Activist hedge fund company Elliott Management has published a public letter to GlaxoSmithKline, outlining a five-point plan following the pharma company’s investors day last week.
In the 17-page letter addressed to GSK’s non-executive chairman Jonathan Symonds and board of directors, Elliott said that although the British drugmaker has ‘substantial value creation opportunity’, the company has a ‘poor record of operational execution and value creation’.
By its own estimation, Elliot said that GSK could be worth 45% over its current market value in the lead-up to the full separation of its consumer health and biopharma businesses and in the years to come.
Elliott added that the years of underperformance have stemmed from long-standing issues, commenting that GSK’s biopharma business is seen as ‘overly bureaucratic’.
‘It is well known in the industry — and our diligence makes clear — that GSK’s talented scientists are often not empowered to make the right decisions regarding their domains of expertise,’ wrote Elliott.
Although GSK’s chief executive officer Emma Walmsley was not named, Elliott highlighted ‘leadership failures’ regarding the company’s plans for the consumer health/biopharma separation.
Elliott said the company’s leadership did not communicate the details of the planned split for several years, which created an ‘avoidable’ overhang on share prices.
The hedge fund manager also noted GSK’s dividend overhang, adding that the company paid a higher dividend than it could afford for ‘at least four years’.
Although GSK confirmed the dividend cut in its investors day last week, the overhang ‘dissuaded many potential investors from building positions’.
Looking forward, Elliott outlined five recommendations for GSK, building on the growth plans outlined in the company’s previous investors day.
The hedge fund manager said GSK should ensure the right leadership through the right process – in particular, Elliott said the right leadership should be chosen for each of the newly separated businesses.
This would involve increasing biopharma and scientific experience for the board of ‘new GSK’, prior to executing the separation.
Other recommendations include incentivising stronger performance and greater ambition by making bonuses contingent on the targets outlined at its investors day and improve profitability while investing more in research and development.
Elliott recommends that GSK’s board remains open to strategic opportunities for the sale of its consumer health business and also allows more autonomy for its vaccines business.
In April, reports emerged that Elliott Management had built up a sizeable stake in the British drugmaker.
Elliott Management is viewed as an ‘aggressive activist’ investor – in the pharma industry, the hedge fund petitioned for the sale of Alexion Pharmaceuticals ahead of its subsequent acquisition by AstraZeneca in December 2020.