Private equity weighs $10B-plus combo of aging Sanofi, GlaxoSmithKline brands

GlaxoSmithKline ($GSK) and Sanofi ($SNY) could both unload their on-the-block products in one fell swoop. As the Financial Times reports, a handful of private equity firms are considering a buyout of both Big Pharma portfolios, planning to merge the two into one bigger set.

The potential deals are just the latest in pharma's M&A craze, and would cover just two of several sets of Big Pharma brands up for sale--or recently sold. Besides GSK and Sanofi, Merck ($MRK) has said it's interested in unloading some older meds, and AstraZeneca ($AZN) is exploring options--including partnerships--for its neurological and anti-infectives businesses, which include some of the company's biggest off-patent drugs. Meanwhile, the U.S. generics specialist Mylan ($MYL) just agreed to pay $5.3 billion for overseas rights to a group of Abbott Laboratories ($ABT) generics.

Private equity firms have been on the list of potential buyers for the products in play from the get-go; they're sitting on plenty of cash, and pharma industry deals have paid off for them in the past. This time, KKR and Warburg Pincus are the headline shoppers, with Blackstone, Bain Capital and Apollo also in the mix.

Glaxo's older products for sale bring in about £1 billion ($1.7 billion) annually, the FT says. Meanwhile, the 200 products Sanofi might sell together rack up around €2.1 billion ($2.8 billion). Potential prices? Some $12.5 billion on the top end for GSK, up to $8.5 billion for Sanofi. Merck's could be worth up to $15 billion, analysts have said.

Say one (or more) of these firms nabs both portfolios. What to do with the drugs then? That's the question, given the fact that pharma sales isn't exactly private equity's strong point. Both KKR and Warburg Pincus have drug-related companies in their investment portfolios, but they're more on the contract research and contract manufacturing side of the industry.

Some hiring might be in order. "Private equity has not traditionally played in this area," said Jeremy Levin, ex-CEO of Teva ($TEVA), "so they will either have to bring in experts or partner with third parties who have the expertise."

Even so, the task would be challenging. The on-sale brands do bring in plenty of cash. But there's a reason why big drugmakers want to offload older products: Their sales are declining because of generic competition. U.S. sales of Sanofi's $6.6 billion bloodthinner Plavix--sold with Bristol-Myers Squibb ($BMS) in the U.S. at the time--plummeted by 96% when it went off patent in 2012.

As Morningstar analyst Debbie Wang recently told Reuters, "You're buying a sparkler that's halfway burned. It's going to burn out soon, and that's my question for private equity--how quickly can they make the proper portfolio changes?"

- read the FT story (reg. req.)

Special Report: The top 10 pharma companies by 2013 revenue - GlaxoSmithKline - Sanofi | Pharma's top 10 M&A deals of 2013

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