Roche and J&J added to list of GSK takeover candidates


GlaxoSmithKline (GSK) continues to be the subject of takeover speculation, with Roche and Johnson & Johnson (J&J) now rumoured to be interested in bidding for the UK firm.

A report in the Daily Mail – citing undisclosed sources – suggests GSK could face a takeover offer of around 1,900 pence per share, which would value the company at around £92 billion. Last month, speculators also suggested that GSK was facing a possible bid from Pfizer, which was thwarted in its attempts to merge with AstraZeneca last year.

There does not seem to be much substance behind any of the rumours, beyond the fact that GSK's shares have been trading at a particularly low level of late, raising speculation that a big pharma rival may try to snap up a bargain, particularly if there are opportunities for cost-savings.

GSK's shares were priced at 1,358 pence this morning, a far cry from the middle of 2013 when the stock was trading at a little below 1,750 pence.

Last year's corruption scandal in China, the threat of generic competition and pricing pressure on its respiratory franchise, as well as slower-than-expected take-up of new products, have all contributed to GSK's recent share price weakness and volatility.

Meanwhile, an article in the Financial Times (FT) notes that four drugs discarded by GSK have now reached a combined value of $5 billion, which, the paper says, raises questions about the decision to jettison and suggests the company has 'fallen out of step with investor sentiment'.

They include Axovant – whose only asset is an Alzheimer's disease therapy acquired from GSK for $5 million – which has just completed an initial public offering valuing it at $2 billion, along with a Fabry disease drug partnered with Amicus, BioMarin's muscular dystrophy candidate drisapersen and a portfolio of pain therapies acquired by Biogen for $675 million in January.

The FT notes, however, that another side to the story is that the current valuation of biopharma assets seems to out of control.

While GSK insists it is still firmly focused on R&D, the company has latterly started to increase its portfolio of high-volume, lower-priced products, such as vaccines and consumer healthcare products, to tap into pharma sector growth in emerging markets.

Overall, finding a strong rationale for a Roche and J&J link-up with GSK seems a little laboured. Roche's focus on cancer and lack of interest in consumer health seems to be at odds with GSK's recent asset swap with Novartis, for example. Meanwhile, there isn't a great deal of common ground between GSK and J&J other than in consumer health.

Both Roche and J&J have highly-regarded pipelines in their core areas and the prevailing trend in pharma seems to be to sell off non-core divisions rather than diversify.

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Linda Banks

17 June, 2015