The US activist investor Elliott Management has in effect demanded Dame Emma Walmsley reapply for her job as chief executive of GlaxoSmithKline before the pharmaceutical company’s demerger of its consumer healthcare division next year.
に a 17-page public letter (pdf) to the chair and board of GSK, the New York hedge fund, which took a “significant” stake in the drugmaker 4月中, set out a number of recommendations to restore GSK’s credibility after, it wrote, “years of disappointing performance”. It is Elliott’s first public statement since its investment.
It insisted GSK appoint new board directors with deep pharmaceutical and consumer health expertise to launch a process to select “the best executive leadership” for the pharmaceuticals and vaccines business, called New GSK, and the consumer health division whose brands include Sensodyne and Nicorette. This would force Walmsley, who plans to lead the company through its shake-up and become boss of New GSK, to reapply for her job, but Elliott stopped short of demanding she should go.
“Elliott is not advocating a specific outcome but is arguing for a robust process,” it wrote. “Elliott strongly believes that the future CEOs of New GSK and consumer health must have the skillsets and expertise to match their respective tasks at hand.”
The letter ratchets up the pressure on Walmsley, a former L’Oréal executive who led the consumer health venture before replacing Sir Andrew Witty as chief executive four years ago. Some investors have questioned whether she is the right person to lead New GSK because she lacks a scientific background. She hit back at critics by describing herself as a “change agent” at an investor day last week.
Elliott attacked GSK’s underperformance of more than a decade, its “overly bureaucratic” research operation, and inconsistent strategy. It pointed to Witty’s 2015 sale of the cancer business to Novartis followed by a re-entry into oncology under Walmsley in 2018. “Despite the strengths of its people, its vaccines and its drugs, GSK has a poor record of execution and value creation,” the investor wrote.
Elliott called for executive bonuses to be linked to more ambitious targets, を含む 32% operating profit margin by 2026, as well as achieving research and development (R&NS) milestones. It also recommended GSK consider any opportunities to sell the consumer arm before the demerger.
It said that if the issues were addressed, GSK’s share price could rise by up to 45% before next year’s breakup, and “much more in the years beyond”.
At the investor day, GSK set an ambitious sales target of £33bn 沿って 2031 for the pharmaceuticals and vaccines business, which is almost as much as the £34bn achieved by the whole group, including consumer health, 昨年. The company’s shares rose after the update, 沿って 0.7% to £14.30, and City analysts were positive about the targets.
Elliott said the sales target looked “highly achievable” as GSK stood to make up to £6bn from respiratory syncytial virus and meningitis vaccines that are in development, up to £5bn from new HIV drugs, and a further £2bn from a chronic hepatitis B treatment.
It said pharmaceuticals and vaccines should be kept separate, adding it was not recommending a sale of the vaccines division. The investor also noted that because of a “prudent” increase in R&D spending, margins had declined to the lowest in the industry, but said with significant revenue growth GSK’s margins should increase, even with continued research investment.
Analysts at Deutsche Bank said GSK should be given time to turn itself around. “It delivered a reasonable and credible set of guidance outlooks: the key from here will be to execute upon them, demonstrate the case for [HIV drug] cabotegravir’s commercial potential and to the best of its ability do a better job of engineering the serendipity of R&D.”
A GSK spokesperson said: “The legacy issues that Elliott identifies in its letter are not new. The transformation programme has been designed to address all of these legacy issues, and more.”
The spokesperson added that shareholders were supportive of GSK’s plan to “deliver a step-change in performance” and were “focused on GSK executing on it without distraction or delay. This is our clear priority”.