GSK CEO Outlines Growth Plan, Demerger of OTC Business
GlaxoSmithKline (GSK) CEO Emma Walmsley outlined the company’s growth strategy at an investor event earlier this week (June 23, 2021), which includes a revenue target of more than £33 billion ($46 billion) for its bio/pharmaceutical and vaccine businesses by 2031 and the planned demerger of its consumer healthcare business.
Walmsley provided the company’s growth targets as it prepares the planned demerger in mid-2022 of its consumer healthcare business and moves forward with a focus on vaccines and specialty medicines to drive growth. “The benefits of the huge transformation we have driven since 2017 are now clear,” she said in a June 23, 2021 statement. “We have strengthened our R&D and commercial execution and transformed our group structure and capital allocation while driving a profound cultural change with new leadership. Together, we are now ready to deliver a step-change in growth for New GSK and unlock the value of Consumer Healthcare.”
Over the next five years (2021–2026), the “New GSK” expects to deliver sales growth and adjusted operating profit growth of more than 5% and more than 10%, respectively, at constant exchange rates (with 2021 as the base year) and excluding any contribution from COVID-19-related revenues. Profit growth is expected to be driven by a combination of strong revenue growth from new vaccines and specialty medicines, improving operational performance, and benefits from the transformation of recent years.
The company expects to improve adjusted operating margin from the mid-20s% in 2021 to over 30% by 2026. Improved sales growth, sales mix benefits and realization of cost savings from previously announced programs are all expected to contribute to margin improvements. GSK has identified a further £200 million ($279 million) of annual savings from the demerger of its consumer healthcare business and has revised its cost savings target from £800 million ($1.1 billion) to £1 billion ($1.4 billion). All restructuring programs will be completed in 2022, and no further major restructuring programs are planned.
By 2031, GSK aims to deliver sales of more than £33 billion ($46 billion) (at constant exchange rates) through the commercial execution of its current late-stage pipeline. The company estimates that certain assets in late-stage development have the potential in aggregate to deliver peak year sales of more than £20 billion ($28 billion) on a non-risk adjusted basis. The £33 billion ($46 billion) revenue target is before any significant revenue contribution from early-stage pipeline assets or any contribution from business development. GSK aims to grow sales through to 2031 despite the anticipated loss of exclusivity for Tivicay (dolutegravir), an antiviral drug to treat HIV, in 2028/29.
Therapeutic focus and reorganization
Going forward, GSK says it will prioritize R&D and commercial investment in vaccines and specialty medicines, which are expected to grow to around three-quarters of company sales by 2026. As part of its 2021-26 outlook, its vaccines business is expected to grow sales at a high single-digit compound annual growth rate (CAGR) and its specialty medicines at a double-digit CAGR.
The company is focused across four core therapeutic areas: infectious diseases, HIV, oncology and immunology/respiratory. The company currently has a pipeline of 20 vaccines and 42 medicines.
As part of its focus on vaccines and specialty medicines, the company will form a newly defined general medicines product group that will contain all of New GSK’s primary care brands, including older established products as well its inhaled respiratory portfolio. Further streamlining of the portfolio is expected through divestment or partnering of non-priority brands, and the company expects broadly stable sales over the period 2021-26 in general medicines.
Consumer healthcare separation
GSK says it expect the separation of its consumer healthcare business in mid-2022. The new consumer healthcare company, following demerger, will have a portfolio that generated annual sales of more than £10 billion ($14 billion) in 2020.
Subject to approval from shareholders, the separation will be by way of a demerger of at least 80% of GSK’s 68% holding in the consumer healthcare business to GSK shareholders, with the new consumer healthcare company. New GSK will retain up to 20% of GSK’s holding in the new consumer healthcare company as a short-term financial investment, which it intends to monetize in a timely manner. Prior to the demerger, New GSK is also expected to receive a dividend of up to £8 billion ($11 billion) from the consumer healthcare. The Board of GSK is preparing for two new independent boards following separation.
GSK says it will provide a further update for its new consumer healthcare company in early 2022.
The Board of GSK is preparing for two new independent boards following separation. A process has started to form a board of directors for the new Consumer Healthcare company. In addition, and building on recent non-executive appointments, further appointments are also expected to the Board of GSK prior to the separation to increase biopharmaceuticals and scientific experience for New GSK.