GSK plans to rebuild battered company

GlaxoSmithKline, battered by weak US drug sales and a bribery scandal inChina, set out a bold recovery plan yesterday, including an initial public offering of part of its fast-growing HIV and AIDS drugs business.

GSK plans to rebuild battered company

As a standalone company ViiV Healthcare would be among the top 40 companies in London’s FTSE 100 index, outranking Marks and Spencer, GSK chief executive Andrew Witty told reporters. Analysts at Jefferies said they valued the HIV and AIDS division at about £17bn (€21.6bn).

Announcing third-quarter results, Britain’s biggest drugmaker also set out the latest in a string of cost-cutting programmes and said that its 2015 dividend is expected to be kept at the same level as this year’s 80p a share.

“Glaxo has announced that it is giving itself a shot in the arm, with a more streamlined approach to its business model,” said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers. While the European healthcare sector has risen 14% this year on optimism over new drugs and a spate of deal-making, GSK stock has lost a similar amount on falling sales and earnings forecasts despite April’s far-reaching asset swap deal with Swiss drugmaker Novartis.

Another concern for investors has been GSK’s ability to pay its dividend in the face of slowing growth. The company finally broke a run of steadily rising payouts by announcing an unchanged third-quarter dividend, but softened the blow by saying it would return an additional £4bn to shareholders next year through a special share scheme.

A run of weak quarters and a fine of nearly $500m (€395m) for bribery in China has heaped pressure on Witty. The most pressing concern, however, is the earlier than expected fall in sales of GSK’s 15-year-old respiratory medicine Advair, particularly in the United States, where price pressure is acute, and the slow uptake of new respiratory drugs Breo and Anoro.

Witty acknowledged that the company is going through a “painful” period, but said that respiratory business is expected to return to growth in 2016. The weak showing in respiratory medicine, a field GSK has dominated for decades, comes on top of recent disappointments with high-risk experimental drugs in heart disease and cancer.

However, the company said its drug pipeline is expected to produce a sustained flow of new products over the next five to 10 years. Investors are keen for GSK to explore new ways to unlock value and Witty said the decision to explore an IPO of a minority shareholding in ViiV Healthcare showed his readiness to take innovative action.

“It signals a patient but enduring commitment to explore avenues to create shareholder value,” Witty said. The British drugmaker holds a stake of nearly 80% in ViiV Healthcare, alongside partners Pfizerand Shionogi.

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