GSK split will help deal with ‘perennial underperformance’, says chief

GlaxoSmithKline chief executive Emma Walmsley said the imminent spin-off of the consumer health division Haleon would untangle the UK drugmaker’s complex “Gordian knot” structure and enable her to tackle its “perennial underperformance”.

Haleon, a joint venture with Pfizer that owns brands including Sensodyne toothpaste and Centrum vitamins, will begin trading on Monday in the largest London listing for more than a decade. Analysts estimate the business will have a market capitalisation of in the low £30bns.

The separation will leave Walmsley running a slimmed-down pharmaceuticals and vaccines business with a stronger balance sheet and more cash to use for acquisitions.

“There’s a Gordian knot of GSK, in terms of balance sheet structure, funding for the future and [we can use] the separation as a great catalyst for setting up a new chapter for GSK,” she told the Financial Times ahead of the listing.

Shares in GSK have risen 17 per cent in the past year, as Walmsley and her team have pledged a step change in growth, and celebrated a positive result for a potential blockbuster vaccine for respiratory syncytial virus.

The split will strengthen GSK’s balance sheet, as Haleon will take on more of the debt and GSK will receive a £7bn dividend and retain a 6 per cent stake to sell down over time.

GSK will probably use some of this cash for deals, which are likely to be smaller bolt-ons, modelled on recent deals, the $1.9bn acquisition of Sierra Oncology and the purchase of up to $3.3bn for Affinivax.

Walmsley has been under pressure from activist investors including Elliott Management, which have questioned her lack of scientific background and pushed for a reinvigoration of the company’s drug pipeline. She said every approach helped “sharpen up your communications”. 

Walmsley added: “When you get an external challenge, it’s always actually useful and important to be respectful, and listen. But I think it’s clear that the path we’re executing is one that [was already] under way.”

The pharmaceuticals division will have an estimated market capitalisation of about £70bn, according to one healthcare banker — smaller than rivals such as AstraZeneca and Sanofi — which could make it vulnerable to acquisition.

However, buyers may be wary of antitrust issues and fear the UK government would step in to protect the company.

Responding to the possibility that GSK could be bought by a bigger rival, Walmsley said: “What can make you a target is perennial underperformance and that’s what I’ve been trying to address.”

When Walmsley took over in 2017, she vowed to introduce more commercial rigour and stop scientists “drifting off in hobbyland”. Since 2016, GSK has increased investment in R&D by more than 50 per cent, focusing on the drugs with the most potential to become blockbusters and doubling the number of late-stage assets in the pipeline.

It recently published the first phase-3 results for an RSV vaccine, ahead of rivals including Pfizer and Moderna, showing it offered “exceptional protection”. It also hopes new, long-acting injectable HIV treatments will replace revenue it will lose when the patents on HIV drug dolutegravir expire later in the decade.

“We believe at GSK that combining science and technology is this great secret sauce to the productivity challenge of our industry, which is ultimately what the world should be most focused on,” Walmsley said. “There’s still so many major diseases around the world that we don’t have solutions for.”