GSK unveils ambitious growth targets after pressure from activist fund Elliott. But is this enough?
Under pressure from activist investors, with the future of its chief executive on the line, pharmaceutical giant GlaxoSmithKline has promised to deliver ambitious profit growth over the next five years and invest in critical research and development.
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GSK’s roots date to a London apothecary shop founded in 1715, with the company thriving in the 1850s through the sale of cod liver oil to treat rickets. The modern group, grown through acquisitions, was created in 2000 through the merger of Glaxo Wellcome and SmithKline Beecham.
One of the largest companies in the U.K. by market capitalization, GSK’s core business is pharmaceuticals, as well as vaccines and a consumer healthcare business. Under the leadership of Emma Walmsley since 2017, the group announced plans to spin off the consumer healthcare division in 2018.
GSK is under pressure on three fronts.
The first is existential: that its research and development has failed to deliver more blockbuster drugs, as the patent for one of its most lucrative treatments — HIV drug dolutegravir — will expire in 2028.
The second is reputational: that a leading vaccine company has lagged behind in delivering a COVID-19 vaccine amid a pandemic. GSK chose to join with French rival Sanofi SAN,
The third is financial: that the group’s share price, under Walmsley’s leadership, has lagged behind peers, slipping more than 13% since she took the top job more than four years ago. In April, American activist fund Elliott Management disclosed that it had taken a stake in GSK. The British press has since reported that the U.S. investor with a history of shaking up companies will look to oust Walmsley, as well as push for further breakups, such as spinning off GSK’s vaccine business.
Walmsley and GSK’s top team face a moment of truth with investors on Wednesday afternoon. Ahead of the update, the group announced that “New GSK” — the company following the planned demerger of the consumer healthcare business in mid-2022 — will deliver a “step-change in growth and performance.”
The company will target annual sales growth of more than 5% and annual profit growth of more than 10% each year until 2026. Profit growth will be driven by revenue from new vaccines and specialty medicines, the group said. This division will also be the priority of research and development and commercial investment, with a focus on infectious diseases, HIV, oncology, and immunology and respiratory.
By 2031, New GSK aims to deliver sales of more than £33 billion; in 2020, pharmaceuticals and vaccines contributed £24 billion to total revenue of £34.1 billion. Sales in 2031 will be supported by the commercial execution of the group’s current, late-stage drug pipeline, and sales growth through that period accounts for the anticipated loss of exclusivity for dolutegravir, GSK said.
GSK’s dividend — one of the largest in the FTSE 100 — of 80 pence ($1.12) per share will be cut to 55p in 2022, with New GSK adopting a dividend starting at 45p in 2023.
“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.
“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,” she added.
