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GSK: we won’t be splitting up any time soon

Walmsley scotches rumours of a consumer health spin-off

GlaxoSmithKline’s chief executive Emma Walmsley quashed any speculation about an imminent spin-off yesterday regarding its consumer health division.

Many investors are keen for the UK-headquarted big pharma company to separate its pharma and vaccines business from its consumer division, believing higher profits will result for the more lucrative prescription medicines businesses.

Speculation had risen before yesterday’s Q2 results call, particularly as GSK’s chairman Philip Hampton spoke frankly with The Financial Times, saying many investors believed a spin-off was a logical move.

Walmsley (pictured) was able to report respectable growth for the business overall - group sales up 4% (though its pharma division posted just 1% growth), while earnings rose 10%, reflecting a 7% increase in operating profits - but was also quick to nip in the bud speculation about a spin-out.

Walmsley

“The Board's position on the group structure is unchanged," she told analysts. "We believe that the three business structure of the group offers significant opportunities on the current health care environment, and provides GSK with more stability in our earnings, and helps in free cash flow generation. But as we have also consistently said, this is subject to each business continuing to perform competitively and having access to capital.”

She said the company expected continuing growth from its consumer division, backing this up by increasing its target margin to approach the mid 20s by 2022 at 2017 constant exchange rates.

However the markets have reacted negatively to the news with GSK’s share falling by more than 2% today. The decision is in contrast to firms such as Novartis (selling its eyecare divison Alcon) and Lilly, which just announced the spin-off its animal health division Elanco.

The message from Walmsley was one of prudent management of finances and maintaining shareholder returns. She announced a new restructuring programme aimed at yielding £0.4 billion of annual savings by 2021, which she says will be “fully reinvested” into its pharma R&D and commercialisation of new products.

GSK’s new R&D chief Hal Barron (pictured) also presented for the first time his vision for the company’s research efforts, with advances in immunology key across therapy areas.

The company has 27 immunomodulatory new molecular entities (NME) in clinical trials, around 60% of its total clinical pipeline. Barron said more than half of these are potential first-in-class therapies. Particularly in the spotlight is oncology, where GSK has cell therapy candidates, epigenetic modulators and antibodies targeting immune cells.

Also announced was a major new alliance with consumer gene testing company 23andMe. GSK is investing $300m in the firm, and says a long-term partnership to exploit its genetic databases will help it advance personalised medicines research throughout its pipeline.

Article by
Andrew McConaghie

26th July 2018

From: Sales

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