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Glaxo/Renaissance Ink Deal

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GlaxoSmithKline (GSK) recently entered into an agreement with Renaissance Acquisition Holdings, LLC granting the latter US rights to manufacture and commercialize nine Glaxo products. Prestium Pharma, a subsidiary of Renaissance Acquisition Holdings, will market these products. The financial terms of the deal were not disclosed.

The products covered under the transaction include six dermatology products (Evoclin foam 1%, Extina foam 2%, Luxiq foam 0.12%, Olux foam 0.05%, Olux-E foam 0.05% and Vusion ointment) and three anti-viral products (Zovirax capsules, Zovirax tablets and Zovirax suspension).

We remind investors that the performance of Glaxo’s dermatology portfolio has been weak in the US in the last couple of quarters due to generic competition for several products including Evoclin and Extina. Glaxo recorded US dermatology sales of £41 million in the first quarter of 2013, down 32% from the year-ago period.

Similarly, Zovirax sales also showed a declining trend. While sales declined 73% year over year in the fourth quarter of 2012, sales were negligible in the first quarter of 2013. We thus appreciate Glaxo’s efforts to streamline its portfolio and believe that the deal makes sense.

Glaxo carries a Zacks Rank #3 (Hold). In recent quarters, Glaxo received approval for several drugs including two melanoma drugs, Tafinlar (dabrafenib) and Mekinist (trametinib) and chronic obstructive pulmonary disease drug, Breo Ellipta.

Moreover, Glaxo boasts a robust pipeline. A number of pipeline-related news is expected in the coming quarters. However we remain concerned about generic competition faced by the key products of the company. Companies that currently look attractive include Santarus, Inc. (SNTS), Jazz Pharmaceuticals (JAZZ) and Salix Pharmaceuticals (SLXP). All three carry a Zacks Rank #1 (Strong Buy).

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