Skin in the Game: How Acne Skin Care Fits GSK's Drug Portfolio Strategy

GlaxoSmithKline (NYS: GSK) dermatology and skin subsidiary Stiefel has submitted to regulators a new drug application for tazarotene foam, an acne skin care treatment product.

If approved by the U.S. Food and Drug Administration, tazarotene would give Stiefel yet another product to offer to the medicated skin products market. But while the prospective drug offers Stiefel a potential new acne skin care product, for parent GSK it represents much more.

Acne is not an unmet medical need, but a newly approved skin care and treatment product is important to GSK's strategy nonetheless. Tazarotene foam, intended for facial acne vulgaris in patients 12 years of age or older, would help GSK diversify its drug portfolio beyond the slate of former blockbuster drugs that have already lost patent protection or will lose that protection soon. Diversification is one of the goals the company had in mind when it acquired Stiefel Laboratories in 2009 for $2.9 billion.

Coral Gables, Florida-based Stiefel Laboratories was a privately held company whose backers included private equity firm The Blackstone Group (NYS: BX) , which took a $500 million minority stake in the company in 2007. That year, Stiefel opened an R&D facility in Research Triangle Park, North Carolina, not far from GSK's U.S. headquarters. By 2009, Blackstone was looking for an exit, and Stiefel explored potential acquirers. The timing was opportune.

GSK CEO Andrew Witty in 2008 had outlined a strategic plan that included the goal of diversifying the company's product offerings. Stiefel fit the bill. While GSK stared down a patent cliff for its blockbuster drugs, Stiefel's line of over-the-counter and prescription skin products offered a counterbalance with products that could provide a steady revenue stream. The global market for medicated skin products is forecast to reach $5.6 billion by 2015, according to market research from Global Industry Analysts. Stiefel, which relocated its headquarters to RTP and combined with GSK's own skin products division, is well positioned to compete for a chunk of that market.

GSK won't retain all of the fruits of a commercialized tazarotene foam. Stiefel has a supply and commercialization agreement with Allergan (NYS: AGN) that gives Allergan the right to enter a co-promotion agreement. That agreement could give Allergan the exclusive right to promote tazarotene foam and Allergan has the right to negotiate a deal in the next three months. But Stiefel also has a pipeline of other skin products in R&D. And that's what GSK hopes will help its portfolio in the long run.

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