The drugmaker GlaxoSmithKline has stood by its chief executive, Emma Walmsley, insisting she will lead the pharmaceuticals and vaccines company after a corporate split next year, as the board pushes back against demands for a new executive line-up from the activist investor Elliott Management.
A day after the New York hedge fund published a 17-page letter lambasting GSK’s years of underperformance and in effect demanding Walmsley reapply for her job before the planned demerger of its consumer healthcare division from its life sciences arm, GSK hit back with a three-page statement defending the strategy.
Elliott has demanded GSK appoint new board directors with deep pharmaceutical and consumer health expertise, and it wants the company to launch a process to select “the best executive leadership” for the two new entities.
Launching a strong defence of Walmsley’s leadership, the drugmaker responded: “With New GSK representing the majority of GSK’s existing business, the board is not conducting a selection process post-separation. The board strongly believes Emma Walmsley is the right leader of New GSK and fully supports the actions being taken by her and the management team, all of whom are subject to rigorous assessments of performance.
“Under Emma’s leadership, the board fully expects this team to deliver a step-change in performance and long-term shareholder value creation through the separation and in the years beyond.”
The GSK chair, Sir Jonathan Symonds, had already publicly backed Walmsley, who has come under pressure from Elliott since it took a multibillion-pound stake in GSK in April. The hedge fund is thought to have questioned her lack of scientific background in talks with other shareholders.
“The board and the executive team believe that focus and stability are now critical to deliver a successful separation,” GSK added.
M&G Investments, a top 20 shareholder, came out publicly in support, while Royal London Asset Management, a top 30 investor, has also backed GSK’s strategy. Michael Stiasny, head of UK equities at M&G, said: “Over the last few years GlaxoSmithKline’s management team has built a solid foundation for success and has recently committed to very credible longer term targets.
“Management is capable of meeting these targets, and should be given the space and time to deliver value from the assets based on the strong groundwork they have already put in place. The current share price does not reflect the value of the assets, the brand or the opportunity available. We think a change in management would serve no purpose as we cannot see how a new team would be more effective.”
Separately, GSK announced a $2.2bn (£1.44bn) collaboration with the Californian firm Alector to develop treatments for a range of neurodegenerative diseases, including Parkinson’s and Alzheimer’s. It forms part of efforts to rebuild its portfolio of new drugs, as it has lagged behind rivals. GSK’s share price has fallen 13% to £14.39 since Walmsley took over four years ago.
GSK said that after a six-month search, it was close to appointing a chief executive for consumer healthcare, which is currently run by Brian McNamara and makes a host of well-known brands including Panadol, Aquafresh, Sensodyne and Nicorette.
It rejected Elliott’s demand to keep pharmaceuticals and vaccines separate after the shake-up, saying the vaccines business had benefited from operational integration with pharmaceuticals in key areas for many years. Elliott had also demanded that executive bonuses be linked to more ambitious targets and the achievement of research and development milestones.
At an investor day last week, GSK set out ambitious sales targets and a 10-year strategy, which were broadly welcomed by analysts, and said the targets would be incorporated into executive bonus plans.
Elliott had also asked GSK to consider a full sale of consumer health, worth about £45bn, if private equity or industry bidders emerge. Walmsley’s plan is to spin-off and list the division on the London stock exchange, with the life sciences arm, New GSK, retaining a stake.
The drugmaker said on Friday it would “fulfil its fiduciary duties to evaluate any alternative options for consumer healthcare that may arise”. However, a sale seems unlikely given the size of the business and many shareholders have told the company that they wish to own the division as a new listed entity, while a demerger is also more tax efficient than a sale would be.
