GSK Will Acquire Skin Care Firm Stiefel

GlaxoSmithKline has agreed to acquire Stiefel Laboratories, a leading maker of dermatology drugs, for $2.9 billion plus $400 million in debt and a potential $300 million cash payment.

Stiefel, a privately held firm based in Coral Gables, Fla., had sales last year of about $900 million. It mostly sells topical prescription products that treat dermatitis, acne, psoriasis, and other ailments of the skin.

GSK CEO Andrew Witty says the purchase fits with his company's strategy of growth and diversification. GSK already has prescription dermatology product sales of about $550 million per year. It will combine the two operations into a new business that will operate under the Stiefel name.

GSK is one of several big pharmaceutical makers that are trying to diversify away from the boom-and-bust cycle of blockbuster drugs and into more stable businesses such as generics and drugs for the developing world. In January, for example, the firm spent close to $700 million to buy UCB's product line in Africa, the Middle East, Asia, and Latin America.

But stock analysts at Credit Suisse note that this strategy can come at a price. Dermatology products "tend to be old molecules with limited innovation in formulations," research analyst Luisa Hector writes in a note to clients. "Historically, the lower level of innovation for dermatology brands means that profitability is lower than normal prescription drugs."

GSK says it can wring out cost savings of up to $240 million per year by combining the two businesses. The British company adds that Stiefel's products will benefit from its global distribution chain, particularly in countries such as Brazil, Russia, India, China, and Japan.