GlaxoSmithKline eyes Pfizer's OTC unit. But will a buy imperil its dividend?

GSK building
Bernstein analyst Tim Anderson called Glaxo's third-quarter earnings call "not uplifting."

GlaxoSmithKline said Wednesday that it's looking hard at Pfizer’s up-for-sale OTC unit—but that was bad news to analysts worried about the fate of the company’s dividend.

On the company’s third-quarter earnings call, analysts pressed CEO Emma Walmsley for reassurance that the dividend would remain intact beyond 2018, whether or not the company went after the Pfizer asset. And that’s something she wouldn’t give.

“It’s really too premature and hypothetical to respond to that at the moment,” she answered when asked by Jefferies’ Jeff Holford whether GSK would sacrifice all or part of the dividend to fund M&A.

The way analysts see it, that uncertaintyalong with othersweighs on shares that Bernstein's Tim Anderson described as in “free fall.”

But Walmsley, who contested that description, said there’s plenty about GSK’s business the market is undervaluing, such as its vaccines unitwhich last week got a boost with the blockbuster approval of shingles vaccine Shingrixand its consumer health joint venture, which boasts “a great track record ... of progress.”

RELATED: Pfizer weighs consumer health sale just as OTC market is cooling

In her view, the JV also has a successful track record in integrations, so “you would expect us to look at any assets that complement our portfolio”including Pfizer’s, she said.

For now, though, GSK’s consumer health portfolio is looking at a slowdown thanks to pricing pressure and more competition, and Glaxo lowered its longer-term outlook to growth of between 2% and 3%, Anderson wrote to clients. The company also noted in its prepared remarks on the call that it would take time to build up the Shingrix brand, which, in his view, suggested “a slower launch.”

Glaxo also laid out “ongoing pressures” in its respiratory business, which could face Advair generics next year, and it braced shareholders for oncoming competition from Gilead in HIV. “In our opinion, GSK’s investor call was riddled with caution, and it was not uplifting,” Anderson wrote, adding, “not a lot to look forward to it seems.”

RELATED: New GlaxoSmithKline chief Walmsley makes early mark with sweeping pharma overhaul

The call overshadowed some of the quarter’s bright spots, such as the better-than-expected gross margins and operating expense that drove what Leerink Partner’s Seamus Fernandez called a “modest” earnings beat; core earnings per share of 32.5 pence topped consensus estimates of 31.6 pence.


Glaxo's quarterly revenue of £7.84 billion was in line with the £7.87 billion projections, with consumer health and vaccines delivering slight beats. The company's pharmaceuticals segment—largely fueled by HIV unit ViiV—churned out £4.19 billion, short of the £4.27 billion expectations.