Under Fire From Investors, Walmsley Outlines Vision for GSK
Published: June 23, 2021
By Alex Keown
Calling herself a “change agent,” GlaxoSmithKline Chief Executive Officer Emma Walmsley outlined plans to transform the pharmaceuticals business of her company following the expected spin-off of the company’s consumer health division during an investor conference.
Walmsley’s vision includes a projected £33 billion (about $46 billion) in annual sales from the stand-alone pharma company by 2031 and consistent growth of more than 10% operating profit over the next five years. The demerger of the two businesses is expected in mid-2022.
Coming into this morning’s investor day meeting, Walmsley has been under fire from activist investor Elliott Management, which has been pushing for new leadership of the company. GSK’s share price has fallen 14% over the past year, which has created dissatisfaction among some key investors, including Elliott Management. Questioned by the Financial Times during the meeting, Walmsley, who took over the reins of the company in 2017, did not speculate on the future leadership of the company. She called herself a business leader and a change agent and said she is “very excited about the new plans for GSK.”
“The benefits of the huge transformation we have driven since 2017 are now clear. We have strengthened our R&D and commercial execution, and transformed our group structure and capital allocation, while driving a profound cultural change with new leadership,” Walmsley said in a statement.
Since taking over as CEO, GSK has strengthened its R&D programs and has scored 11 regulatory wins. Additionally, the company has doubled the number of assets in Phase III and registration to 22. New and specialty products are generating £10 billion in annual sales.
Walmsley pointed to the separation of the business units and said the company is ready for a change in growth for the pharma business, which she called “New GSK,” and said the change would also “unlock the value” of the consumer healthcare business.
“With world class capabilities across prevention and treatment of disease, New GSK is exceptionally well positioned to positively impact people’s health and to deliver strong performance and value to shareholders through the decade,” Walmsley continued.
When the spinout occurs, New GSK is expected to be a growth company fueled by new vaccines and specialty medicines. New GSK focuses on four core therapeutic areas: Infectious Diseases, HIV, Oncology and Immunology/Respiratory. The company currently has a pipeline of 20 vaccines and 42 medicines, many of which are potential best or first in class opportunities.
Part of New GSK includes a General Medicines product group, which will contain all of New GSK’s primary care brands, including older established products and the inhaled respiratory portfolio. General Medicines is expected to show broadly stable sales over the next five years.
The company expects to improve adjusted operating margin from the mid-20s% in 2021 to over 30% by 2026. The financial projections outlined during the meeting exclude any contribution from COVID-19 related revenues. By 2031, the company expects to achieve its £33 billion revenue goal, which is expected to be driven by its late-stage assets.
That £33 billion revenue goal does not include financial estimates from the company’s early-stage research, nor any contributions from business development plans. The company noted the projections will not be hampered by the loss of exclusivity for its HIV drug Dovato (dolutegravir plus lamivudine).
The new Consumer Healthcare business is a joint venture with Pfizer. The consumer healthcare business of both companies will be combined to form this new entity. The combined portfolio, which includes Advil, Tums, Sensodyne toothpaste, Excedrin and Nicorette gum, generated annual sales of more than £10 billion (about $13.9 billion) in 2020.
“Altogether the business offers strong prospects for sustainable sales and profit growth, high cash generation and delivery of attractive returns for shareholders,” GSK said.
The GSK Board of Directors is preparing for two new independent boards following separation. A process has started to form a board of directors for the new Consumer Healthcare company, GSK said.
New GSK will retain up to 20% of GSK’s holding in the new Consumer Healthcare company as a short-term financial investment. The company said it intends to eventually sell off that stake to strengthen New GSK’s balance sheet and help fund certain pension benefit obligations.
All restructuring programs are expected to be complete in 2022. No further major restructuring programs are planned.