Glaxo's new chief stands by three-unit structure, foreshadows cultural changes amid 'quiet' Q1 results

Emma Walmsley
GlaxoSmithKline CEO Emma Walmsley took over the reins from Andrew Witty late last month.

If any GlaxoSmithKline investors were hoping new CEO Emma Walmsley would break with her predecessor and pursue a split-up, they got a rude awakening Wednesday.

On the company’s first-quarter conference call, she echoed the sentiments of previous skipper Andrew Witty, insisting that there are benefits to “being a three-business healthcare company” comprising pharma, vaccines and consumer health.

“We like to have more certainty in terms of reliable cash flows both from vaccines and consumer health,” she said, pointing to the volatility the company sees in the higher-return pharma market. And beyond that, the company’s units work together in a way that would be damaged should GSK break apart.

Split-up talk reached its height in late 2015 and early 2016, with influential U.K. investor Neil Woodford calling for changes. Witty announced his departure amid the pressure, though he never wavered from the opinion that it wasn’t the right time for big strategic changes.

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While Walmsley did make it clear that it’s not an issue she wants to revisit often, she did leave the door open for changes down the line. “It’s something we should continue to review, hopefully not every quarter, but on a reasonably regular basis,” she said.

For now, though, Glaxo—which put up 25 pence in core EPS for the quarter, surpassing 24.6 pence estimates—is sticking with the low-margin, high-volume approach in vaccines and consumer health that’s surprised some industry-watchers over the last year. And while Bernstein’s Tim Anderson characterized the company’s Q1 as “quiet and unremarkable,” Glaxo did edge out Wall Street estimates for both units, with vaccines generating £1.15 billion and consumer kicking in £2.04 billion.

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Pharma, too, posted a slight beat at £4.19 billion, helped in part by an Advair decline that was slower than anticipated, Anderson wrote. The break follows a setback to Mylan’s generic Advair program that marked a win—at least temporarily—for GSK, though Walmsley reiterated the 2017 guidance that was based on a mid-year knockoff entry.

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That’s not to say nothing will be changing at the drugmaker. For one, Walmsley is focused on what she wants to tweak about Glaxo’s culture, a factor she called “an undervalued competitive advantage.”

“There’s a lot that is very precious, particularly in terms of the underpinning of the values” of GSK, she said. But “there is an opportunity to put more discipline, more performance orientation, make tougher choices, be much more explicit about individual accountabilities, stand by some of our metrics, simplify some of our ways of working,” she said.

And while that’s easier said than done, she acknowledged, “it starts with alignment at the top, and it starts with the tone you set at the top,” she said. “ ... I absolutely recognize that.”