Join our community of smart investors

Shares I sold: GlaxoSmithKline

Neil Woodford explains why he has sold GlaxoSmithKline, a company he had invested in for over 15 years
May 23, 2017

Pharmaceutical company GlaxoSmithKline (GSK) was one of the largest holdings in CF Woodford Equity Income Fund (GB00BLRZQB71), accounting for around 7.5 per cent of its assets at the end of February 2017 and 6.4 per cent at the end of March, the month in which the fund's manager, Neil Woodford, started to sell it down. He disposed of the rest in April.

"Over a holding period of over 15 years I have consistently believed that GlaxoSmithKline was capable of delivering growth and realising shareholder value," said Mr Woodford. "Neither has been forthcoming to the extent that I had hoped and expected.

"Its core pharmaceuticals division has changed substantially, but is still contributing broadly the same level of revenues as it was in 2004; the consumer healthcare division has delivered modest progress, but its growth rate and margins have been well below that of its peers and vaccines has performed well at times, but growth has faltered in recent years. The one genuinely successful area has been the development of its HIV franchise, ViiV.

"Three out of the four business units [are] perennial underperformers [and] I have become more concerned about the prospects for the one Glaxo engine that has been firing on all cylinders. ViiV's most important products, Triumeq and Tivicay, have been delivering robust growth over the past few years, but that may now not be sustainable. There is a growing competitive threat in this market, which could undermine Glaxo's franchise. US biotech company Gilead is conducting trials into a potential competitor to ViiV's Triumeq.

"Over the past three years, ViiV has been responsible for more than half of Glaxo's growth. If the company's one remaining growth engine starts to falter, this could pose a threat to Glaxo's future revenue growth, earnings and cash flows. This new challenge for the company amplifies several other concerns that I have had and have discussed at length with the company on many occasions. The lack of a rich pipeline, for example, and the lack of strategic options that results from an already stretched balance sheet.

"Glaxo remains a healthcare conglomerate with a sub-optimal business strategy, and shareholders face a cut to the dividend. I have long believed that value could be created for the company's shareholders if it split itself into separate, more specialised business units. The company has consistently argued that being diversified is a strength and that there are synergies between the business units, particularly between the pharmaceutical division and consumer healthcare. [But] the structural underachievement of both the consumer healthcare and the pharmaceuticals unit suggests that these synergies simply do not exist.

"My viewpoint, and that of other like-minded institutional investors, has been heard but ultimately ignored - repeatedly."