This week’s lacklustre results will strengthen boss Emma Walmsley’s case for reform – but also inspire her critics
When the American hedge fund Elliott Management took a sizeable stake in GlaxoSmithKline this month, the drugmaker’s shares jumped 5% on speculation of a possible shake-up at the company.
GSK’s chief executive, Emma Walmsley, will face questions over the future of the business, as well as its performance, when she unveils first-quarter results on Wednesday, followed by the annual meeting a week later. Analysts are forecasting a 14% drop in revenues to £7.8bn and a 10% decline in pre-tax profit to £1.7bn in what looks to be the weakest quarter of the year. This reflects tougher year-on-year comparisons (due to stockpiling of many products at the start of the pandemic), as well as rising research and development costs.
Elliott is a prominent activist investor that has successfully campaigned for change at companies such as SoftBank, and is infamous for its 15-year battle with Argentina over government debt payments, but it is unclear what its intentions are this time, as GSK is about to be broken up anyway under a radical revamp thought up by Walmsley.
A sale of the business also looks unlikely, as “the UK government would be highly unlikely to allow a foreign company to take over GSK, and that would really be the only feasible option, given the company’s size,” says Barclays analyst Emily Field. “Elliott may be seeking management change, but thus far it would seem management has the full support of the board.”
Next year, GSK – a household name whose products range from Sensodyne toothpaste and Panadol painkillers to HIV treatments and the Shingrix shingles vaccine – will be split into a consumer healthcare and a pharmaceuticals business. The latter will be created from the HIV, vaccines and pharma divisions.
Analysts say the key part is the creation of a single biopharma business focused on developing new medicines and vaccines from biological and chemical sources, because here GSK’s pipeline lags behind rivals after a series of setbacks in the past year. It is in a similar position to where AstraZeneca was a few years ago, before its chief executive, Pascal Soriot, set about rebuilding its drugs portfolio and made smart research bets, particularly on cancer treatments.
Elliott’s investment piles more pressure on Walmsley to get the revamp right – and to come up with new blockbuster drugs. She is likely to face questions about who will lead the two new businesses after the split. She wants to run the biopharma company, but some investors appear to question her non-scientific background and would reportedly prefer her to head the consumer health business, which she led before her elevation to chief executive.
Some have also clamoured for a flotation of the consumer health business to raise further funds, rather than a spin-off, but plans are far advanced now.
While shareholders are disappointed by the company’s poor share performance – down almost a fifth since Walmsley became chief executive four years ago – there seems to be broad support for the strategy. Some say that she has the right skills, is surrounded by top scientists, and should be given more time to replenish the meagre drug pipeline she inherited.
Meanwhile, AstraZeneca is expected to report a 10% rise in revenues to almost $7bn and a 41% increase in core earnings per share to $1.48 on Friday, with strong sales of cancer drugs Tagrisso, Imfinzi and Lynparza, and the diabetes treatment Farxiga. Even so, the shares are down 7% over the past year, as the firm’s £28bn acquisition of the rare-diseases specialist Alexion in December met some scepticism.
AstraZeneca has been in the public eye for its Covid vaccine and, although the jab is priced on a not-for-profit basis and is easy to store, the company has not been universally lauded, having faced criticism over the vaccine’s efficacy, supply shortages, and a potential link with blood clots in rare cases. John Bell, the Oxford University professor who helped drive the vaccine’s development, has suggested that morale within AstraZeneca is falling and that the firm could rethink its philanthropic stance. But, once the dust has settled, “they will look at it with pride,” says Andrew Meade, a life sciences analyst at Accenture. “It will ultimately be a success story.”
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