- GlaxoSmithKline aims to earn 33 billion pounds, or roughly $46 billion, in annual sales in 2031, betting that new experimental drugs for infectious disease, cancer and immune conditions will drive growth following an exit from consumer healthcare planned for next year.
- The planned transition to the "new GSK," which company executives laid out Wednesday, will come with some short-term pain for shareholders, who will see their dividends cut by roughly a third. The consumer healthcare division, which is now set up as a joint venture with Pfizer, will be formally separated in mid-2022, at which point GSK will retain 20% ownership as an investment.
- The British drugmaker's new outlook comes as activist investors led by Elliott Management have reportedly been pushing for changes to management, including CEO Emma Walmsley's ouster, along with separation of the vaccines unit, according to the Finanical Times.
GSK has leading positions in respiratory medicine, HIV treatments and vaccines, all of which are relatively mature businesses and slower-growing areas of drug development. In the comparatively fast-moving fields of oncology and immune disease, the company is a comparatively smaller player. Products in those two areas earned GSK about 1.1 billion pounds in sales in 2020.
Overall, the company's overall growth has been sluggish, with sales rising 3% in 2020 after accounting for changes in foreign exchange rates. This has spurred activist investors to call for GSK's management to change strategy, which Wednesday's announcement appears to address, although what was revealed suggests investors may have to wait a while.
The target of 33 billion in sales would essentially bring GSK back to its 2020 baseline, though, if achieved, more of that would come from new prescription medicines. The consumer division, which sells such products as Advil and Centrum, accounted for 10 billion pounds, a sum that will need to be made up by sales growth from marketed pharmaceuticals and now experimental medicines.
GSK management pointed to its research pipeline, which the company projects could earn as much as 20 billion pounds in peak annual sales. That number doesn't account for the potential that many of those projects may fail, a common occurrence in drug development.
Among the promising projects GSK included in that pipeline are vaccines against respiratory syncytial virus and five strains of meningitis, both of which could be the first on the market. In addition, new drugs for anemia, rheumatoid arthritis, asthma and bacterial infections could help, according to GSK.
GSK said it could add to its pipeline with licensing and small acquisitions focused on its key product lines.
The company forecasts annual sales growth of 5% through 2026, after which there will be three major products — an HIV drug and two asthma treatments — that will face patent expirations or revenue declines. GSK believes, however, that growth from specialty medicines will help offset those declines.
Before investors see any of those benefits realized, they'll see a substantial reduction in the dividends GSK pays. The 31% reduction set out for 2022 was less than the 50% cut that many investors feared, SVB Leerink analyst Geoffrey Porges wrote in a June 23 note to clients. That cut will be followed up by a progressive dividend policy that will equal 40% to 60% of per-share earnings.
Investors appeared to be more encouraged by the strategic direction than disappointed by the dividend cut. Shares traded on the London Stock Exchange rose by a little more than 1% in late afternoon trading.