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Why Glaxo bids adieu to cancer drugs

  • WSJ's Hester Plumridge reports on the reasons GlaxoSmithKline (GSK +4.6%) exits the cancer space despite its substantial long-term growth prospects.
  • The move enables the firm to focus on its core businesses in respiratory, HIV, vaccines and consumer health with the intent of improving operating margins. These four areas constitute 70% of its revenue. The remaining 30% is evenly split between its legacy products and metabolic/cardiovascular. It intends to retain the latter and divest the former.
  • The $16B sale of its cancer business to Novartis (NVS +1.5%) delivers substantial value for shareholders considering its relatively modest top line of $1.6B and the lack of promising immunotherapies. Glaxo ranks a distant fourteenth in market share with little hope of making headway versus the dominant players.
  • Earlier this month, Glaxo stopped the development of IMAGE-A3, its once-promising cancer vaccine. The firm will continue some cancer-related R&D but Novartis will have commercial rights to all future products.
  • With the inclusion of Novartis' vaccine business Glaxo is the global leader in market share and scale.
  • The consumer health joint venture will have the heft to compete more effectively with Reckitt Benckiser Group (RBGPF +0.1%), Colgate-Palmolive (CL -0.5%) and Unilver (UN +0.1%). Glaxo is the dominant partner with a 63.5% stake. It has the option of buying out its partners or selling its holdings in three years.
  • Glaxo expects to save ~$1.3B per year due to improved operational efficiency in vaccines and consumer health.
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