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GSK plans HIV float

Drugs giant GlaxoSmithKline (GSK) is considering the float of a minority stake in its shared HIV business ViiV Healthcare.
October 31, 2014

Drugs giant GlaxoSmithKline (GSK) has become the latest company to consider floating its stake in a subsidiary business on the London Stock Exchange. Along with Procter & Gamble (US: PG), which plans to spin off its Duracell battery business and Imperial Tobacco (IMT) which hopes to float its logistics division, GSK will sell off its stake in HIV business ViiV Healthcare. It’s thought the business could enter the FTSE 100 with a market capitalisation of anywhere between £10bn and £15bn.

While the world concerns itself with the global Ebola crisis, the float of ViiV Healthcare will remind investors how far the development of HIV treatment has come since the virus caught the attention of major drugs companies in the 1980s. Last year, global sales of HIV drugs were estimated to total $20bn (£12.36bn), with big pharma now benefiting from life-long revenue streams from such treatments. GSK was originally considered a pioneer in the early development of HIV treatments, having helped one of its predecessor companies, Burroughs-Wellcome, convince US regulators to approve the first HIV drug - AZT - in 1987. However, GSK's portfolio for next-generation HIV treatments hit a slump in the mid-1990s, and chief executive Andrew Witty made it a priority to reignite the division when he joined the company in 2008.

He joined forces with US rival Pfizer (US: PFE), which also had a lacklustre HIV portfolio, and co-founded ViiV Healthcare, which is still majority owned by GSK. The joint venture hit a turning point last year with the approval of a new drug - Tivicay - which City analysts believe could push ViiV's total revenues to £2.5bn by 2018. Taken in combination with two other medicines, the once-a-day treatment has reported improved efficacy and reduced side effects with patients, marking another successful step in the streamlining of HIV treatment.

 

Therefore, it's not unreasonable to ask why GSK has chosen to float the business considering its recent growth-spurt.

Analysts suspect GSK is offloading ViiV to unlock some value for its shareholders, after the company's stock took a battering this year due to sluggish sales and bribery scandals. What's more, Mr Witty has revealed the company is undergoing a wider restructuring in an effort to recoup £1bn in costs, and the IPO of ViiV is simply part of the process. ViiV is run as a separate company under the GSK umbrella, and so little should change in the day-to-day running of the business. It would also suggest that GSK has not been shaken by the recent collapse of confidence surrounding the IPO market. Given the re-ignition of growth at ViiV, GSK directors have also claimed they are in no rush, and will carefully consider the timing of the float relative to market conditions.

In terms of investing in the soon-to-be listed ViiV, analysts appear wary. Some have pointed to ViiV's impressive portfolio of future products, approximately 11, with another in clinical trials. It also raked in £373m in the third quarter, representing an 18 per cent increase on sales in the same period last year. But others are wary of the nature of HIV medicines. As a virus, HIV eventually builds resistance against all antiretrovirals and a vaccine or outright cure for the disease has long-eluded the industry. ViiV's hopes lie with a long-lasting medicine, injected once a month, which has delivered encouraging results in mid-stage trials.

US group Gilead Sciences (US:GILD) is still considered to be the market-leader in HIV treatments. It sold roughly $9bn of HIV drugs last year, and has hinted at the amount of money a cure for HIV could generate. As an example, its new Sovaldi hepatitis C medicine - which can eliminate the virus in more than 90 per cent of cases - could generate up to $10bn of sales in its first year on the market.

Meanwhile, Imperial Tobacco's logistics business has long been considered surplus-to-requirements and Procter and Gamble has said it is trying to "sharpen its sales focus" on shampoos, detergents and paper towels by offloading Duracell. P&G's decision also came as no surprise. It announced plans to cull up to 100 of its household brands in August - having already cut 25 brands over the last five quarters.