U.K.'s Big Kahuna investor spurs GlaxoSmithKline toward a Big Split

Neil Woodford

When high-profile U.K. fund manager Neil Woodford talks, investors listen. And now, Woodford is talking about a GlaxoSmithKline ($GSK) breakup.

According to Sky News, Woodford Investment Management is backing a four-way split that would leave GSK with its core prescription drugs and vaccines arm. The HIV business ViiV, the consumer health unit, and the dermatology business Stiefel would all go their own ways under Woodford's proposal.

Woodford figures GSK could unlock "significant shareholder value" by hiving off those discrete businesses, Sky News says, citing insider sources. To push his plan, Woodford has met privately with GSK's new chairman, Sir Philip Hampton, and the two have set a follow-up meeting. He's also said to have met with other top shareholders.

GSK has been under fire for more than a year, as sales of the $7 billion-plus respiratory drug Advair have cratered to competition, both from knock-off versions in Europe and branded alternatives from AstraZeneca ($AZN), Roche ($RHHBY) and Boehringer Ingelheim. The London-based drugmaker's follow-up lung meds--including Breo and Anoro--haven't panned out as well as GSK had hoped, though CEO Andrew Witty promises they're on a turnaround track.

GSK CEO Andrew Witty

And the breakup idea--at least part of it--has been batted about at GSK over the past few years as rival Big Pharma companies have hived off business units and bulked up in areas where they're strongest. GSK itself made a multibillion-dollar refocusing deal with Novartis ($NVS), which sent its cancer meds to the Swiss drugmaker in return for most of Novartis' vaccines, as well as controlling interest in a consumer health joint venture.

The British company has also weighed a spinoff of ViiV, but rejected that idea earlier this year. Witty has said that he'd entertain the idea of a consumer health spinoff or sale, too, but that was before it set up the Novartis JV.

But till now, the idea of a wholesale split hasn't been on the table, at least not publicly. And Woodford's backing gives it more weight than it otherwise would have. Among GSK's top shareholders, Woodford has stood by the company through strategy shifts, China bribery, and sliding sales of its top seller, Advair. His continued investment in the company has helped influence other GSK shareholders to stick around, despite a stock drop of about 3% over the past 12 months. That influence could extend to a breakup.

A breakup would certainly be a dramatic approach to GSK's lackluster sales--and a dramatic contrast to Witty's own plan for slow-but-steady growth. Witty has steered GSK toward volume sales of relatively inexpensive products, including its vaccines and consumer products, rather than the high-priced route taken by other major drugmakers.

- see the Sky News story

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