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GSK investors demand structural overhaul

GlaxoSmithKline shareholders are demanding an overhaul in the company to include a possible downsize

Shareholders in GlaxoSmithKline (GSK) are demanding a fundamental overhaul in the company, including a possible break up of the company.

The shareholder rebellion was prompted by GSK's poor share price performance and has invaded discussions between investors and Chairman Sir Christopher Gent over the impending retirement of CEO Jean-Pierre Garnier, who will leave in May 2008.

In 2000, GSK's individual shares were worth GBP 15 (USD 30.27), but on 31 August 2007 shares closed at GBP 12.79 (USD 25.81). The recent cardiovascular safety concerns over GSK's lead diabetes treatment, Avandia (roseglitazone) were attributed to the fall. Like most other large pharmaceutical firms, however, generic price erosion and a lack of potential blockbuster drugs the pipeline are also reducing potential profit margins.

Shareholders have asked that the new CEO consider spinning off manufacturing, contracting out R&D activities, reducing sales forces and divesting non-pharma operations.

Institutional investors have added that regulatory strictures were making new medicine approvals more difficult and that GSK must examine ways to release shareholder value. Other investors have added that the Big Pharma model is no longer appropriate for the current regulatory climate.

Industry watchers have said that overly complex organisational structures are stifling innovation through their "cumbersome operations" and added that old argument which says that companies created out of mega-mergers augment the rate of discovery of new drugs is no longer relevant.

PricewaterhouseCoopers (PwC) analysts said that the company could move toward a model where companies contract out R&D to small biotech companies to cut back on R&D spending and associated risk. Citigroup Analysts have also suggested that down-sizing GSK could increase the company's value by half, resulting in a GBP 20bn (USD 40.4bn) return to shareholders.

3rd September 2007

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