GlaxoSmithKline share price surge keeps Emma Walmsley’s head above water, but for how long?


The recent share price surge seen for GlaxoSmithKline PLC (LON:GSK) has probably saved Emma Walmsley’s job but won’t spare her from an uncomfortable Capital Markets Day this Wednesday.

The chief executive, one of only seven women holding this role in the FTSE 100, is under close scrutiny by the City, with many people thinking she should have delivered more in the four years since her appointment.

READ: There’s deep value in GlaxoSmithKline, says City broker

She’s set to present the pharma giant’s growth outlook for the next five to ten years, confirm the extent of the proposed 2022 dividend cut and confirm the route and timing of the demerger of the Consumer business.

Investors are wondering whether the FTSE 100 group will manage to fill the GBP3bn sales hole after the loss of exclusivity over HIV medication dolutegravir in 2028, which, according to Berenberg, will also cause lost profits of GBP1.8bn.

To close the gap and achieve 4% sales growth per annum, the team will have to deliver at least two ‘megabuster’ assets to market by the middle of the decade, but analysts reckon there are already at least four Phase 2/3 “gold star assets” in the pipeline that could fit the bill, if successful.

Share price woes

The share price, often used as a performance indicator for top executives, is up 3% in the year to date and has recovered 19% after a trough in February caused by disappointing results for a COVID-19 vaccine.

The stock was lifted by positive data on another COVID-19 therapy, the start of late-stage trials on a COVID-19 vaccine developed with Medicago in March and news that hedge fund group Elliott Management had built a significant stake in April.

Fast forward to last week, the US$2bn deal with US biotech Iteos Therapeutics (NASDQ:ITOS) for a cancer-busting treatment was another help for the shares.

The rally follows huge underperformance of other large-cap pharma companies during the pandemic, as it didn’t manage to advance a vaccine candidate of its own despite being a traditional market leader in vaccines and infectious disease.

Rather than blockbusters, the share price currently implies a negative pipeline value, according to Berenberg.

In fact, GlaxoSmithKline has been accused of having a weak pharma pipeline compared to rival and one-time junior rival AstraZeneca, which has also left GSK standing in the production of a COVID-19 vaccine.

“GSK has had recent issues with the development of several Oncology drugs,” Peter Shapiro, senior director of drugs and business fundamentals at GlobalData, told Proactive.

“Sales and sales forecasts of the company’s highest revenue-generating drug Shingrix, a shingles vaccine, have decreased due to patients avoiding healthcare facilities during the COVID-19 pandemic.”

Elliot vs. Walmsley

Walmsley may be in trouble on Wednesday as Elliott is renowned for taking stakes and forcing changes on management and the structure of businesses.

The US firm has been reported as ringing around major investors to gauge opinion on whether she is still seen as the best person to run the pharma arm, which Walmsley will head once the business splits.

There has been discussion that her background in Cosmetics at L’Oreal and at the Consumer division of GSK is not appropriate for her to lead GlaxoSmithKline, especially after the spinoff.

“How much of this is due to sexism as Emma Walmsley, is the only woman in charge of a top ten pharmaceutical company is a question. Merck’s outgoing CEO Kenneth Frazier has been lauded by the industry despite having a nontraditional background for Pharma leadership as a lawyer,” said Shapiro.

Walmsley has consistently been within her annual profit target range, either delivering or topping it, but analysts at Berenberg reckon her innovation sales targets are not overly challenging.

She is hoping to win investors by halving the current 80p dividend, the broker reckons, leaving around GBP2bn of free cash to reinvest in new assets for the pipeline in the medium term.

There has been mounting pressure for management to cut the dividend for some time and the planned cut was already announced in the 2020 results.

According to Berenberg, the decision would represent “short-term pain for long-term gain”.

“We believe clarity on the dividend and consumer exit, evidence of Shingrix recovery in the second half and pipeline readouts over the next 18 months could offer opportunities to build momentum,” analysts said.

“We continue to believe there is deep value but it is clear that execution is key to unlocking this value.”

Meanwhile, Elliott could also seek to influence aspects of the consumer health division spin-off or to accelerate it.

“The easiest way to restructure the late-stage pipeline of a company is by license pipeline programs from other companies (as it has already done with Iteos), or by the acquisition of smaller more innovative Bio/Pharma companies,” Shapiro noted.

“Unfortunately, because of the high trading value of Bio/Pharma stocks currently, GSK will have to pay a premium for acquisitions or licensing deals (as we have seen with Iteos).”

Wednesday’s meeting is set to be a key event for Glaxo as it heads on a new path.

Whether Walmsley will be there at the end of the journey remains to be seen.

Shares were down 1% to 1,414.2p on Monday afternoon.


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