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Pin to quick picksGlaxosmithkline Share News (GSK)

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FOCUS-GSK to boost spending power of pharma business post break-up

Mon, 21st Jun 2021 12:01

* GSK hopes June 23 investor day will mark turnaround for
shares

* New pharma-focused GSK will slash dividends, cut debt

* Analysts encourage GSK to purchase external drug assets

* Executive Luke Miels points to upcoming pipeline trial
results

By Ludwig Burger

FRANKFURT, June 21 (Reuters) - GlaxoSmithKline will
lay out plans to boost the spending power of its
research-focused pharmaceuticals business at an investor day on
Wednesday, as analysts call on the British drugmaker to boost
drug development prospects with takeovers or alliances.

New GSK, the pharma business to be separated from its
consumer product operations next year, will cut dividend payouts
and shift some debt to the consumer unit, leaving scope for
investments to revive its sluggish stock market performance.

GSK's share price has fallen 14% over the past 12 months
versus a 5% rise in the STOXX Europe 600 Health Care
index, hit by a lack of fast-growing products and as patients
deferred treatments due to the coronavirus pandemic.

The company is the world's largest vaccine maker by sales,
but has fallen behind rivals such as AstraZeneca in the
race to develop a shot against the coronavirus.

Luke Miels, chief commercial officer at GSK, told Reuters
that the market was underestimating the company's value "both in
terms of our growth prospects with the products that we have in
the market now, and also our (drug development) pipeline".

The company said in April it was looking at partnerships and
deals with drug and vaccine developers, particularly in
immunology and genetics.

Miels said key trial read-outs are due over the next two
years, though it will take longer to see results from a more
fundamental upgrade of research and development (R&D), gunning
for therapy breakthroughs rather than incremental improvement.

"I think what we need to do is to give (investors) more
confidence on commercial execution and give them more confidence
on the quality of the assets in the pipeline," said Miels.

GSK's track record this year has been sobering. In oncology,
compounds bintrafusp alfa and feladilimab, previously touted as
potential billion-sellers, fell through in trials.

The loss of patent exclusivity on HIV drug dolutegravir
looms at the end of 2027, with about 3 billion pounds in annual
sales expected to vanish.

"Given the recent failures in the mid-stage pipeline...
supplementing the internal R&D pipeline via additional
collaborations or acquisitions makes strategic sense," Berenberg
analysts wrote in a note.

ONE BECOMES TWO

Expectation around the investor day has grown since a report
in April that activist investor Elliott Management has taken a
large stake in GSK. There has also been speculation about the
future of Emma Walmsley, chief executive since 2017 and former
head of the consumer products division.

GSK, whose consumer products include brands such as
Sensodyne toothpaste, Advil pain killers and Nicorette gum, has
a market valuation of more than 70 billion pounds ($97 billion),
and a separately listed pharma business would be expected to be
one of Britain's bigger companies in its own right.

Analysts say the separation of the consumer products
division, a joint venture with U.S. pharmaceuticals group Pfizer
, could take the form of an initial public offering, with
proceeds going to the innovative pharma business.

GSK has said the consumer products business will take on net
debt worth 3.5 to 4 times its annual adjusted earnings before
interest, taxes, depreciation and amortisation (EBITDA). That is
up from 2 times for all of GSK currently.

The pharma business in turn will have lower debt.

"Post-separation, the balance sheet will be in a stronger
position to execute on larger transactions should the
opportunity or need arise," said Louise Pearson, an analyst at
brokerage Redburn.

To give itself even more financial wiggle room, GSK has
flagged dividends will be cut from next year, with analysts
projecting a reduction to about 40% of earnings, down from more
than 80% this year.

"Continued investment in the pipeline ahead of (the 2022
split) is anticipated as management must convince the market
that the Pharmaceuticals business can live without Consumer
Healthcare," Berenberg said.

Much will ride on trial results expected this year and next,
including for a combination therapy with cancer drug Blenrep,
for experimental anaemia treatment daprodustat to ease chronic
kidney disease, and for novel antibiotic gepotidacin against
urinary tract infections.

"Hopefully over the next couple of years the changes in R&D
will be more visible and reflected in the share price," said
Miels.
($1 = 0.7231 pounds)
(Reporting by Ludwig Burger;
Editing by Keith Weir and Jan Harvey)

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