IHS Global Insight Perspective | |
Significance | GlaxoSmithKline (GSK; U.K.) has acquired a minority 9.9% stake in South Korean company Dong-A. Unconfirmed reports suggest that GSK will pay up to US$60 million to settle up to 700 lawsuits which claim that Avandia is linked to cardiovascular risks. |
Implications | This deal is a strategic one aimed at bolstering GSK's position in the growth South Korean pharma market. The two companies will also work to co-promote drugs for use in primary healthcare. If GSK moves to settle these Avandia cases, the company will crucially avoid a high-profile trial planned for July. |
Outlook | This latest acquisition is the third latest small-scale acquisition for GSK. The diversified nature of Dong-A's portfolio fits well into GSK's diversification strategy which has emerged as a key driver of its current strong performance. Avandia's future continues to hang in the balance and the U.S. FDA is expected to reach a decision in July on whether the drug should remain on the market. GSK also faces up to 4,000 similar lawsuits. |
GSK Forges Ahead with Emerging Markets Expansion Drive
U.K. pharma major GlaxoSmithKline (GSK) has announced that it has purchased a 9.9% stake in South Korean drug maker Dong-A for an estimated £73.9 million (US$109.6 million). In addition to the minority stake, GSK will also form a strategic alliance with Dong-A for the co-promotion of both companies' products in the primary healthcare setting. According to GSK's press release, a new unit will be formed within Dong-A to facilitate this alliance. Furthermore, both companies will continue to seek potential synergies in the Korean pharma market.
Avandia Settlement
In separate news, reports from the Bloomberg news agency suggest that GSK has reached a financial settlement deal for lawsuits related to its diabetes drug Avandia (rosiglitazone). According to the source, GSK is set to pay an estimated US$60 million to settle up to 700 cases. The cases surround claims that the drug is linked to cardiovascular-related adverse effects. The link between Avandia and cardiovascular risks is not new, however Avandia is currently facing increasing scrutiny after the publication of a report by the Senate Finance Committee. The report suggested that GSK was aware of the potential cardiovascular risks long before its launch, but that it chose to sweep the facts under the carpet (see United States: 22 February 2010: Avandia's Prospects Hang in Balance Following Senate Finance Report on Drug's Risk).
Outlook and Implications
This latest deal with Dong-A marks yet another example of GSK strengthening its activities in the emerging markets and Asia in particular. Dong-A's position as a dominant player in the South Korean pharmaceutical market makes it an attractive investment prospect for GSK. In addition to its core pharmaceutical portfolio which involves a combination of branded and generic drugs, the company also has various over-the-counter (OTC) and consumer products. Given GSK's current focus on product diversification, Dong-A's profile fits well into this strategy. According to GSK, Dong-A reported sales of £414 million in 2009. South Korea has been identified as a key emerging market for pharmaceuticals and in 2009 the top ten local pharmaceutical firms in the country reported a 13% year-on-year average growth in sales (see South Korea: 19 February 2010: Ten Leading South Korean Drug Makers Post 13% Average Growth for 2009). This latest acquisition follows similar small-scale inorganic growth opportunities explored by GSK. GSK currently has a 19% stake in South African generic firm Aspen Pharmacare, a deal which is targeting expanding opportunities in the generics market in sub-Saharan Africa (see United Kingdom: 1 December 2009: GSK Increases Stake in Aspen by 3%). GSK has also purchased a 25% stake in Japanese drug maker JCR Pharma in a move to strengthen its presence in the biosimilars market as well as its focus on rare diseases, another area of growth which GSK has identified (see United Kingdom: 2 April 2010: GSK Increases Stake in JCR). While all of these acquisitions appeared to be aimed at different segments of the market, they fit well into GSK's strong diversification strategy which has enabled the company to achieve strong top-line and bottom-line growth over the last few quarters. It is also possible that we may see GSK gradually increase its initial stake in Dong-A, following a similar pattern to that seen in the Aspen and JCR deals.
On the Avandia front, GSK has not commented on whether or not a settlement deal has indeed been struck. Nevertheless, it is possible that the company will remain keen to settle these cases in order to avoid a high-profile trial involving Avandia, especially given the heightened scrutiny which the drug is currently facing. The first Avandia trial has been scheduled to start in July, the same month in which the U.S. FDA is set to meet to evaluate the safety profile of the drug. Despite this potential settlement, Avandia's legal woes may be far from over. So far, an estimated 4,000 lawsuits have been filed against GSK over Avandia. Meanwhile, GSK continues to stand behind the drug, insisting that multiple clinical studies have shown that Avandia does not statistically significantly increase cardiovascular risks.