Back in 2016, GlaxoSmithKline’s then-CEO acknowledged that one day the company might divest its consumer health division. Lately, it’s been looking like that day might not be too far away—and now, there's new evidence a spinoff is brewing.
Chairman Philip Hampton has been chatting with shareholders about the idea of a consumer spinoff in the not-too-distant future; think within the two to three years, the Financial Times reports.
Andrew Witty, the predecessor of current chief executive—and former consumer head—Emma Walmsley, shot down the idea during his tenure, prompting outspoken split-up enthusiast and prominent investor Neil Woodford to dump the company’s stock. While Witty did say that “at some moment” the business would be “big enough to be conceptually thought about on its own,” he argued that first the company needed more time and the unit more scale.
Since then, Walmsley has put the unit—once shared with Novartis as part of a joint venture—firmly in GSK’s control. In March, she agreed to fork over $13 billion to buy the Swiss pharma giant out of its stake, a move that had to happen for a spinoff to be possible. In the wake of that deal, some investors figure the “moment” Witty mentioned might be close.
As one top-10 shareholder who spoke to Hampton about a split told the Financial Times, the logic of splitting consumer from GSK’s pharma and vaccines businesses is “pretty clear.”
“The financial dynamics of consumer and pharma are pretty different,” the shareholder said.
Another added that, “It has been a question on the table for a long time. We have been asking ‘what are you? Are you pharma? Are you consumer goods’?”
While the FT’s sources praised Walmsley and welcomed her “fresh pair of eyes,” that new perspective may not be enough to make a spinoff happen. A consumer divestment could be thwarted by the issue that dogged GSK’s last attempt at a spin: an underperforming pharma unit. Hurdles for the company’s drug business prompted Witty in 2015 to toss the idea of an HIV business spinoff, given that the company relied on that unit, ViiV Healthcare, for revenue.
As the FT points out, any decision on the OTC front is likely to depend—at least in part—on whether the company can bolster its pharma performance, which faces serious HIV competition and major payer pressure on the respiratory side. It’ll be up to high-profile R&D chief Hal Barron, perhaps Walmsley’s biggest hire, to bring in some aid from the company’s pipeline.