Several big drug makers, including Merck MRK -0.03% & Co., France's Sanofi SA SAN.FR -0.27% and the U.K.'s GlaxoSmithKline GSK.LN -0.72% PLC, are exploring the possibility of selling or splitting off large portfolios of older drugs as they seek to focus on products with faster-growing sales.
Merck has held preliminary discussions with a number of possible buyers for a group of treatments that could fetch in the neighborhood of $15 billion, according to people familiar with the matter.
Sanofi, meanwhile, is considering the possibility of putting some of its established products into a joint venture with another health-care company, according to a person familiar with the matter. And Glaxo said recently that it is "evaluating options," including divestment, for a group of mature drugs that make up about 15% of the company's sales. Other pharmaceutical companies are considering similar moves, bankers say. Private-equity firms including Advent International are considering bids for the assets, according to people familiar with the possible sales.
The businesses generally have wide profit margins, as their owners have already incurred many of the expenses associated with launching the medicines. Consequently, in a sale they could be worth a multiple of their annual sales, bankers say. The portfolios tend to have slow-growing or declining revenue, however, as many of the drugs have lost patent protection and compete with low-cost generic copies.
The deals are part of a narrowing of focus at big drug makers, which in recent months have been divesting slower-growing businesses or ones in which they have less of a competitive advantage.
"Companies are responding to their shareholders, who are asking management teams to double down on their strengths and divest their weaknesses," says Mark Schoenbaum, a pharmaceutical analyst with ISI Group in New York.
To be sure, the slow-growing or declining sales at these businesses could make them less appealing to the private-equity firms that some industry watchers say are the most natural buyers. Private-equity firms tend to make acquisitions largely using borrowed money, which could be harder to come by for the purchase of a shrinking business. And given that other drug companies may be wary of taking on businesses that could hamper their overall sales growth, it's not clear whether deals will materialize for any of the mature-drug portfolios.
Another big question: whether drug companies will completely divest their older drugs, or hang on to them in emerging markets, where off-patent, low-cost medicines from well-known Western drug firms tend to sell well. "These tend to be solid and often growing assets in emerging markets, and so divesting them on a global basis will be detrimental to growth" in those markets, says Mark Clark, a pharmaceutical analyst with Deutsche Bank DBK.XE -0.44% in London.
The biggest portfolio currently on the block appears to be Merck's. The company's "diversified brands" category includes drugs that have lost patent protection, or soon will lose patent protection, in developed markets, including the anti-hypertension drugs Cozaar and Hyzaar; Propecia for male-pattern baldness; and the migraine treatment Maxalt.
Sanofi, meanwhile, believes it might be able to use its older products as a sweetener, to help convince another drug company to part with a particular asset, according to a person familiar with the matter. In such a scenario, Sanofi might agree to contribute its older products to a joint venture with the other company, in exchange for the opportunity to buy another asset from that company, this person said, adding that Sanofi is at the early stages of considering such a move. Sanofi has looked at possibly acquiring a number of assets recently, including Merck's over-the-counter and consumer health-care business, though it balked at the asking prices, people familiar with the matter said.
Glaxo's established-drug portfolio includes the antidepressant Paxil, the malaria drug Malarone and Lovaza, a treatment for high triglycerides, a type of fat in the blood. Glaxo reported an 11% year-over-year sales drop for the division in the first quarter, to £814 million ($1.36 billion). The division notched a "core" operating profit margin of nearly 60%. That's more than twice that of the overall company.
By JEANNE WHALEN and DANA CIMILLUCA CONNECT
June 3, 2014 5:39 p.m. ET
The Wall Street Journal
The Newhawks Crew
Dear Drugs-Forum readers: We are a small non-profit that runs one of the most read drug information & addiction help websites in the world. We serve over 4 million readers per month, and have costs like all popular websites: servers, hosting, licenses and software. To protect our independence we do not run ads. We take no government funds. We run on donations which average $25. If everyone reading this would donate $5 then this fund raiser would be done in an hour. If Drugs-Forum is useful to you, take one minute to keep it online another year by donating whatever you can today. Donations are currently not sufficient to pay our bills and keep the site up. Your help is most welcome. Thank you.
Merck, Sanofi, Glaxo Take Steps to Shed Older Drugs