After months of plotting in secret, Elliott Management has finally made its intentions around GlaxoSmithKline known. The activist investment group is calling for drastic changes at the drugmaker to salvage GSK from what it called “years of under-management.”
In an open letter (PDF) to GSK Chairman Jonathan Symonds, Elliott called for an overhaul of the GSK board to include directors with biopharma and consumer health experience. Having new board members is just a means to an end, though. What the investment firm really wants is for a “fit-for-purpose” board to choose “the best possible leadership” for GSK and its forthcoming consumer health spinoff.
The demand marks a de facto challenge to the current leadership of GSK CEO Emma Walmsley. Since reports emerged in April that Elliott had taken a major stake in GSK, the firm has reportedly been rallying investor support to remove Walmsley after the separation. Elliott has reportedly said she should head the outgoing consumer health business rather than the remaining GSK that's focused on drugs and vaccines.
For her part, Walmsley has said she intends to continue leading GSK. During a press briefing ahead of last week’s investor day, she called herself a “change agent” and a “business leader.”
“My focus is resolutely on leading us through this transformation, through a successful separation and with momentum beyond that,” Walmsley told reporters.
At the investor event, Walmsley outlined GSK’s goal of delivering annual sales growth of 5% in the next five years and reaching £33 billion ($46 billion) in revenues by 2031. That’s not counting the effect from any potential business development.
While the investor update was “an important step in the right direction,” it “was not sufficient to resolve GSK’s credibility challenges,” Elliott said in its letter.
Also at the investor day, Walmsley detailed GSK’s plan to de-merge the consumer health franchise into a standalone firm listed on the London Stock Exchange next year.
Instead of that plan, Elliott suggested GSK consider a sale of the business and use proceeds to fund R&D, pay down debt and buy back shares. Elliott also implied that it may have already lined up potential buyers.
“If such opportunities arise in the next few months, we urge the board to evaluate them impartially against the default spin and sell-down plan announced in the investor update,” Elliott wrote.
Further, Elliott also said it was against GSK’s idea to fully integrate the vaccine and pharma departments after the consumer health split. The “crown jewel” vaccine business should instead be autonomous, the firm wrote.
With full independence, the vaccine group could “increase its talent retention and nimbleness, so that it can better capture opportunities such as Shingrix/RSV” and be better prepared for future pandemics, Elliott said. The firm said it’s not convinced about the “clear synergies” between the companies that GSK’s leadership has depicted.
Autonomy often implies a business separation down the road. But the activist investor said it’s not recommending a sale of the vaccines unit or shifting its ownership to a non-U.K. entity. The U.K. government has reportedly raised concerns that Elliott would move to have GSK subsumed by a U.S. rival.
Elliott based its recommendations on what it called “severe underperformance” at GSK because of “years of under-management.” By Elliott’s calculation, the new GSK and consumer health unit warrant a combined valuation that’s more than 45% higher than GSK’s valuation today.
A GSK spokesperson noted that the drugmaker has identified all of the same issues Elliott highlighted in its letter under Walmsley's leadership. The CEO and her team designed the transformation to address them, the spokesperson said.
“We believe our shareholders are supportive of this strategy, and that they are focused on GSK executing on it without distraction or delay. This is our clear priority,” the spokesperson said.
A notorious activist investor, Elliott has in the past pushed for major shake-ups at other biopharma companies. In 2018, Elliott successfully got Alexion Pharmaceuticals to add biotech expertise to its board. Then last year, Elliott blasted Alexion for its $1.4 billion acquisition of Portola in an open letter and called on the company to sell itself, which Alexion eventually did in an ongoing deal with AstraZeneca.