Pressure mounts at GSK, with U.S. hedge fund leading calls for exec shakeup

GSK Chairman Philip Hampton

Another big investor is putting the screws to GlaxoSmithKline ($GSK). Och-Ziff Capital Management ($OZM) has built up a sizable stake in the London-based drugmaker, The Sunday Times reports, and fund officials are leaning on Chairman Philip Hampton to shake up management.

The U.S.-based hedge fund holds about 0.5% of GSK right now, possibly through derivatives, making it one of the company's bigger investors, the Times notes.

Top U.K. investor Neil Woodford has already made headlines for his campaign to split GSK into four separate companies. CEO Andrew Witty "is not doing a very good job" of handling GSK's disparate units, which range from vaccines to consumer health, Woodford said last year.

Och-Ziff's focus is on Witty and his CFO Simon Dingemans, the Times reports. The fund's management believes GSK is in a "strategic cul-de-sac" and that shareholders don't have enough confidence in Witty and his team to back the sort of wholesale changes needed to revitalize the company. "We want a plan in place by the end of the second quarter so we can see a road map," a source close to the fund told the Times.

Witty has shown that he's open to the idea of splitting off GSK units, a trend that's swept through all of Big Pharma. His big sale-and-swap with Novartis ($NVS) last year beefed up GSK's vaccines business and sent its oncology meds over to the Swiss drugmaker, and put GSK in charge of a consumer health joint venture. Now, Witty says he can see consumer health standing on its own, but in a year or two, after the Novartis operations are all integrated. He also entertained the idea of hiving off ViiV Healthcare, the company's HIV-focused joint venture, but nixed that idea after the unit stepped up sales growth.

GSK CEO Andrew Witty

Meanwhile, investor unrest has been rampant at GSK since mid-2013, when news broke about a major bribery scandal in China. The payoff scheme tarnished Witty's attempts to clean up GSK's image, already badly bruised by government investigations and settlements. His overhaul of sales compensation, another image-boosting move, has drawn criticism, particularly after newly launched meds failed to perform up to expectations--and sales of GSK's top-selling Advair plummeted on competition from knockoffs and rival brands.

Along the way, investors have repeatedly called for a top-level housecleaning at the company, and they got part of their wish last May when Hampton took the chairman's job. But when Witty unveiled a high-volume, low-price route to growth at the same time, investors were less than impressed.

Now, the Och-Ziff source says that it's a question of "when, not if" Witty leaves the CEO job. But Woodford has said that Witty could be fine at running GSK if it was a smaller, better-focused company.

As for GSK itself, a spokesperson says taking suggestions and criticisms from investors is part of the routine. "We regularly meet with our shareholders and listen to their views," the company said (as quoted by the Times). "We know shareholders expect an improvement in performance and we are fully focused on delivering this."

Witty has other supporters among GSK's investors as well. Early this year, one top shareholder told the Financial Times that Witty needs a chance to prove his new strategy. "We think it's a bad time to change the captain," the investor said.

- see the Times story (sub. req.)

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