The Daily Telegraph - Business
Glaxo is one of our crown jewels. It must stand firm
With pharma giants even more prized than pre-Covid, Britain will surely not give ground to the short termism of Wall Street raiders
The arrival of any activist investor on a company’s shareholder register is guaranteed to cause a stir.
But New York-based Elliott Management comes with a fearsome reputation, hence the panic in the boardroom of GlaxoSmithKline when it emerged as a major shareholder in April.
Elliott’s secret stake-building immediately put the venerable drugmaker on a war-footing and prompted widespread speculation about what action the formidable $42bn (£30bn) fund would demand, while it remained eerily and uncharacteristically silent about its plans.
On the face of it, GSK boss Dame Emma Walmsley was vulnerable to an attack – the company’s share price has weakened during her four years in charge amid doubts about her strategy and its drug pipeline, and GSK has suffered the ignominy of lagging rivals including AstraZeneca in the Covid vaccine race.
Yesterday’s long-awaited investor day was her chance to get on the front foot and convince sceptical shareholders that she is the right person for the job. After weeks of building up her defences, Walmsley came out fighting.
Armed with a 25-page powerpoint presentation pledging a “new GSK” with “new ambitions”, she promised to deliver “a step change” with a decade of double-digit growth.
At the heart of her plan is the separation of its consumer health wing from the core pharmaceuticals and vaccines operation. Profits at the main drugs division will grow more than 10pc annually until 2026, catapulting it into the industry’s top quartile, the company estimates. And a greater focus on vaccines and cutting-edge treatments for cancer, HIV and other major diseases will deliver turnover growth of 5pc.
This looks both ambitious but crucially, credible too. On her own future, she was equally resolute, pledging to lead the pharma business “through the separation and beyond”.
It was punchy stuff that should buy her a reasonable amount of time to engineer a convincing turnaround. A 3pc share price rise, despite a one third cut to the dividend to free up cash to invest in research and development to levels not seen since last November suggests the plan has gone some way to silencing the doubters.
Yet, there are several important points that are in danger of being lost amid all the noise. There is actually little reason for GSK to capitulate. For a start, none of the ideas that have been suggested on Elliott’s behalf are particularly groundbreaking.
Ousting Walmsley; slashing R&D to improve profits; speeding up the demerger; hiving off the vaccines arm too? These are all predictably short-term measures and anyone with even the most basic knowledge of pharmaceuticals will know that bringing a drug to market is a painstaking process.
The response to Elliott’s arrival has been borderline hysterical in some quarters. Yes, it’s loud and scary, and often gets what it wants but GSK isn’t on the verge of being dismantled and parcelled off to overseas bidders; the Government will see to that.
The pandemic means every major pharmaceutical firm on the planet now has full state protection unlike when David Cameron rolled out the carpet for Pfizer’s bid to take over AstraZeneca in 2014.
This time around, ministers surely wouldn’t hesitate to act if they thought either AstraZeneca or GSK were under threat.
With the Government standing in the shadows, Walmsley is right to stand her ground. She has little to fear from short-term marauders, and even less to gain from being cowed by them.
‘It was punchy stuff that should buy her time to engineer a convincing turnaround’