GSK Chief Witty Questions Pharma M&A Economics

In an interview with the British business daily Financial Times (FT), Andrew Witty, CEO of Glaxo SmithKline (GSK), has questioned the economics of the current wave of mergers and acquisitions sweeping the global pharmaceutical industry.

Witty blames in particular ultra-low interest rates that he says have reduced transactional discipline. "Some of these valuations look stretched," he told the newspaper. "We're not going to get drawn into the idea that just because money is cheap we can do anything.

"Not all new drugs will obtain the high prices needed to justify current valuations," Witty added. "Either only a few will make it and you get really good rewards, or lots will make it, in which case competition is going to bring the price down.

"Believing the pharmaceuticals industry can carry on relying on pricing power and believing, no matter how high the price, no matter how small the patient base, that it is going to be paid for; it is quite hard to see how that carries forward."

The Glaxo chief told the FT that the "artificial high" companies receive from a takeover deal in his view is often not worth the cost. GSK, which largely has stood on the sidelines of the recent M&A rounds, has made "enormous progress" replacing sales lost to generics, but "we've done it without a big deal," he said.

While the approach the UK's biggest drugmaker has taken is more cautious, "I think it is the right one," Witty asserted.

At GSK's press conference to presentation first-quarter 2015 results, Witty said the company believes price pressure in the US and European prescription drugs markets will increase because of fiscal constraints and strain on healthcare systems from an aging population.

In his presentation, the CEO said also that GSK's £1 billion cost-saving scheme will be accelerated to deliver its full benefits a year early in 2016, with total annual benefits of £3 billion from restructuring and synergies expected by 2017.

Witty also announced that the company has dropped plans to sell part of its HIV drugs unit. Glaxo's $20 billion asset swap with Novartis completed this year has shifted the company's focus towards vaccines and consumer healthcare, while reducing its dependence on pharmaceuticals, observers note.

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