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GSK, Pfizer Merge Health Care Divisions

It will create a market leader in over-the-counter health care products like pain relievers and vitamins with combined sales of $12.7 billion.

Glaxo Smith Kline Ap
AP file

LONDON (AP) — Drugmakers GlaxoSmithKline and Pfizer are merging their health care divisions, creating a market leader in "over the counter" health care products like pain relievers and vitamins with combined sales of 9.8 billion pounds ($12.7 billion).

British-based GSK will own 68 percent of the joint venture, which will bring together GSK's brands such as Sensodyne, Voltaren and Panadol with Pfizer's Advil and Centrum. U.S.-based Pfizer will own the remaining 32 percent stake.

It is expected to take three years to merge the businesses across some 100 countries as well as to wait for the uncertainties surrounding Britain's departure from the European Union to subside. The company will ultimately be listed in the U.K.

"I'm confident we'll be in a more settled environment than we are in today," CEO Emma Walmsley said.

Some planned divestments of $1.3 billion would be expected to cover the costs of the integration. Annual costs will be slashed by 500 million pounds.

Shareholders had long pressured GSK to split up, mindful of the complexities of trying to create blockbuster drugs while selling consumer products like toothpaste. But the move surprised analysts because Walmsley, who took over in April, had seemed at first to be following in the footsteps of her predecessor, Andrew Witty, in resisting such a change.

Walmsley said the deal presents a way forward for GSK to become a global pharmaceuticals and vaccines company focused on advanced technologies.

"Ultimately, our goal is to create two exceptional U.K.-based global companies with the right capital structures, both of which are well positioned to deliver improving returns to shareholders and significant benefits to patients and consumers worldwide," she said.

Shares in GSK rose 6 percent on the news.

George Salmon, equity analyst at Hargreaves Lansdown, said a specialist pharma group might be better able get results in the labs.

"The separation will take away the steady cash flows of the consumer business, meaning there's more pressure on the men and women in white coats to deliver the next generation of blockbusters," he said. "However, the potential to shift significant amounts of debt onto the cash generative consumer business should take the strain off the balance sheet, and thus buy valuable time for the pipeline to deliver."

New York-based Pfizer Inc. had already said it was separating its Consumer Healthcare business from two other segments as part of a reorganization announced last July. The maker of Viagra and the nerve pain treatment Lyrica said it also will have an Innovative Medicines segment, which focuses on biological science and will bring in most of the company's revenue, and an Established Medicines business that include sales for older drugs like the cholesterol pill Lipitor that have lost patent protection.

CEO Ian Read had said in July that the reorganization represented a "natural evolution" for Pfizer, given the strength of the products they are currently selling and drugs that are in late-stage clinical development. Pfizer expects to gain regulatory approval of at least 12 new drugs from the beginning of this year through 2022.

The company said the reorganization will occur in 2019, which is also when Chief Operating Officer Albert Bourla will become CEO, replacing Read.

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