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GSK to spin out consumer health

The pharma giant knows its focus is split, and plans to do something about it
December 19, 2018

When Emma Walmsley took over as the new chief executive at pharma giant GlaxoSmithKline (GSK) investors thought building a consumer health business was the main objective. After all, Ms Walmsley had spent 17 years at L’Oreal, during which time she ran the French cosmetics giant’s Chinese consumer products business. After joining GSK in 2010, she became president of the pharma group’s European consumer healthcare division. Then, just before Ms Walmsley took up the reins as chief executive in April, GSK announced its intention to buy out Swiss group Novartis from the two companies’ consumer health joint venture for £9.2bn. Suffice to say, the market felt confident about where GSK’s strategy was headed.

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All this changed in early November when GSK revealed it had paid a significant premium to acquire Massachusetts-based oncology specialist Tesaro. The £4bn deal will hand GSK control of Tesaro’s main product, Zejula, which is currently approved in the US and Europe for use in ovarian cancer patients. At the time, analysts suspected GSK was bowing to investor pressure to rebuild the oncology division, particularly as close rival AstraZeneca (AZN) has made clear to its shareholders that this is where future value lies.

But maybe GSK has been listening more closely to its shareholders than many would believe. The group is to establish a new consumer health joint venture, this time with US-based Pfizer (US:PFE), with the intention that, three years after the transaction is complete, the new venture will officially be de-merged and re-floated as an independent entity. That will leave what remains of GSK to focus on innovative drug development, including cancer treatments.

For now, GSK will hold a majority 68 per cent stake in the new joint venture, which will operate under the GSK Consumer Healthcare name and be consolidated into GSK’s financial statements. The deal is also expected to be accretive to statutory earnings in the second full year post-close and to adjusted earnings in the first. Together the joint venture will also target an adjusted operating margin percentage in the “mid-to-high 20s”. The pharma group has also committed to an 80p dividend this year and next.