Glaxo's consumer health CEO lays out blueprint for margin turnaround

GlaxoSmithKline ($GSK) is pinning its hopes on consumer health, a unit whose margins it expects to see at 20% by 2020. But just how does it expect to get there?

GSK consumer health CEO Emma Walmsley

For starters, cost-cutting, Emma Walmsley--CEO of the Glaxo/Novartis consumer health joint venture the pair formed earlier this year--told investors on a call led by Bernstein analysts Tim Anderson and Andrew Wood. The JV is "absolutely on track" for delivering $400 million in savings within the first three years, she said, and it's coming along with "key moves" like nailing down the new company's workforce, consolidating commercial sites and working out its global media buying.

The rest, Walmsley predicts, will follow over time as the companies' supply chains recover from setbacks. Adding Novartis ($NVS) to the consumer health mix was very dilutive in the margin department, Anderson wrote to clients.

And while working with its existing portfolio is the unit's priority, she sees a "really clear pathway" to delivering "the right kind of innovation."

"One of the very important things we've got to do is really prioritize our bets, place them hard, and win more market share, in what still remains often very fragmented categories, even with our leadership positions," she said.

Bolt-on acquisitions may also be "very welcome" when it comes to addressing some of the gaps in "the jigsaw of priority categories, brands and geographies," she noted.

Walmsley and her team have their work cut out for them; hitting that 20% target would be a "very impressive" feat, Wood pointed out, with consumer health margins currently languishing around the 10% to 11% mark.

GSK CEO Andrew Witty

In the meantime, Glaxo will also be counting on its OTC unit to deliver sales growth, a feat the company thinks its can achieve with a volume-based strategy. Pumping up volume can help compensate for lower prices for consumer products and vaccines, another area the pharma giant is focusing in on, it figures.

And if that's not the way it turns out, it may be CEO Andrew Witty who bears the consequences.

"Mr. Witty is running out of time," Stephen Bailey, a fund manager at Liontrust Asset Management, told Bloomberg in May. "He's either got to deliver in the next 12 months or step aside."

Special Reports: The top 15 companies by 2014 revenue - GlaxoSmithKline | Pharma's top 10 M&A deals of 2014 - GlaxoSmithKline Oncology/Novartis Vaccines (excluding flu)

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