Glaxo close to U.S. Lucozade launch deal

LONDON Wed Jun 23, 2010 11:21am EDT

LONDON (Reuters) - GlaxoSmithKline (GSK.L) is in advanced talks with a prospective distributor to launch its best-selling Lucozade energy drink in the United States, the company's head of consumer healthcare said on Wednesday.

John Clarke told the Reuters Consumer and Retail Summit that the drugmaker was globalizing the brand, which had sales of 376 million pounds ($561 million) last year, mostly in Britain and Ireland.

"This (the United States) is the biggest nutritional healthcare market in the world. If you are globalizing you have to have it in your portfolio," he said. "We're fairly advanced on our discussions."

The U.S. move, which will pitch Lucozade up against rivals like PepsiCo's (PEP.N) Gatorade range of drinks, follows a recent launch in China -- and Clarke said Glaxo also intended to roll out its drink in the key emerging markets of Brazil, Mexico and India.

The ambitious plans underscore the British-based drugmaker's renewed commitment to consumer health, which Chief Executive Andrew Witty sees as an important hedge against the company's more volatile prescription drug business.

Consumer operations currently account for around 16 percent of Glaxo's group sales but industry analysts see this increasing over time as Glaxo deploys more resources to the steady, brand-driven business.

SCALEABLE MODEL

Clarke said Glaxo would augment in-house product development with more alliances and acquisitions, particularly bolt-on buys. It would also look closely at any large acquisition opportunities, although good assets were hard to find.

"We think we've got a scaleable model," he said. "We're always looking ... but acquisition opportunities are not falling off trees right now."

A more regular stream of deal-making will come from licensing partnerships, such as the one announced earlier on Wednesday with Sweden's Medivir (MVIRb.ST) for a new cold sore cream. Clarke said he would expect to do four or five such deals a year.

Glaxo's consumer unit -- which groups over-the-counter (OTC) medicines, nutritionals, oral care and skin care -- generates an operating margin of around 20 percent, which Clarke said represented a good balance between growth and profitability.

Its sales grew 7 percent last year to 4.7 billion pounds but the company also invested heavily, with the advertising and promotion spend increasing by 8 percent.

Glaxo competes against powerful players such as Colgate-Palmolive (CL.N), Procter & Gamble (PG.N), Johnson & Johnson (JNJ.N) and Reckitt Benckiser (RB.L), making investment in marketing and product development paramount, Clarke said.

Major companies are attracted to the sector by favorable long-term growth prospects for self-care products and treatments for a range of chronic conditions from aches and pains to obesity, in both developed and emerging markets.

One of Glaxo's biggest new hopes is the OTC weight loss pill Alli, which sold 203 million pounds last year. Clarke said Alli sales had not been impacted by a new warning last month from U.S. regulators about rare reports of liver injury.

($1=.6706 pounds)

(Additional reporting by Paul Sandle; Editing by Greg Mahlich)