Pharmaceutical giant GlaxoSmithKline (GSK) is once again in the spotlight about potentially spinning off its consumer division to unlock value in the business and have a tighter focus. The demerged entity would focus on such brands as Sensodyne, Piriton and Panadol.

UBS analyst Michael Leuchten says a break-up of the business makes sense and highlights the consumer business only generates approximately 20% of group earnings.

Citi is more sceptical, arguing the apparent reassessment of a break-up is an attempt to ‘buy time and support the recently rebounded share price’. The shares are up 18% so far this year.

The investment bank highlights any strategic review is not a commitment to breaking up the business and the speculated two to three year timeline ‘may as well be an eternity’.

According to media reports, Glaxo’s chairman Philip Hampton has been talking to large shareholders about creating a more focused pharma and vaccines company. Achieving this task may require an improved performance from the pharma operations which have lagged the peer group in terms of developing new blockbuster drugs.

In the first quarter of 2018, pharma sales increased by 2% to approximately £4bn once currency changes were stripped out, driven by growing sales from its HIV drug portfolio.

Sales in the consumer healthcare division were also up 2% to £2bn although this pales in comparison to a 13% surge in vaccine revenues to £1.2bn.

Chief executive Emma Walmsley last year brought in drug development expert Hal Barron as the company’s new chief scientific officer. He is expected to drive the performance of the pharma division by boosting spending.

In March, the company bought out its 36.5% consumer healthcare joint venture partner Novartis to obtain full control. 

In the same month, GlaxoSmithKline also decided not to bid for Pfizer’s consumer assets, which may have been a relief to investors as debt would have risen significantly had it done the deal and put the dividend at risk.

Despite walking away from the Pfizer assets, the company does have its sights set on other acquisitions, particularly those that specialise in blood cancers, according to reports.

Walmsley says any acquisitions must meet GlaxoSmithKline’s criteria for returns and not compromise the company’s capital allocation priorities. (LMJ)

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