GSK reveals cost-cutting drive and new research tie-up
BRITAIN’S biggest drug maker Glaxo Smithkline has announced a deep costcutting drive and a revamp of its research unit for developing drugs, including a push into genetic medicine.
Emma Walmsley, the GSK chief, unveiled a £1.7bn three-year cost-cutting programme and a tie-up with Silicon Valley genetics firm 23andme, alongside half-year results to June yesterday.
The drugs giant did not announce a demerger of its consumer healthcare division, as had been rumoured in recent days. GSK is investing $300m (£228m) in 23andme, best known for saliva testing kits for people interested in their genetic history. The tie-up will give the pharmaceutical giant exclusive access for four years to 23andme’s genetics database. The fast-growing firm has mapped the genomes of five million people, 80pc of whom have consented to share their data with medical science.
Ms Walmsley said the tie-up had the potential to be “transformational in targeting disease-specific genes”.
And she admitted she was working to instill a “better performance-edged” culture at GSK.
GSK’S three-year cost-cutting push aims to achieve annual savings of £400m a year, with cash saved re-invested into drug research.
Cost cutting will be focused on reducing supply chain and administrative costs, particularly in the consumer unit, over which GSK took full control when it bought out Swiss partner Novartis for $14bn in March.
Ms Walmsley declined to comment on how many jobs could be lost.
Half-year sales rose 4pc to £14.5bn, while operating profits jumped 39pc to £2bn. GSK reiterated that it expects to pay a dividend of 80p for the year.
‘GSK was so keen to poach Barron that it has awarded him a £10.4m pay packet, making him its top earner’
GSK has a number of niggling ailments but the one that Emma Walmsley most wants to cure is its poor track record in making drugs. For years it has struggled to produce as many promising medicines as some of its arch-rivals.
Walmsley has overseen a radical internal shake-up during her first year, as she sought to calm fears that a background selling shampoo and toothpaste had left her ill-equipped to steer a company that needs to restore its reputation as a world leader in drugs discovery.
More than a third of the top management team has been reshuffled to make way for some of the industry’s biggest names on whopping salaries.
At the front of the pack is Hal Barron, a superstar pharmacologist from Google-backed Calico, as chief scientific officer and president of research and development.
Indeed, GSK was so keen to poach Barron that it has awarded him a £10.4m pay packet, making him the company’s biggest earner – above Walmsley even. He has also been allowed to jet between his San Francisco home and GSK’S main laboratories in Philadelphia and Stevenage, a set-up that must have put a few noses out of joint internally.
Nine months since his marquee signing, Barron has finally taken centre stage, unveiling a major push into genetic medicine as a way to reignite GSK’S floundering pipeline.
The company is ploughing $300m (£277.7m) into 23andme, a gene-testing firm based in Silicon Valley, whose vast DNA database it hopes will help unlock new treatments for a range of diseases.
That sort of investment is pocket change for a firm of GSK’S size so it’s unlikely to be the magic pill Walmsley is looking for. However, it could turn out to be a masterstroke. Barron has a highly-impressive track record of uncovering hugely successful drugs while at Genentech and Roche, and he thinks it could cut the cost of drugs development in half.
Something is needed to jump-start GSK’S pharmaceuticals arm. Growth has been sluggish at its biggest unit in recent years, and shows no sign of a revival after reporting flat sales growth during the second quarter.
A cost-cutting programme that saves £400m a year will free up additional funds for R&D spending.
Despite, the initial doubts about her credentials, Walmsley looks to be winning the majority of shareholders over. GSK’S share price is up 16pc since the start of the year to £15.42.
Still, there are some quite influential ones that are restless and have revived calls for a break up. They want to see the consumer business spun off and a stand-alone pharmaceuticals and vaccines company created.
Walmsley’s argument that the consumer arm is a cash cow that props up GSK’S R&D efforts, is a strong one. Besides, break-ups are massively high-risk and a huge distraction – not what GSK needs now.
The rebels’ campaign risks undermining what will be a tough turnaround. Walmsley has articulated a clear strategy and should be given time to execute it.
Metro’s vaulting ambition
Ever wondered what mysteries are lurking in the endless rows of safety deposit boxes that can be found across Metro Bank’s growing branch network?
After yet another bumper fundraising, shareholders might start to wonder if someone stuffed the last lot in the vaults and couldn’t find it. Indeed, it now seems that the Metro cash call extravaganza is an annual affair.
After tapping investors for £278m last July, it has announced plans to raise another £300m from the sale of new shares to investors. In fact, so urgent was the move that its half-year results were brought forward so that the share sale could take place.
No one can question the great strides that Metro Bank has made since it was established in 2010. With its garishly decorated branches and a dose of old-fashioned customer service, the lender has managed to attract 1.4m customers and deposits of £13.7bn.
More importantly, after racking up tens of millions of pounds in losses every year since it was founded, the bank is finally making money. Revenues rose 17pc to £190m in the first half of the year, and pre-tax profits jumped 45pc year-on-year to £20.8m. In a market that is still utterly dominated by the Big Four high street banks, that is no mean feat.
Chairman and founder Vernon Hill has been open about the fact that it would need to go to investors “multiple times” in the coming years. Still, the rate at which Metro Bank is swallowing cash must be a concern to the City, especially when its share price is below where it was after the last one was announced in July 2017.
As a young challenger bank, Metro needs to raise capital to fund growth but it also needs to demonstrate that it can deliver sufficiently profitable growth. If not, then perhaps its targets are too high and the City will tire of being Metro’s piggy bank.
Fiat’s driving force
The death of long-serving Fiatchrysler chief Sergio Marchionne at the age of 66 is a great loss to the car industry and the wider business world.
A hugely charismatic figure, when he barged on to the car industry scene 15 years ago, he was almost unheard of. By the time he stood down from the helm of the Italianamerican auto giant last weekend, he stood out as a genuine visionary that had turned the carmaking world on its head and generated eye-watering returns for investors.
His greatest feat was the remarkable rescue of Chrysler at the height of the financial crisis, and how its unlikely marriage with Fiat turned out to be one of the most inspired mergers of recent times.
When Marchionne swooped in 2009, Chrysler was bankrupt, allowing Fiat to snap up one of America’s most illustrious car manufacturers for nothing. Fiat wasn’t in great shape either and few gave the deal much of a chance but Chrysler was soon making a profit again and its debts to the US government were repaid far sooner than experts had predicted.
Fiat was worth just $7bn (£5.3bn) at the time of the Chrysler tie-up. When Marchionne’s illness was announced their combined market cap had soared to $30bn and Ferrari, which he had controversially spun out in 2015, was valued at $25bn.
Marchionne’s outspoken ways and seemingly boundless energy were refreshing in an industry not used to being challenged about its shortcomings, but as an outsider he was happy to ruffle feathers.
He saw an industry that had got fat and lazy, while profits became increasingly slender. At Fiat he took the axe to costs, while urging rivals to do the same.
Not everything he tried was a success. He was convinced that all the big carmakers would have to find a merger partner eventually but failed to convince any of them to leap into Fiat’s arms.
Sluggish sales of brands, such as Alfa Romeo and Maserati, improved dramatically, but never fully took off, and the company is still too reliant on the Jeep brand, analysts say.
But Marchionne will be remembered as a unique individual: a brilliant chief executive with an equally formidable personality.