ALEX BRUMMER: Emma Walmsley fires up the big guns in the war for Glaxo

The phony war for the soul of Glaxosmithkline (GSK) kicked off in April. Under-pressure chief executive Emma Walmsley has finally loaded her big guns.

As Walmsley makes clear, this has been complex work which began four years ago and the goal is to end a period of perennial underperformance.

The big decisions, such as the commitment to spin-out consumer healthcare, were taken a time ago.

But there has been a lack of specifics and vulture capitalists Elliott Advisors have been instrumental in shaking the tree.

Now that we know the directions GSK is taking, doubling down on R&D, innovation and drugs and vaccine development, it is time for Elliott’s London boss Gordon Singer to call off the dogs.

No quoted company should be immunised from shareholder pressure, and the tumble in GSK’s share price under Walmsley’s stewardship has galvanised action on dividend, finances and strategy.

Yet there is no escaping the fact that when she took the reins, Walmsley was on a lame horse in need of long-term attention.

As we learnt with Astrazeneca in 2014 when it faced an existential threat as a result of a bid by Pfizer, the capital markets can drive change.

But there needs to be understanding that drug and vaccine development generally take time, and bringing GSK’s pipeline to fruition won’t happen easily.

When it comes to Covid vaccines, GSK failed to make the sprint headed by Pfizer, Moderna and Oxford-Astrazeneca.

But it is not out of the race. Only 17 per cent of the world’s population has been vaccinated. So there is plenty of space for GSK as its jointly developed vaccine with Sanofi comes to the end of the Phase 3 trials.

Unlike some of its competitors, it has deep vaccine knowledge, production and logistics skills and long experience in adapting vaccines for the next variant. 

At the core of Walmsley’s plans is GSK’s 68 per cent-owned Consumer Healthcare division. 

As a means of giving New GSK a booster, and to release the genius around immune systems, human genetics and advanced health technologies, some £8billion of cash will be generated by the independent float of the Sensodyne toothpaste and Advil producer. 

It will be loaded up with group debt, which it is capable of managing because of strong and reliable cash flows.

GSK will keep a 20 per cent stake in the healthcare behemoth, which has annual sales of £10billion, as a reserve to be called upon when more pharma investment is needed. 

Consumer Healthcare will be the biggest such company in the world, with projected sales growth of 4 per cent this year. 

Given its scale, size and branding it has all that is necessary to remain free standing enterprise.

It is hard not to think that some of the fast moving consumer goods companies which have been shifting towards health products will have an eye on the prize. Similarly, hyperactive private equity, which likes annuity income streams, will also be watching.

All of Walmsley’s actions, including re-basing the dividend at a lower level in 2023, is about pushing life sciences. That is critical, not just for GSK investors, but for the greater good of global Britain. 

The UK, as the home of great research universities and labs, is a magnet for skills in this area.

It would be a disaster if testosterone-fuelled activist pressure meant that GSK’s presence as a science and vaccine champion in the UK were to be weakened.

Among the criticisms of Walmsley is that as a non-scientist she is not qualified to be chief executive of New GSK. 

Her job is to provide and enforce the route map and deliver shareholder value not to don the lab coat. In Hal Barron and his team, she has recruited world-class pharmacologists.

The late-stage pipeline value potentially stands at £20billion of income, ranging from HIV to treatments for infectious diseases and oncology.

GSK also has a record for delivering vaccines such as Shingrix, which is proving a global blockbuster in the treatment of shingles. The possibility of one self-administered shot for HIV is enormously exciting.

Shareholders now have much more accessible financial detail and have been armed with challenging growth targets.

Pharma is not about the short term, and intellectual property – which takes decades to establish – stands at the core.

The rise in the share price after the Walmsley demarche suggests investors could start to believe.