Deal will create the world's largest O-T-C supplier

NEW YORK — GlaxoSmithKline Plc and Pfizer Inc. have struck a deal to combine their consumer health care businesses, a move that will create the largest over-the-counter drug company in the world. GSK will have a 68% controlling stake in the new joint venture entity, while Pfizer will keep the remaining 32%. Combined sales of both entities topped $12 billion last year. The deal also provides a means for Pfizer to get rid of its consumer business, which the company has been looking to do for more than a year now.

The deal will also pave the way for GSK to split into two separate companies, one focused on consumer health care and one on pharmaceuticals and vaccines.

The noncash transaction creates the world’s largest supplier of over-the-counter medicines with brands of painkillers such as Advil and Panadol and marks a shift from GSK chief executive officer Emma Walmsley’s previously stated strategy of keeping the steadily performing consumer and vaccine businesses under the same roof as the more volatile pharma operations.

The U.K. drugmaker’s shares surged as much as 8.3% on the London stock exchange, while Pfizer’s increased just over 1% 1.2 in premarket U.S. trading.

In a conference call with the press, Walmsley said the benefits of separating into two companies, with one dedicated to prescription medicines and the other to consumer health, outweigh the advantages that come with a more diversified structure. By moving out of the competitive, lower-margin over-the-counter business, GSK and Pfizer can focus on drug development as research costs continue to rise while at the same time governments and insurers demand lower prices.

“Historically we’ve liked the balance of a broader company but we’ve always been pragmatic about that,” Walmsley said in an interview with Bloomberg Television. She also added the deal will “support our number-one priority, which is strengthening the pharma business.” The deal frees up GSK to focus on developing drugs for cancer, HIV and other diseases, while removing the company from selling low-priced products in the competitively squeezed consumer field.

The combined entity will operate under the name GSK Consumer Healthcare. Tobias Hestler, the existing CFO of the GSK’s consumer arm, will retain that title at the newly formed company. The transaction is expected to close in the second half of 2019.