DSKYF Daiichi Sankyo Co Ltd (PK)

British drugmaker GlaxoSmithKline (GSK) recently announced that it has signed an agreement with Daiichi Sankyo (DSKYF) to form a joint venture (JV). The JV will be called Japan Vaccine Co., Ltd. and will focus on the vaccines business in Japan. According to Glaxo and Daiichi, Japan Vaccine Co. will be the largest vaccine company in Japan.

Japan Vaccine Co. will purchase vaccines from both Glaxo and Daiichi at fixed prices (undisclosed). The companies will share the costs and profits from the new venture equally. The initial start-up cost for Japan Vaccine Co. will be 100 million yen.

The main products of Japan Vaccine Co. will include Cervarix for cervical cancer, Rotarix for rotavirus gastroenteritis, seasonal flu vaccine, mumps vaccine, diphtheria pertussis vaccine and measles rubella vaccine.

We feel that this step is in-line with Glaxo’s strategy for the Japanese market, which was discussed during the fourth quarter and full year 2011 earnings conference call. The company discussed its plans to introduce innovative vaccines in Japan, encouraged by the performance of Cervarix in 2011.

Cervarix, which generated 2011 sales of £350 million in Japan, is one of Glaxo’s premier vaccines. During the earnings conference call, the company had also discussed its intention to form a partnership with a Japanese company.

Glaxo in Neutral Lane

We currently have a Neutral recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

While several products in the Pharmaceuticals segment are facing generic competition, the Consumer side of the business is performing well and should help drive top-line growth. Moreover, Glaxo’s diversified base and presence in different geographical areas should help support revenue growth.

Meanwhile, Glaxo’s restructuring initiative should help offset the impact of increasing generic competition in the next few years and help increase earnings at a faster pace than revenues. Share buybacks should also drive bottom-line growth.

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