PE Firms in Race for GlaxoSmithKline Products

Private equity firms including Advent International, Cinven and Warburg Pincus are considering bids for a group of GlaxoSmithKline‘s non-prescription products, Reuters reported. Up for sale are several over-the-counter drugs including painkillers and vitamin supplements. The products have sales of around 500 million pounds ($817 million), representing about 10% of the company’s total consumer healthcare business, Reuters reported.

(Reuters) – At least three private equity firms are planning to bid for a clutch of GlaxoSmithKline’s non-prescription products, expecting limited competition from rival large pharma groups, people familiar with the process said.

Advent International, Cinven and Warburg Pincus are among firms considering bids for the over-the-counter (OTC) products, which include painkillers and vitamin supplements, people said.

GSK, Britain’s biggest drugmaker, said in February it planned to sell several non-core products with combined sales of around 500 million pounds ($817 million), representing about 10 percent of its total consumer healthcare business.

Advent is seen having an advantage over its rivals because it counts former GSK chief executive Jean-Pierre Garnier among its group of operating partners — senior advisers who advise on potential deals and portfolio company development.

Non-binding bids are due on Aug. 8, the people added.

GSK Chief Executive Andrew Witty said on Tuesday, when presenting Q2 results, that the auction of non-core brands was proceeding “on track” and the sale was expected to close in the fourth quarter.

He said there was interest from both private equity and strategic buyers, and GSK would take a pragmatic view about selecting those bidders offering best value for GSK’s shareholders.

Non-prescription medicines are a major focus for a number of GSK’s rivals, including Sanofi , Novartis and Johnson & Johnson , some of whom may want to pick up assets now on the block.

But rival firms are unlikely to want to buy all the brands on offer, and some have doubts about diet pill Alli that accounts for around one third of sales for the portfolio marked for disposal.

Industry analysts had initially estimated the products could fetch 3-4 times sales, implying a price tag of 1.5-2 billion pounds ($2.4-3.3 billion).

But some now believe the price could be less, given uncertainty about prospects for Alli, launched four years ago. It had a strong start but sales fell in 2010, when the product was tarnished by rare reports of liver injury.

Potential private equity buyers are also uncertain about the costs of carving the non-core products out of GSK, people said.

“It’s a tough portfolio and it’s not clear it has any coherence other than being stuff that GSK doesn’t want,” said one of the people.

Consumer healthcare is a favoured investment sector for private equity players, who like the defensive nature of a business that has stable cash flows.

Despite the divestment, consumer healthcare will stay a priority area for GSK, which aims to focus its efforts on successful top-selling brands like Sensodyne toothpaste and nutritional drink Horlicks.

Faced with slowing sales growth and a squeeze on margins, many pharmaceutical companies are looking to divest non-core businesses to improve their financial performance.

GSK’s British rival AstraZeneca recently sold its Astra Tech dental unit for $1.8 billion to Dentsply International , while Pfizer is embarking on the sector’s most far-reaching divestment programme with plans to sell or spin off its animal health and nutrition units.

The private equity firms mentioned in this article declined to comment, while GSK had no further comment on the progress of the auction beyond Witty’s remarks on Tuesday. ($1 = 0.612 British Pounds) (Reporting by Simon Meads and Ben Hirschler, editing by Jane Merriman)