash, contingent on future performance.
Coral Gables, Florida-based Stiefel is the world's largest privately held independent dermatology company, with more than 30 subsidiaries, six manufacturing plants and a network of nearly 3,500 driven associates. It also owns Barrier Therapeutics Inc. (BTRX), which it bought in August 2008. John David Stiefel founded Stiefel in Germany in 1847.
Stiefel, which makes anti-itch creams, acne treatments and other dermatological remedies to help treat acne, dry skin, dandruff, psoriasis and rosacea among other disorders, reportedly drew interest from a number of major global drug companies, including Sanofi-Aventis SA (SNY), Johnson & Johnson (JNJ), and Novartis AG (NVS).
Commenting on the deal, Andrew Witty, chief executive officer of GSK said, "As part of our strategy to grow and diversify GSK's business, we are continuing to make new investments through targeted acquisitions. The addition of Stiefel's broad portfolio will provide immediate new revenue flows to GSK with significant opportunities to enhance growth through leveraging our existing global commercial infrastructure and manufacturing capability."
GSK noted that it will combine its existing prescription dermatological products with Stiefel's, and the new specialist business will operate under the Stiefel identity within the GSK Group. Upon the deal closure, Charles Stiefel, chief executive officer, and chairman of the Board of Stiefel will lead the new business.
GSK pointed out that the new specialist dermatology business will have a broad portfolio of dermatology products including Stiefel's Duac for acne, Olux E for dermatitis, and Soriatane for the treatment of severe psoriasis, while GSK's key dermatology brands include Bactroban, Cutivate and recently launched Altabax.
With the formation of the new business, Stiefel's products are projected to benefit from GSK's global distribution and commercial organizations, particularly in markets such as Brazil, Russia, India, China and Japan. GSK noted that the combined pro forma revenues for the calendar year 2008 were about $1.5 billion, representing an 8% share of the global prescription dermatology market. Sales of Stiefel's products for the year 2008 were approximately $900 million, while sales of GSK's prescription dermatology products totaled about $550 million.
The new business is expected to have access to significant innovative and proprietary formulation technologies, and also a robust development pipeline, with Stiefel currently having more than 15 projects in late-stage development across a wide variety of dermatological conditions.
Charles Stiefel said, "Along with adding hundreds of marketed dermatology products, this deal will increase the value of Stiefel's unparalleled dermatology pipeline by expanding the customer base to which we will be able to offer these products."
GSK noted that cost synergies are expected primarily from combining manufacturing and administrative functions. Annual pre-tax cost savings of up to $240 million by 2012 is projected with integration costs of approximately $325 million over the next 3 years. Excluding integration costs, the deal is expected to result in less than 1% earnings per share dilution for GSK in 2009 and to be 1% to 2% accretive to earnings per share in 2010.
The company noted that the closing of the acquisition is conditional upon certain matters including receiving certain regulatory clearances and no material adverse change occurring in respect of Stiefel's business prior to closing.
The pharmaceutical industry is recently witnessing consolidation on a large scale as cash-rich drug companies are going after their rivals to boost their weak product pipelines, in order to overcome the impact of expiring patents on blockbuster medicines and generic competitors.
As per February's media reports, GSK was in talks to acquire Indian generic drug developer Piramal Healthcare Ltd. for about $1.5 billion. Piramal sells a range of generic prescription drugs along with chemical ingredients used in drug manufacturing. Last month, GSK was reportedly getting ready to buy a minority 25% stake in South African generic-drug maker Aspen Pharmacare Holdings Ltd., by swapping its assets for Aspen shares, and buy additional Aspen stock in the market or from the company.
Last week, GlaxoSmithKline entered into an agreement with rival Pfizer, Inc. (PFE) to create a new HIV company focused exclusively on research, development and commercialization of HIV medicines. The joint venture would increase its share of the $12.3 billion global HIV market presently being dominated by Gilead Sciences. According to the deal, the research-based pharmaceutical companies would combine their existing HIV product and pipelines, with GSK initially holding 85% of the new company and Pfizer 15%.
In recent years, Stiefel, which has been controlled for more than 160 years by the founding Stiefel family, has acquired various businesses. In 2006, Stiefel acquired Connetics Corp., a drug company specialized in dermatology, for about $605 million, and last year, Stiefel bought Barrier Therapeutics for about $150 million.
So far this year a number of pharmaceutical deals have been announced. In March, Merck & Co., Inc. (MRK) agreed to buy rival Schering-Plough Corp. (SGP) for about $41.1 billion, and Swiss pharmaceutical giant Roche Holding AG (RHHBY.PK) agreed to pay $46.8 billion to acquire the remaining 44% stake it does not own in biotech pioneer Genentech, Inc. (DNA).
Also in March, Gilead Sciences, Inc. (GILD) agreed to acquire CV Therapeutics, Inc. (CVTX) for about $1.4 billion. Earlier, drug giant Pfizer agreed to acquire Wyeth (WYE) for about $68 billion in late January, in a deal that is expected to create a pharmaceutical behemoth with combined revenue of about $75 billion.
GSK closed Friday's regular trading session at $30.59, down $0.23 or 0.75% on a volume of 2.18 million shares. In the past 52-week period, the stock has been trading in a range of $27.15 to $49.48.
GSK.L is currently trading at 1,039.50 pence on the London Stock Exchange, up 1.50 pence or 0.14%, on a volume of 4.7 million shares.
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