GlaxoSmithKline takes firmer control over Indian operation

March 10 saw GlaxoSmithKline plc (GSK) announce that after initiating a voluntary open offer through its subsidiary, GlaxoSmithKline Pte Ltd., it has increased its stake in its publicly-listed pharmaceuticals subsidiary in India, known as GlaxoSmithKline Pharmaceuticals Ltd., from 50.7 percent to 75 percent

Jeffrey Bouley
LONDON—March 10 saw GlaxoSmithKline plc (GSK) announce that after initiating a voluntary open offer through its subsidiary, GlaxoSmithKline Pte Ltd., it has increased its stake in its publicly-listed pharmaceuticals subsidiary in India, known as GlaxoSmithKline Pharmaceuticals Ltd., from 50.7 percent to 75 percent.
 
GlaxoSmithKline Pte Ltd accepted 20,609,774 shares from the shareholders of GlaxoSmithKline Pharmaceuticals Ltd., representing 24.33 percent of the total shares outstanding through the open offer, which began Feb. 18 and ended March 5.
 
 “We are very pleased with the outcome of this transaction, which further increases our exposure to a strategically important market,” said David Redfern, chief strategy officer for GSK. “It is a significant vote of confidence in the future growth prospects of our pharmaceuticals business in India and underlines GSK’s long-standing commitment to the country.”
 
According to GSK, GlaxoSmithKline Pharmaceuticals Ltd. will remain publicly-listed.
 
The transaction was valued at roughly £625 million, or about $1.05 billion, and there had been no secret of GSK’s intention to make the deal happen, having announced the open offer in mid-December 2013. At that time, Zacks Investment Research wrote of the plans, “The Indian pharmaceuticals subsidiary commercializes pharmaceuticals and vaccines targeting several therapeutic areas including respiratory, cardiovascular, oncology, anti-infectives and dermatology. The subsidiary generated revenues of approximately £313 million in 2012.  The deal is in line with the company’s plans to expand its pharmaceuticals segment in emerging markets and looks good to us.”
 
Zacks’ enthusiasm was tempered, however, by the additional statement that it was “concerned about the loss of revenues in the third quarter due to investigation in China regarding fraudulent behavior and ethical misconduct. We are also disappointed with pipeline setbacks for two late stage candidates (drisapersen and darapladib). Meanwhile, Glaxo continues to face challenges in the form of EU pricing pressure and generic competition. We expect recent approvals, restructuring and cost-cutting efforts to offset some of the negatives.”
 
As other market-watchers have noted, GSK seems to be counting on rising demand for its products in developing markets, and the Indian deal is a part of that effort to cash in on such demand. GSK has maintained a presence in India for some 90 years now and that market alone is at $14 billion a year and rising. Recent efforts by the Southeast Asian nation to limit patents on some medicines and cut prices doesn’t seem to have dampened GSK’s optimism about the market.
 
GlaxoSmithKline Pharmaceuticals Ltd. employs more than 3,500 people at a clinical development center and two manufacturing plants in India.
 
This increased stake in the Indian operation comes about a year after GSK paid £550 million (about $915.3 million) to increase its stake in another Indian operation known as GlaxoSmithKline Consumer Healthcare.

Jeffrey Bouley

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