reame Emma Walmsley faces the toughest day of her career as CEO of GlaxoSmithKline on Wednesday. The director of Britain’s second-largest drugmaker will present a 10-year perspective to shareholders and analysts, under pressure from an aggressive US hedge fund to demonstrate that she is the right fit to lead the company beyond its dissolution next summer.
Since New York-based Elliott Management took a multibillion pound stake in GSK in April to push for change, Walmsley – one of the seven female CEOs of the FTSE 100 – has come under increasing pressure to improve performance. from the drug manufacturer. She inherited a phased pipeline of new drugs when she took over from Sir Andrew Witty in April 2017, but after four years some say it’s time for her to deliver. The GSK share price fell 14% during this period to £ 14.23, below the £ 18 level it was at when Glaxo Wellcome and SmithKline Beecham merged in 2000.
Over three-and-a-half hours of virtual presentations from GSK’s London headquarters, Walmsley and his senior executives will unveil the exact details and times of the group’s planned mid-2022 split into a tentatively well-known pharmaceutical and vaccine business. under the name “New GSK”, and a consumer health company, controlling brands such as Sensodyne toothpaste and pain relievers Panadol.
She will also give five- and ten-year growth forecasts, details of a planned dividend cut in 2022, which analysts say will be cut nearly in half to 45p per share, and future dividend payments.
The split in consumer activity – which Walmsley led before his rise to chief executive and which has been valued at between £ 30bn and 45bn by analysts – could come through a split, allowing current shareholders to own the business, or an initial public offering (IPO) that would raise new funds to invest in the pharmaceutical sector, or a hybrid of the two options.
GSK has planned a split, but some analysts have suggested that selling a stake through a partial IPO would be a better route.
But while there appears to be broad support from a majority of shareholders for the strategy, Elliott, who is led by billionaire Paul Singer, has sparked a debate over whether Walmsley should lead the new pharmaceutical company. and vaccines. She’s not a scientist, critics say; However, she hired a number of top scientists, including pharmaceutical industry chief and commercial director Luke Miels, who was debauched from rival AstraZeneca in one of his Walmsley’s first big moves in as general manager.
Alistair Campbell, a pharmaceutical analyst at stock broker Liberum, said questions could arise about who is running a new GSK. “One might ask: why the need for such a complex management structure? This is the main question of leadership. And if you were trying to keep it simple, it might make more sense for the current Pharma Director to take full responsibility over time. “
On the other hand, GSK chairman Sir Jonathan Symonds was very supportive of Walmsley at the recent annual meeting. “I would be surprised if it did not have the opportunity to carry out its strategy, especially since elements of this strategy, such as the overhaul of R&D, do not materialize overnight” Campbell said.
Walmsley has pledged to run the £ 72 billion ‘supertanker’, which employs 94,000 people, during the disruption and beyond. But on Wednesday, she will have to present a good set of forecasts and a plausible plan to achieve them, to bolster her credibility. It will also have to remove doubts about the quality of the drug pipeline.
It should be remembered that many analysts and investors were skeptical when AstraZeneca chief executive Pascal Soriot pledged in 2014 to increase revenue by 75% to $ 45 billion (£ 32 billion) from by 2023 to fend off a hostile takeover by US rival Pfizer – but he’s on track to meet or even beat that goal.
Whatever Elliott’s intentions, he must exercise caution. Kwasi Kwarteng, the British business secretary, has asked his officials to monitor the situation. The government, which sees GSK as a national champion, is concerned about City speculation that the world’s largest activist investor may be pushing for it to be sold or disband again.
Analysts are forecasting £ 30bn in sales for ‘New GSK’ in 2026, a £ 17bn increase in pharmaceutical sales and £ 7bn in vaccines last year. Peter Welford, analyst at brokerage firm Jefferies, said it would be difficult to maintain this level until 2031 as one of GSK’s best-selling anti-HIV drugs, dolutegravir, will lose patent protection in 2028-2029.
GSK will argue this week that its injectable, long-lasting anti-HIV drug Cabenuva – the world’s first such treatment, replacing daily pills with monthly injections – can fill the gap. A component of the injection, cabotegravir, has also been shown to be effective in preventing HIV infection. Among the assets under development, the company should highlight a long-acting treatment against severe asthma and vaccines against the potentially serious respiratory disease RSV.
Welford estimates the new biopharmaceutical company could be worth as much as £ 85 billion – far more than the £ 47-49 billion value implied by the current share price, assuming the consumer company is valued at £ 45 billion.
GSK has carved out a leadership position for its HIV drugs, shingles and cervical cancer vaccines. In recent years, he has also refocused on immunology, infectious diseases and cancer treatments.
Barclays analyst Emily Field said the mood around GSK has been frantic since Elliott’s involvement was revealed. “Everyone tried to find a quick fix. the [AstraZeneca] the turnaround did not happen overnight… GSK is not something that is going to happen overnight. What the company really needs to do is reduce its strategic focus on the therapeutic areas it thinks it is good at and make the right investments. “
She highlighted the drugmaker’s successes with respiratory and anti-HIV drugs, while its attempts to return to oncology, after Walmsley’s predecessor sold GSK’s cancer portfolio to Novartis in 2015, suffered several setbacks recently. “Investors are very skeptical of the foray into oncology,” she said.
Last week, the drugmaker struck a $ 2 billion deal with Boston-based company iTeos to jointly develop next-generation cancer immunotherapy, designed to trigger an anti-tumor response from the body’s immune system.
GSK has also been criticized for being slow in the race to develop Covid-19 vaccines, despite being one of the largest vaccine manufacturers in the world. The vaccine he is developing with French drug maker Sanofi is now in advanced clinical trials after delays and could be available by the end of the year.
Field thinks Walmsley will stay. “She’s running the show. I don’t feel like she wants to go, and I don’t think anyone would force her to leave.
Morgan Stanley analysts said: “There is no doubt that the shape of GSK’s biopharmaceutical business is changing. The key question for investors is whether the pace of change is fast enough. “
For Walmsley, the answer is yes: and Wednesday is his best chance to win over skeptics.