Hold your horses on an OTC spinoff, GSK chief tells breakup-happy analysts

GlaxoSmithKline CEO Andrew Witty

GlaxoSmithKline ($GSK) CEO Andrew Witty is running out of ways to say it: A spinoff of the consumer health joint venture it shares with Novartis ($NVS) just isn't happening right now.

The way he sees it, "time is everybody's friend" when it comes to getting the business and its operating margin up to where it should be. For the fourth quarter, it languished at 11.5%, and he noted on the company's fourth-quarter conference call that he thinks it'll be a "three-year journey" before it approaches its current target of 20% or higher.

"I think sometimes people think, 'oh, let's just put together these two massive companies … on Monday, and on Tuesday, let's do something completely different with them,'" he told investors. And while he admitted it would be "disingenuous" not to acknowledge that the unit's newfound scale could make divesting it an option down the road, "if I had to make that call today, I'd stick to what we have," he said.

The comments come amid calls for a breakup from prominent investors on both sides of the pond. The U.K.'s Neil Woodford has criticized the drugmaker for being too "complicated," and more recently, reports surfaced that U.S. hedge fund Och-Ziff Capital Management ($OZM) was pressuring company chairman Philip Hampton to shake things up.

But for Glaxo, keeping its OTC unit around is all part of a larger plan that Witty hopes will help the company stay its course while navigating an increasingly difficult pricing landscape. Last year, it traded away its oncology assets to Novartis in return for ways to bulk up in vaccines and consumer health--two lower-margin areas where pricing pushback can't pile on the pain the way recent formulary exclusions for top-selling respiratory med Advair have done.

"Simply put, I believe that the strategy we embarked on … remains an extremely viable strategy for the environment that we all anticipate over the next 5 or 6 years, particularly if you have any anxiety at all about U.S. pharmaceutical pricing," Witty said.

For its part, though, Glaxo's respiratory portfolio turned out a quarter in line with expectations, with slow-starting blockbuster wannabes Anoro and Breo--the latter of which saw a year-over-year jump of 161%--picking up some steam. They helped the pharma unit post £3.76 billion revenue tally, which topped the £3.72 consensus estimate. Overall, sales rose 2% for the quarter to hit £6.29 billion, with EPS coming in line with expectations at 18.1 pence.

And while the pharma unit has skidded lately, Witty said his company isn't "hungry, starving or desperate to go look for" M&A assets. "We're not going to be sucker punched" into going after a target that's "20% cheaper than an extraordinarily overpriced price two months ago," he told investors, promising that "we're very wary of that kind of trap."

But if Pfizer ($PFE) wanted to sell out of its share of HIV drugs unit ViiV Healthcare, whose new launches have been tearing it up for GSK?

"We are absolutely a buyer of that asset," Witty said. "Full stop, no question about it. There's no way we would turn away that opportunity."

- here's the release

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