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GSK's CEO responds to shareholder disquiet

In an interview designed to quell shareholder rumblings over the size and efficiency of its operations, GlaxoSmithKline's CEO Jean-Pierre Garnier defends the company's performance

In an interview designed to quell shareholder rumblings over the size and efficiency of its operations, GlaxoSmithKline's (GSK) CEO Jean-Pierre Garnier has defended the performance of the world's second-largest pharmaceutical company.

In a statement, Garnier insisted: "We have improved our cost ratios every year since the merger, so this has been a very successful effort to strengthen the fundamentals of the company."

He explained that the pharmaceutical industry had suffered a huge de-rating over the past seven years but warned that GSK would not spin off its consumer business, as some shareholders had demanded, to boost the share price, adding: "If you look at healthcare in the future, it will be far more consumer-centric than it is today."

Garnier has repeatedly insisted that the original 2000 merger of Glaxo Wellcome and Smith Kline Beecham had created value, with GSK's productivity 300 per cent above the average of its seven largest competitors.

Garnier will formally retire at the company's May 2008 Annual Meeting and will be succeeded by three internal candidates currently vying for the post: David Stout, head of pharmaceuticals; Chris Viehbacher, president of US pharmaceuticals; and Andrew Witty, president of European pharmaceuticals.

In an interview with The Sunday Telegraph, Garnier admitted the share price could be better, but he added that critics were wrong to focus on share performance. To soothe unrest, GSK's board has increased its dividend and boosted share buyback programmes.

Robert Waugh, head of UK Equities at Scottish Widows Investment Partnership, which holds 1.3 per cent of GSK stock, wanted GSK to leverage its "incredibly strong balance sheet" more aggressively to boost shareholder returns, however.

Analysts say that poor stock prices across the sector are evidence that investors are unable to differentiate between companies which are performing well and those which are in trouble.

Others argue that companies need to change the way they market their products or even consider splitting off their sales activities from the research business. The main gripe is the lack of transparency for investors.

Garnier concluded that the Big Pharma model would still work if it evolved alongside industry changes: "Some of the Big Pharma companies have not moved on their productivity problems and they will pay the price and some of them will not be around in the future."

Plexus to help GSK with regional acquisitions
In other news, GSK Consumer Healthcare has appointed US-based pharmaceutical consultancy Plexus Ventures to augment its internal resources by providing additional business development services.

Bob Moran, president of Plexus, commented: "With 10 seasoned business development professionals in eight cities worldwide, Plexus is well-positioned to help GSK achieve its growth objectives."

10th September 2007


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