Top GlaxoSmithKline Investor Cashes Out, Citing a Weak Pipeline and Lack of Strategic Options

Published: May 12, 2017

Top GlaxoSmithKline Investor Cashes Out, Citing a Weak Pipeline and Lack of Strategic Options May 12, 2017
By Mark Terry, Breaking News Staff

Neil Woodford, of UK’s Woodford Investment Management, unloaded his company’s shares of London-based GlaxoSmithKline .

In a blog post yesterday titled “GLAXIT,” Woodford noted that he had invested in GSK for 15 years and “consistently believed that GlaxoSmithKline was capable of delivering growth and realizing shareholder value. Neither has been forthcoming to the extent that I had hoped and expected.”

Woodford’s company handles around $12.8 billion. Since at least late 2015, Woodford had been urging GSK to split the company. In October 2015, he met with Sir Philip Hampton, GSK’s chairman of the board, urging him to break it up. In a January 2016 interview with Radio 5 live’s Wake up to Money broadcast, Woodford had said that GSK is “like four FTSE 100 companies bolted together” and it doesn’t “do a particularly good job of managing all of the constituent parts.”

In his blog post, Woodford notes that GSK’s core pharma division had changed significantly since 2004, but was basically still bringing in the same level of revenue. “The consumer healthcare division has delivered modest progress but its growth rate and margins have been well below that of its peers; Vaccines has performed well at times but growth has faltered in recent years; the one genuinely successful area has been the development of its HIV franchise, ViiV.”

He further notes that in the last three years, ViiV had made up more than half of GSK’s growth. “If the company’s one remaining growth engine starts to falter, this could pose a threat to Glaxo’s future revenue growth, earnings and cash flows. This new challenge for the company amplifies several other concerns that I have had and have discussed at length with the company on many occasions.”

His concerns include a weak pipeline and few strategic options. Those, he argues, will only be exacerbated if ViiV’s growth stalls.

Woodford goes on, again, to push the company for a breakup, noting that, “The sum of the parts is significantly greater than the whole.”

He also feels that a breakup would drive better performance because the company has been able to ignore underperforming units because of strength in other areas. “For example,” Woodford writes, “if future success pivoted on the richness of the pharma pipeline, it would have to pay a lot more attention to that pipeline. Instead, the growth delivered by other parts of the business have been seen as a hedge against the underperforming pharma division—management has never had to live or die by the pharmaceutical sword and as a result, that part of the business has not received enough attention.”

The timing is interesting. GSK released its first-quarter financials on April 26, citing sales growth across Pharmaceuticals, Vaccines and Consumer Healthcare. Pharmaceuticals reported 4.2 billion pounds for the quarter, an increase of 17 percent AER and 4 percent CER; Vaccines reported 1.2 billion pounds, a 31 percent increase in AER and 16 percent CER; and Consumer Healthcare reported 2 billion pounds, a 16 percent increase in AER and 2 percent increase in CER.

“This is a positive start for the year with sales growth in all three of our businesses and an improvement in the Group’s operating margin,” Emma Walmsley, GSK’s chief executive officer, said in a statement. “Our clear focus is on commercial execution and preparation for near-term launches in Respiratory, HIV and Vaccines. We will be reviewing these and other priorities for the business with shareholders alongside our Q2 results on 26 July.”

Walmsley herself may be a factor in Woodford’s defection. She replaced Andrew Witty last month, and Woodford has described her as a “continuity candidate,” which suggests that she was no more willing to break up the company than Witty was.

“Put simply, investing in Glaxo has been a frustrating experience, with three out of the four business units perennial underperformers,” Woodford wrote.”

GSK is currently trading for $42.61.

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