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GSK pursuing split as easing of COVID curbs aids earnings

Published 04/28/2021, 07:09 AM
Updated 04/28/2021, 08:35 AM
© Reuters. FILE PHOTO: Company logo of pharmaceutical company GlaxoSmithKline is seen at their Stevenage facility

By Pushkala Aripaka and Ludwig Burger

(Reuters) -Plans for GlaxoSmithKline (NYSE:GSK) to split in two are "well underway" it said on Wednesday after exceeding first-quarter earnings forecasts as an easing of COVID-19 curbs meant more clinic visits for critical treatments such as HIV and routine shots.

GSK has fallen behind in the coronavirus vaccines race and its broader strategy has been under the microscope after a report that U.S. activist investor Elliott built up a significant stake.

The British drugmaker said it would provide details on June 23 on its plan to separate next year into an over-the-counter products business and another for prescription medicines and vaccines.

Chief Executive Emma Walmsley said she was focused on GSK's broader transformation and delivering shareholder value.

The separation was spearheaded by Walmsley, a former head of GSK's consumer business, to simplify operations.

Walmsley took the top job in 2017 despite some investor pressure to name an outsider as CEO and such calls may grow with Elliott's arrival on the register.

"With major structural change on the cards at GSK, with or without Elliott’s alternative vision, it looks set to be a year of forced evolution at GSK," Steve Clayton, manager of Hargreaves Lansdown (LON:HRGV)'s Select UK Income Shares fund, said in a note.

GSK said that turnover for the three months to March fell 15% to 7.42 billion pounds ($10.28 billion) at constant currency rates, while adjusted earnings stood at 22.9 pence per share, down by a third.

Analysts had expected adjusted earnings of 21.9 pence per share and sales of 7.83 billion pounds, a company-compiled consensus of 17 analysts showed.

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Walmsley launched GSK's split, which involves merging its over-the-counter products business into a venture with Pfizer (NYSE:PFE) and separating this from its prescription medicines and vaccines units, last year.

Investments to prepare for the division have hurt earnings, but GSK hopes the streamlined operations resulting from it will pay off in the long term.

Walmsley said that while GSK's consumer health business had great prospects and a "fantastic" leadership team, she would seek to remain in control of the bigger picture.

"I’m very focused on leading GSK through that successful separation and beyond," Walmsley told a results briefing, adding that she saw her role as CEO as setting the strategy, hiring top people and allocating capital, while leaving the medical science to the experts.

"I've clearly laid out from day one ... and included in that has been the best possible R&D leadership in the world," Walmsley said in response to suggestions that her lack of scientific background meant she would be better suited to lead the consumer business once GSK completes its planned split. ($1 = 0.7215 pounds)

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