GSK Supports CEO Against Activist Shareholder’s Demands

A day after activist investor Elliott Management called on GlaxoSmithKline to sack Chief Executive Officer Emma Walmsley and line up new leadership for the company when it splits into two entities, the pharma company’s board of directors soundly rejected the demand.

In a public letter, the board said it “strongly believes” that Walmsley is the correct leader for the pharmaceutical business arm of GSK, which is being referred to as New GSK. They fully support the steps being taken by Walmsley and her leadership team ahead of the divestiture of the consumer health business. The board also notes that Walmsley and the GSK leadership team 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 board wrote in its response to Elliott.

Last week, Elliott, which owns less than 10% of GSK’s stock, reiterated its call for new leadership following GSK’s outlining its vision for the business split next year. Ahead of the de-merger, Elliott Management called for more biopharma experience on the company’s board of directors. 

Elliott has been critical of Walmsley, who does not have a scientific background. A greater understanding of the industry will allow for the selection of new corporate leaders, the investors argued. 

In June, Walmsley outlined the projected de-merger of the two GSK businesses. She predicted the standalone pharma business would have projected revenue of about $46 billion by 2031 and consistent growth of more than 10% operating profit over the next five years. New GSK is expected to be a growth company fueled by the development of new vaccines and specialty medicines. 

The pharmaceutical business will focus on four core therapeutic areas: Infectious Diseases, HIV, Oncology and Immunology/Respiratory.

By 2031, New GSK is predicted to deliver more than £33 billion (about $45 billion) in sales. The £33 billion sales ambition is before any significant revenue contribution from early-stage pipeline assets or any contribution from business development, the company said last month. 

GSK’s vaccines business is also seen as a revenue driver. Revenues had increased from £4.6 billion (about $6.3 billion) in 2016 to £7 billion ($9.7 billion) in 2020. That is expected to continue in the foreseeable future. 

“With R&D focused on science of the immune system, and world-leading capabilities in vaccine and pharmaceutical development, GSK is well-placed to capture these opportunities and it underpins GSK’s approach to further integration in R&D and prioritization of capital to Vaccines and Specialty Medicines,” the board wrote.

The GSK Board of Directors said its priorities are to “unlock the potential” of both New GSK and the consumer healthcare (CH) business in order to maximize value for all shareholders. 

On the CH side of things, which is a joint venture with Pfizer, the board said it is in the process of establishing a separate board and leadership team for the company. The combined portfolio of consumer healthcare products from both companies includes Advil, Tums, Sensodyne toothpaste, Excedrin and Nicorette gum. In 2020, those products generated annual sales of more than £10 billion(about $13.9 billion). 

A chairman of a new board of directors is expected in the second half of this year, while the executive leadership of CH will be established in advance of the separation of the business. A CEO for CH is soon be announced. 

“The board’s clear priorities are to unlock the potential of New GSK and Consumer Healthcare, to strengthen New GSK’s balance sheet and to maximize value for all shareholders,” the board wrote.