Live

Watch CBSN Live

Why We Should All Point and Laugh at Whoever Buys Diet Drug Alli From Glaxo

Was GlaxoSmithKline CEO Andrew Witty serious when he told investors that he'd received significant interest from potential acquirers of Alli, the non-prescription diet drug with the incontinence side effect? He said:
... a number of private equity and strategic investors had made approaches for the drug, one of a portfolio of consumer healthcare products jointly generating £500m ($836m) in annual sales that it recently decided to sell.
Well, $836 million sure sounds like a valuable business! And with America's obesity problem, what's not to like? In fact Alli is a disaster area that investors should stay away from. First, note that GSK no longer breaks out meaningful sales numbers for Alli in its financials. GSK said only that Europe sales of Alli in Q1 2011 were £20 million, down from £34 million, and that U.S. sales were also lower.

In 2009, sales of Alli were $131 million in the U.S., dropping by more than half from the year before. But it took $95.6 million in advertising to get those revenues. Add in the usual admin costs for running a global drug franchise and the drug's acquisition/development expenses and I'd be surprised if GSK has made a profit selling Alli. (Global sales were £203 million that year.)

On top of that there's an ongoing campaign to get the product banned in the U.S. and that the FDA has hobbled it with warnings about liver damage. And, of course, that other thing.

If Witty is telling the truth about investors beating a path to his door, it's probably because he's offering to pay them to take it off his hands.

Related:

Image by Flickr user Qole Pejorian, CC.