GlaxoSmithKline plc (GSK) recently announced that it has entered into an agreement with Aspen Global Incorporated, a subsidiary of Aspen Pharmacare Holdings Limited to divest the majority of its Classic Brands in Australia. As per the terms of the agreement, Aspen Pharmacare will pay £172 million in cash to Glaxo. The deal is expected to be completed in the fourth quarter of 2012.
Classic Brands comprises 25 non-promoted products facing generic competition. The brands being sold to Aspen Pharmacare include Valtrex, Lamictal, Timentin, Amoxil and Aropax. These brands collectively recorded sales of approximately £83 million in 2011. In the first half of 2012, these brands generated sales of approximately £31 million. Net cash proceeds of £155 million are expected to be realized from the deal.
We note that, Glaxo and Aspen are not stranger to each other. Earlier in April 2012, Glaxo entered into an agreement with Aspen Pharmacare Holdings Limited to divest its non-core over-the-counter (OTC) brands sold in international markets. As per the terms of the agreement, Aspen Pharmacare paid £164 million in cash to Glaxo.
This sale was a part of Glaxo’s plan to divest non-core Consumer Healthcare OTC products primarily in the US and Europe, announced earlier in February 2011. The total annual sales of these products amounted to approximately £500 million.
Glaxo has undertaken this divestment plan with the intention of channeling its focus on priority brands and markets.
Our Recommendation
Glaxo’s several products including Valtrex, Arixtra, Evoclin, Lamictal, Imitrex, Requip, Combivir and Epivir are facing declining sales due to intense generic competition. We expect the company's top line and gross margins to remain under pressure in the coming quarters. The US health care reform and EU pricing pressure will continue to affect sales.
We currently have an Underperform recommendation on Glaxo. The stock carries a Zacks #4 Rank (Sell rating) in the short run.
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