Expect Glaxo to increase consumer focus as Walmsley takes driving seat

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Anyone expecting a new chief executive of GlaxoSmithKline to take a fresh look at spinning off its consumer health arm should think again. The often-discussed move was always firmly dismissed by the outgoing Andrew Witty and his replacement Emma Walmsley, who currently heads the unit, is equally unlikely to consider it non-core.

Ms Walmsley will also become the first female big pharma chief execs, but because she has spent the last six years at Glaxo, the appointment is typical for the sector in other ways. A look at the top 10 pharma companies shows that the majority also promote their leaders from within (see tables below).

Unlike many of the other big pharma chiefs, however, Ms Walmsley has spent a large chunk of her career outside Glaxo and out of pharma entirely, with a 17-year stint at L’Oreal. With her experience, and potentially her focus, squarely on the consumer sector, there might be worries over whether she can pull off the pharma-focused deals that are surely needed to improve the perception of Glaxo among investors.

The company is the worst performer among its peers on share price since 2007 – its outgoing chief exec, Andrew Witty, took the helm in 2008 – in spite of a relatively healthy bottom-line improvement. Glaxo shares were largely unchanged today on the news.

The Witty legacy – changing fortunes from 2007 to 2015
Two performance metrics 2007 to 2015
Share price Bottom line
Bayer 156% -29%
Bristol-Myers Squibb 141% -28%
AstraZeneca 63% -49%
Eli Lilly 59% -18%
Johnson & Johnson 55% 46%
Roche 26% 13%
Pfizer 25% -5%
Novartis 24% 49%
Merck & Co 19% 36%
Sanofi 12% -34%
GlaxoSmithKline 2% 23%
Note: bottom line is reported net income.

Glaxo has been increasing its focus on lower-margin consumer health and vaccines businesses since an asset swap with Novartis in 2014 that saw the Swiss pharma giant take on the UK company’s oncology assets.

The groups also agreed a consumer joint venture in which Glaxo has a majority stake.

Bayer and Sanofi also reached their lofty positions in the over-the-counter segment via deals, with the former buying Merck & Co’s OTC products for $14.2bn in 2014, and the latter swapping its animal health unit with Boehringer Ingelheim’s consumer division in 2015.

Big pharma OTC players
OTC sales ($bn)
2007 2015 2022e
Bayer                    2.71 5.06 6.52
Sanofi                   1.56 3.87 5.46
GlaxoSmithKline 3.58 4.54 5.29
Johnson & Johnson 2.26 2.58 3.12
Pfizer                    1.44* 2.06 2.65
Boehringer Ingelheim 1.56 1.68 -
Novartis               2.72 0.46 -
*Wyeth sales. Source: EvaluatePharma.

If Ms Walmsley, as the head of Glaxo’s consumer healthcare unit, was heavily involved in the ground-breaking asset swap, this could bode well for future M&A. The move had its critics at the time, but appears to have paid off with Glaxo’s vaccines business posting 11% sales expansion in the second quarter, making it the group’s fastest-growing business.

Glaxo investors will no doubt be hoping that Ms Walmsley’s rise to the top could herald more innovative deals of this kind, particularly if valuations for smaller biotechs remain over-inflated.

The new leader seems receptive to M&A, hinting in a recorded interview that she plans to bring in external assets to complement Glaxo’s in-house pipeline. And that pipeline looks in need of a boost – with the exception of the shingles vaccine Shingrix, the company has no blockbusters in waiting, according to EvaluatePharma consensus sellside forecasts.

Glaxo's top five pipeline projects
Project Description Status 2022e sales ($m)
Shingrix Shingles vaccine Phase III 1,145
FF/UMEC/VI COPD inhaler Phase III 655
Fostemsavir tromethamine HIV drug Phase III 439
Cabotegravir HIV drug Phase II 151
GSK525762 MAb for rheumatoid arthritis, osteoarthritis & MS Phase II 122

Ms Walmsley also seems keen on partnerships outside the usual pharma sphere, pointing to Glaxo’s recent joint venture with Google’s life sciences arm Verily in bioelectronics (Interview – Galvani wants to get on patients’ nerves, August 4, 2016). 

One thing is clear – Glaxo needs a new lease of life. But with Ms Walmsley in charge, it looks unlikely to come via a spin-off.

Background of the top-10 pharma companies’ chief executives
Company CEO Background
Novartis Joe Jimenez Years at company before CEO appointment: 3
Previous company: HJ Heinz
Background: Business
Roche Severin Schwan Years at company before CEO appointment: 15
Background: Economics/law
Pfizer Ian Read Years at company before CEO appointment: 32
Background: Chemical engineering
Sanofi Olivier Brandicourt Years at company before CEO appointment: 0
Previous companies: Bayer, Pfizer
Background: Medicine
Johnson & Johnson Alex Gorsky Years at company before CEO appointment: 10
Other company: Novartis
Background: Science/business
Merck & Co Ken Frazier Years at company before CEO appointment: 19
Background: Law
Abbvie Rick Gonzalez Years at company before CEO appointment: 35
Background: Biochemistry
GlaxoSmithKline Emma Walmsley (effective March 31, 2017) Years at company before CEO appointment: 6
Previous company: L’Oreal
Background: Business
AstraZeneca Pascal Soriot Years at company before CEO appointment: 0
Previous company: Roche
Background: Veterinary medicine
Gilead Sciences John Milligan Years at company before CEO appointment: 26
Background: Biochemistry

To contact the writers of this story email Madeleine Armstrong or Amy Brown in London at news@epvantage.com or follow @medtech_ma or @AmyEPVantage on Twitter

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