Commentary

GlaxoSmithKline Buys U.S. Cancer Drug After Selling Horlicks To Unilever

London-based SmithKlineGlaxo had a busy day yesterday. First, it divested itself of Horlicks and other healthy drinks popular in South Asia markets. Then, it agreed to buy Waltham, Mass.-based Tesaro, a biopharmaceutical company that is best known for Zejula, a developing treatment that uses the body’s immune system to battle ovarian cancer. 

“A pill taken once a day, Zejula is part of a group of cancer drugs called PARP inhibitors. Essentially, they block an enzyme that our cells use to repair DNA. That repair system is broken in certain kinds of cancer, allowing cancer cells to thrive, so blocking it is critical,” Lydia Ramsey writes for Business Insider.

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“In buying Zejula, Glaxo is entering a competitive arena. AstraZeneca PLC’s Lynparza is the market leader, and a third PARP inhibitor from Boulder, Colo.-based biotech company Clovis Oncology is also jostling for market share. All three are also racing to test their PARP inhibitors in other cancer types,” report Denise Roland and Kimberly Chin for the Wall Street Journal.

“Zejula’s sales have lagged behind rivals, with doctors and industry officials saying the treatment’s side-effect profile is worse than the other drugs,” they add. But “Glaxo’s chief scientific officer Hal Barron said a clinical study that is due to publish results in the second half of next year could expand Zejula’s use to women at an earlier stage of ovarian cancer, boosting sales.”

The deal represents a more than 60% premium over Tesaro’s closing price on Friday. Tesaro’s stock understandably zoomed when the deal was announced. Unilever’s headed in the opposite direction, dropping 8.2%, CNBC’s Berkeley Lovelace Jr. reports , and critics were quick to weigh in.

“Tesaro Is the Wrong Medicine for Glaxo,” reads the headline over Max Nisen’s Bloomberg Opinion piece that points to the stiff competition. 

“Glaxo argued on a conference call Monday morning that Zejula is different and that PARPs are undervalued. But the first has yet to be proved, unless we’re talking side effects, where Zejula has had some issues,” Nisen writes.  “And PARPs may still be overrated. There are risks to efforts to extend the use of these drugs to more patients. And while cancer drugs have traditionally been immune to price competition, PARPs are a logical place to start. Pharmacy benefit managers are certainly interested in the idea.”

(Pharmacy benefit managers this morning are no doubt also interested in the statement by Judge Richard Leon of the U.S. District Court for the District of Columbia yesterday that he may ask CVS Health Corp. and Aetna Inc. (the nation's largest pharmacy benefit manager), to suspend their integration, pending his approval of the consent agreement reached in October between the companies and the U.S. Justice Department, as Reuter’s Diane Bartz reports.

Leon “complained at a hearing last week that the two sides had treated him as a ‘rubber stamp’ for the deal. CVS closed the $69 billion transaction last week and began the integration process,” Bartz adds.)

Meanwhile, Unilever earlier yesterday announced that it was paying $5.1 billion to acquire the health-food-drinks portfolio of GlaxoSmithKline in India, Bangladesh and 20 other markets, including the popular Horlicks and Boost brands. The deal, which is subject to regulatory and shareholder approval, is expected to close within 12 months.

Horlicks, which is a “140-year old brand [that] came to the Indian shores with the British army during World War I, thus retains its British legacy,” according to the Times of India. “Swiss foods giant Nestle, too, was in a close race to acquire the business.” 

You’ll recall that Unilever two months ago retreated from an attempt by then-CEO Paul Polman to ditch London and consolidate Unilever's headquarters in Rotterdam, the Netherlands. Polman turned over the reins to Alan Jope last week.   

Sales of Horlicks have grown at a double-digit rate over the last 15 years. “Despite this, the category still remains under-penetrated in India. Unilever is well positioned to further develop the market given the extent of its reach and capabilities,” the company maintains in a news release.

“The acquisition is transformative for our foods and refreshment business, allowing us to enter the health foods drinks category, further strengthening our position in health and wellness. It is rare to be able to acquire brands with such leading market positions and fantastic consumer equity in one of the world’s most exciting and fast-growing markets,” says Unilever food & refreshment president Nitin Paranjpe.

Since Horlicks is known as “the drink Brits go to bed with and Indians wake up with,” Unilever must be thinking of all the possibilities of expanding its consumption into other dayparts.

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