GlaxoSmithKline (GSK) recently announced that it has entered into an agreement to acquire 80.02% shares of a U.K. and Germany-based, privately-owned company, Cellzome, for a cash payment of £61 million (U.S. $99 million). Glaxo already owns 19.98% shares of Cellzome and after the completion of this deal will own the full company. The acquisition is expected to be completed on May 21, 2012.
After the acquisition, Glaxo will get full rights to Cellzome’s proteomics technologies. These technologies enable better analysis of a drug’s efficacy and safety profile, thus reducing the number of discontinued candidates in development phases.
Glaxo plans to make Cellzome a part of its research and development (R&D) organization. Glaxo along with Cellzome shareholders plans to form a spin-off company that will deal with assets and activities that Glaxo does not want to continue.
Neutral on Glaxo
We currently have a Neutral recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold rating) in the short run. A major part of Glaxo’s revenues will be exposed to generic competition as multiple drugs are scheduled to lose exclusivity in the next few years.
We expect the company’s top line as well as gross margins to remain under pressure in the coming quarters. In addition to generic competition, the U.S. health care reform and E.U. pricing pressure will continue to affect sales.
Glaxo recently launched a hostile bid to acquire the outstanding shares of Human Genome Sciences, Inc. (HGSI) for a cash payment of $13 per share.
Glaxo would get exclusive rights to Benlysta as well as other candidates such as darapladib and albiglutide, if it succeeds in acquiring Human Genome. The acquisition will raise the returns on research and development (R&D) expenses for Glaxo and lead to cost synergies of minimum $200 million by 2015. We believe this potential takeover would be accretive for the company from 2013.
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