GSK to boost spending power of pharma business post break-up

• GSK hopes Investor Day on June 23 will mark the turnaround for the stock
• New pharma-focused GSK will cut dividends and reduce debt
• Analysts encourage GSK to purchase off-site drug assets
• Executive Luke Miels points out the upcoming results of the pipeline study

FRANKFURT, June 21 (Reuters) – GlaxoSmithKline (GSK.L) will unveil plans to increase the purchasing power of its research-based pharmaceuticals business at an investor day on Wednesday as analysts urge the UK drug company to assess the prospects for drug development with acquisitions or alliances.

New GSK, the pharmaceuticals business that is slated to separate from its consumer goods business next year, will cut dividend payouts and shift some of the debt to the consumer goods sector, leaving room for investment to revive sluggish stock market performance.

GSK’s share price is down 14% over the past 12 months while the STOXX Europe 600 Health Care (.SXDP) index is up 5% due to a lack of fast-growing products and the postponement of treatments by patients the coronavirus pandemic was affected.

The company is the world’s top-selling vaccine manufacturer, but has fallen behind competitors like AstraZeneca (AZN.L) in the race to develop a vaccine against the coronavirus.

Luke Miels, chief commercial officer at GSK, told Reuters that the market is underestimating the company’s value “both in terms of our growth prospects with the products we now have in the market and in terms of our (drug discovery) pipeline “.

The company said in April it is looking into partnerships and doing business with drug and vaccine developers, particularly in immunology and genetics.

Miels said key study results are due in the next two years, although it will take longer to see results from a more fundamental upgrade of research and development (R&D) aimed at therapy breakthroughs rather than incremental improvements.

“I think what we need to do is give (investors) more confidence in the commercial execution and give them more confidence in the quality of the assets in the pipeline,” said Miels.

GSK’s track record this year is sobering. In oncology, the active ingredients bintrafusp alfa and feladilimab, which had previously been touted as potential billionaire sellers, failed in studies.

Loss of patent exclusivity for the HIV drug dolutegravir looms in late 2027, with annual sales of around £ 3 billion expected to disappear.

“In view of the recent failures in the mid-stage pipeline … it makes strategic sense to supplement the internal R&D pipeline with additional collaborations or acquisitions,” the Berenberg analysts write in a note.

ONE BECOMES TWO

Expectations around Investor Day have risen since reports in April that activist investor Elliott Management acquired a large stake in GSK. There was also speculation about the future of Emma Walmsley, managing director and former head of the consumer goods division since 2017. Continue reading

GSK, whose consumer products include brands like Sensodyne toothpaste, Advil pain relievers, and Nicorette chewing gum, has a market value of more than 70 billion pounds ($ 97 billion) and a separately listed pharmaceutical company is expected to become one of the larger UK company is on its own behalf.

Analysts assume that the spin-off of the consumer goods division, a joint venture with the US pharmaceutical company Pfizer (PFE.N), could take the form of an IPO, with the proceeds benefiting the innovative pharmaceutical business. Continue reading

GSK has announced that the consumer goods business will incur net debt of 3.5 to 4 times adjusted annual earnings before interest, taxes, depreciation and amortization (EBITDA). This has currently increased twice for all GSK. Continue reading

The pharmaceutical business, in turn, will be less indebted.

“After the split, the balance sheet will be in a stronger position to conduct larger deals if the opportunity or need arises,” said Louise Pearson, an analyst at Redburn brokerage firm.

To create even more financial headroom, GSK has announced that dividends will be cut starting next year, with analysts forecasting a cut to around 40% of earnings, up from more than 80% this year.

“Further investments in the pipeline ahead of (the 2022 split) are expected as management has to convince the market that the pharmaceutical business can live without consumer healthcare,” said Berenberg.

Much will be based on the study results expected this year and next, including for a combination therapy with the cancer drug Blenrep, for the experimental anemia treatment daprodustat to alleviate chronic kidney disease and for the new antibiotic gepotidacin against urinary tract infections.

“Hopefully the changes in research and development in the next few years will be more visible and reflected in the share price,” said Miels.

($ 1 = 0.7231 pounds)

Reporting by Ludwig Burger; Editing by Keith Weir and Jan Harvey

Our Standards: The Thomson Reuters Trust Principles.

source https://dailyhealthynews.ca/gsk-to-boost-spending-power-of-pharma-business-post-break-up/