GlaxoSmithKline mulls forming standalone company focused on drugs, vaccines: report

According to people familiar with the matter, GlaxoSmithKline chairman Philip Hampton has been talking to the company's largest shareholders about creating a standalone company in the medium term focused on pharmaceuticals and vaccines, the Financial Times reported Friday. According to the report, the discussions come as GlaxoSmithKline faces pressure from some of its investors about spinning off the consumer products division.

The report cited one shareholder as saying "the logic of [splitting] the business is pretty clear…The financial dynamics of consumer and pharma are pretty different," while another noted that the "question [has been] on the table for a long time…[CEO Emma Walmsley] came in with a fresh pair of eyes, there is potential for thinking that [a spin-off] would make sense." A third investor is quoted as saying "if you are on the GlaxoSmithKline board, you need to keep testing that both parts still work together." 

A company spokesman stated that "our number one priority…is improving performance in the pharmaceutical business, especially pharma R&D, and next week," when GlaxoSmithKline is scheduled to report its second-quarter financial results, "we will set out our new approach to R&D." The spokesman indicated that while GlaxoSmithKline's current three-part structure focussed on drugs, vaccines and consumer products offers "significant opportunities in the current healthcare environment," it remains subject to each "continuing to perform competitively and having access to capital."

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Last month, GlaxoSmithKline finalised a deal to acquire Novartis' stake in the companies' consumer healthcare joint venture for $13 billion, giving the UK drugmaker full control of the business. According to the company spokesman, GlaxoSmithKline sees the consumer healthcare business as having "very good potential for growth" and that it has "set an increased margin target for that business to achieve by 2022." 

The pharmaceutical division accounted for more than half of GlaxoSmithKline's sales last year, bringing in nearly 17.3 billion pounds ($22.7 billion), which reflected growth of 3 percent on a constant currency basis versus 2016. Vaccines, which accounted for 17 percent of the company's revenue, generated sales of 5.2 billion pounds ($6.8 billion) in 2017, rising 6 percent in constant currencies. Meanwhile, consumer health sales represented a quarter of GlaxoSmithKline's revenue last year. 

In 2016, former CEO Andrew Witty said the consumer healthcare unit is "a very substantial business," adding that "at some moment, that thing is going to be big enough to be conceptually thought about on its own," but whether that would ever happen or not remained unclear. Witty later suggested that GlaxoSmithKline would not be pressured into an early divestment of its consumer division despite speculation it could be offloaded to Reckitt Benckiser or Procter & Gamble. 

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