Markets rise and markets fall, but the price of a UK drugmaker’s share
not much changes at all.
On the last day of June 2011, you could buy Glaxo’s US certificates (ticker: GSK) for $42.90. Ten years later, they cost $39.82. The
S&P 500 Index
increased by 225% over the same period. a share of
(LLY) bought in 2011 for $37.53 could have sold for $229.52 in June.
Glaxo’s ADRs have closed at $32 to $56 on every trading day for the past decade. Their hefty dividend means investors have outperformed the 7.2% drop in its share price, though their 58% yield has yet to give them credit. lagging far behind their peers.
Now there is a chance for Glaxo to come out of the malaise. By mid-next year, Glaxo will divest the consumer-healthcare joint venture with which it was founded
(PFE) in 2019, which sells Advil, ChapStick and other drugstore staples.
Glaxo has been signaling these plans for years. New is the involvement of activist hedge fund Elliott Management. Investors are intrigued, and the stock is up about 10% since Elliott’s involvement in April.
However, if investors have pricked up their ears, Glaxo’s management is thrilled. Glaxo has set aggressive targets for the biopharmaceutical company that will continue to exist after the split, saying it will grow sales by more than 5% per year over the next five years, increase operating profit by more than 10% over the same period. raise dividends, and focus its research and development efforts on its vaccines and specialty drugs, which treat rare and complex diseases.
That could remind investors of the commitments Pfizer made before it performed a similar maneuver in November 2020 and shut down its peripheral operations in search of a new identity as a pure-play biopharma.
Today, investors are still unconvinced by Pfizer’s transition, and the stock has underperformed the market since the last major spin-off, although growth is on track and the company is one of the best Covid-19 in the meantime. vaccines in the world.
However, Elliott’s involvement with Glaxo changes the situation and should give investors the confidence to bet on the biopharma’s long-term turnaround.
“We know that this company has not delivered what we would all like to do, in terms of shareholder return,” the company’s CEO acknowledges, Emma Walmsley, in an interview with barons.
She says her updated version of Glaxo will deliver on the pipeline and financial goals. “We look forward to being held accountable for that,” Walmsley says.
Glaxo’s story thus far has been one of an effective vaccine business saddled with an uninspiring pharmaceutical business.
Successive developments and commercial disappointments have led people to reject more or less everything they have going on, and as a result, the stock isn’t going anywhere,” he says. dr. Geoffrey Porges, analyst at SVB Leerink.
The vaccine side of the company, on the other hand, is a world champion. Glaxo’s vaccines are of high quality, with all but the flu shots having at least 90% efficacy. The best-selling vaccine, the shingles prophylactic Shingrix, is a legitimate blockbuster, expected to bring in $3.5 billion in sales by 2022.
Elliott says investors have missed Glaxo’s strength in vaccines and areas like HIV, seeing a 45% rise in the company’s stock price even before the spinoff next year.
It’s not clear what Elliott’s executives think will fuel that rally, and the glaring number may be more of a target for the activist fund than a prediction. Elliott’s public recommendations for Glaxo are usually quite modest, and include giving more autonomy to the vaccine unit, greater investment in research and development, and for the company to sell rather than divest the consumer health joint venture.
Glaxo has adopted some of the recommendations and rejected others. The company is insisting on integrating its vaccine division with the rest of the company, and while it has said it is open to selling the consumer health group rather than divesting it, it thinks it’s unlikely a buyer will to arise.
The biggest disagreement between Elliott and Glaxo revolves around Walmsley herself, and whether she should lead the biopharma business after the spin-off.
Most biopharmaceutical CEOs have more pharmaceutical experience than Walmsley, who was a director at the consumer goods giant
(OR.France) before coming to Glaxo. In a public letter, Elliott called for a “robust process” to choose a CEO for New Glaxo.
Glaxo says it will stay with Walmsley.
“It’s not like my profile has ever been secret,” the CEO says. “My own opinion is that while we can talk about all the things that I am not, I am a change leader, a business leader, a team creator.”
Investors do not have to choose sides in this battle. What matters to investors is that the hedge fund has demonstrated patience and a track record of gaining value for biopharma investors.
“Elliott’s horizon here is not months; it’s years,” Porges says. “It often takes two to three years for their influence to really start to change what’s happening within the company…. Almost universally they stimulate or contribute to that value creation.”
Write to Josh Nathan-Kazis at email@example.com