Big pharma: GSK to split as it forms £9.8bn consumer health venture with Pfizer

British pharmaceuticals group Glaxosmithkline (GSK) has revealed it has entered into an agreement with US rival Pfizer to combine their consumer health businesses into one joint venture, expected to bring in sales of approximately £9.8bn.

GSK said it will hold a majority controlling interest in the new venture at 68 per cent, while Pfizer will retain an equity interest of the remaining 32 per cent.

Within three years of closing the deal, GSK will break up the company into two separate businesses: one to be focused on consumer healthcare, and the other for pharmaceuticals and vaccines. It may also list the new venture in the UK.

Shares in GSK rose more than five per cent in early trading on the news.

The drugs manufacturing giant said the proposed transaction, subject to approval by shareholders, "represents a compelling opportunity to build on the recent buyout of Novartis' stake in GSK Consumer Healthcare".​ Novartis sold off its interest in the consumer arm to GSK in March for $13bn (£10.3bn).

GSK chief executive Emma Walmsley said the transaction is "a unique opportunity to accelerate" the firm's work towards prioritising research and development over other divisions.

"With our future intention to separate, the transaction also presents a clear pathway forward for GSK to create a new global pharmaceuticals/vaccines company, with an R&D approach focused on science related to the immune system, use of genetics and advanced technologies," she added.

"Ultimately, our goal is to create two exceptional, UK-based global companies, with appropriate capital structures, that are each well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers."

The tie-up will bring together popular brands owned by the two firms under one roof, including Sensodyne, Voltaren, Panadol, Advil and Centrum. As a result, GSK said the joint venture will take the top spot in global market share in over the counter products at 7.3 per cent, more than three per cent ahead of its nearest competitor.

The deal, which is expected to provide GSK with annual savings of £500m by 2022, is predicted to close in the second half of 2019.

"While GSK is following in the footsteps of others in the sector by doing the splits, the decision to spin off the consumer healthcare division is still a surprise," said Hargreaves Lansdown equity analyst George Salmon.

"The separation will take away the steady cash flows of the consumer business, meaning there’s more pressure on the men and women in white coats to deliver the next generation of blockbusters. However, the potential to shift significant amounts of debt onto the cash-generative consumer business should take the strain off the balance sheet."