December 20, 2018

Seeking prescription profits, pharma giants Glaxo and Pfizer spin off consumer divisions

Glaxo and Pfizer, 2 of the world’s largest pharma companies, merged their consumer divisions in search of greater prescription profits.

The pharma giants GlaxoSmithKline and Pfizer announced plans to merge their consumer healthcare units yesterday, minting the world’s largest toothpaste titan. 

After offloading their OTC consumer divisions, the 2 pharma giants will focus on their prescription drugs, which are riskier but more profitable.

Emptying out the medicine cabinets

OTC products provide steady, low-margin revenue. But while toothpaste sells, it doesn’t make a huge profit. Instead, prescription drugs make the big money for big pharma: They’re expensive when they fail, but massively profitable when they don’t. 

So as the market has become more competitive, pharma companies have shed ‘non-core’ (AKA non-prescription) businesses. 

Glaxo recently sold off its nutrition division, Pfizer dumped its animal health business, and competitor Bristol-Myers Squibb sold of its French consumer healthcare biz.

Writing a prescription for new profits

The new Glaxo-Pfizer giant will be the largest consumer healthcare biz in the world, with a 7.3% market share and $12.7B in revenue. After shareholder and regulatory approval, the new biz is expected to hit British stock markets in 5 years. 

But the real value of the deal for Glaxo and Pfizer is that it will allow the 2 companies to cut costs by $631.2m per year by 2022, allowing them to invest heavily in R&D for new prescription drugs.

After the announcement, Glaxo’s shares rose as high as 7.4% in London and Pfizer’s rose 0.8% in New York.

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