GSK Expands In Korea With Purchase Of Equity Stake In Dong-A Pharma
This article was originally published in The Tan Sheet
Executive Summary
GlaxoSmithKline is paying 142.9 billion South Korean won ($128.7 million) to acquire a 9.9 percent stake in Dong-A Pharmaceutical, South Korea's leading Rx and OTC company. The strategic alliance should help GSK gain share in the rapidly growing Korean pharmaceutical market
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GlaxoSmithKline is paying 142.9 billion South Korean won ($128.7 million) to acquire a 9.9 percent stake in Dong-A Pharmaceutical, South Korea's leading Rx and OTC company. The strategic alliance should help GSK gain share in the rapidly growing Korean pharmaceutical market. Once the deal closes, GSK will be Dong-A's second-largest shareholder after its Chairman Kang Shin-Ho, who holds a 10.6 percent share. The initial focus of the collaboration will be to co-promote products from both firms in Korea's primary care market, GSK announced May 11. A new business unit will be created within Seoul-based Dong-A to capture additional synergies, which could include partnerships on select Dong-A chemical entities leveraging GSK's global commercial infrastructure and expertise, as well as co-development of branded generics, GSK said. "It is an innovative partnership to support GSK's growth and diversification strategy," said GSK Korea General Manager Kim Jin-Ho, who noted that the two firms will move together to increase accessibility to their products. Dong-A spokesman Yeom Sang-hyuk told PharmAsia News that the deal should help Dong-A accelerate its transformation into a "true global player" by taking advantage of GSK's product pipeline and global marketing network. In exchange, he said, Dong-A will help GSK grow its franchise in Korea. "Even though it uses GSK's global sales network, Dong-A will need some amount of time to actually enter foreign markets," Chung Bo-Ra, an analyst at Daishin Securities, said in an interview, adding that GSK should "be able to build up its market share taking advantage of Dong-A's strong domestic sales network in Korea." "It's fair to say that GSK and Dong-A are forming a united front against potential setbacks," said Bae Ki-Dal, of Shinhan Investment Corp. The medical analyst added the partnership could cushion GSK's pending loss of patent protection on some drugs. GSK, like other Western pharmaceutical giants, has had few options other than to diversify, as there has been little growth in established pharmaceutical markets (1 (Also see "GSK's Consumer Segment Grows 7% With Heavy Investment In R&D And A&P" - Pink Sheet, 8 Feb, 2010.)). Korea, meanwhile, experienced double-digit pharma growth from 2006 to 2008, and is the 13 largest drug market in the world, according to IMS Health. GSK's consumer health care sales grew 9 percent to $1.87 billion in its fiscal 2010 first quarter, according to the firm's April 28 earnings release (2 (Also see "GSK's Launches, Global Expansion Drive Consumer Sales Ahead Of Market" - Pink Sheet, 3 May, 2010.)). GSK Korea reported sales of KRW 434 billion in 2009 and is the No. 5 pharma player in the country. Dong-A is the leading pharma in Korea, with a wide range of proprietary and generic products. Its sales in 2009 rose 13 percent over the prior year to KRW 800 billion ($720.7 million). The firm recently acquired Korea's Samchully Pharmaceutical amid concerns that rival Hanmi Pharma might engage in a hostile takeover of Dong-A; Hanmi owns more than 9.6 percent of Dong-A. Marriage Of Necessity? Analysts note that multinational drug companies might have exhausted their ability to expand market share of branded products in Korea, and could seek strategic alliances like the GSK/Dong-A partnership to expand their reach in the country. Daishin's Chung said Korea's new tough stance on generic drug makers - in an effort to be more globally competitive - may have prompted Dong-A to seek a foreign partner. For example, Korea's FDA now requires generic makers to pass bioequivalence tests when producing copies of branded originals with more than two active ingredients (3 (Also see "Generics of Complex Drugs Must Pass Korea FDA's Bioequivalence Test; Another Positive Development for MNCs" - Scrip, 7 May, 2010.)). Compounding the bioequivalence issue is the recent passage of "anti-rebate laws" that enable courts to punish both contributors and receivers of kickbacks. This could hurt local companies since doctors will be inclined to prescribe branded products rather than risk the perception of having accepted rebates for generics (4 (Also see "Korea's Anti-Rebate Laws Seen Sparking More Demand For MNC Products" - Scrip, 3 May, 2010.)). [Editor's note: Additional coverage of Asian markets is provided at PharmAsia News, Elsevier Business Intelligence's Web site for Asian biotech and pharmaceutical news. 5 Sign up now for a no-risk, 30-day trial subscription.] - Peter Chang ( 6 [email protected] ) |