Banking

With activist investor Elliott breathing down GSK’s neck, here are 5 burning questions the pharma giant needs to answer at a critical investor day

  • Leaders of GlaxoSmithKline will present their vision for the pharma giant on Wednesday.
  • GSK has faced mounting questions over its vaccine business and cancer-research strategy.
  • We’re watching for five pressing questions that GSK may attempt to answer.
  • See more stories on Insider’s business page.

Emma Walmsley, GlaxoSmithKline’s CEO, is expected to pitch investors on Wednesday on her vision for a rejuvenated future of the pharmaceutical giant.

The investor update comes at a critical time for GSK, with the British drugmaker facing myriad questions from investors and analysts. Over her four-year tenure as CEO, Walmsley has failed to spur much excitement around GSK, as reflected in a stock price that has ticked down about 4% since she started.

The activist investor Elliott Management has built a multibillion-pound stake in the firm. Elliott has reportedly backed off from pushing for a sale, although it has questioned whether Walmsley is the right long-term leader. The dynamic shows how quickly the future can change given a bit of investor pressure

Elliott declined to comment to Insider. But the group has been successful before in pressuring distressed drugmakers into selling themselves, such as when the Botox-maker Allergan was sold for $63 billion in 2019 to AbbVie, and Alexion Pharmaceuticals was snapped up by AstraZeneca for $39 billion.

Walmsley and the rest of GSK’s leadership need to pitch a convincing vision for the future. That was true when she took over, and the urgency has only grown.

“The update will provide a clear view of the strategy for New GSK, its outlook for growth and the opportunities we see for shareholder value creation,” a company spokesperson said in a statement to Insider.

1. Has Walmsley turned GSK around?

Emma Walmsley



Fang Zhe/Xinhua via Getty Image


Walmsley arrived with a charge to boost GSK’s long-term performance. The success of her strategy remains up for debate. The bets may pay off in the long run, but GSK has little to show in terms of sales growth over the past couple years for its pharma and vaccine businesses.

The pandemic has exposed weaknesses in the strongest part of GSK’s business: its vaccine unit. Despite having the largest vaccine business in the world, GSK has failed to develop a COVID-19 vaccine.

As Insider previously reported, GSK has seen what former employees call an “exodus” of talent in vaccine R&D and hits to morale, given its lack of leadership in developing a COVID-19 shot.

Overall, pharmaceutical and vaccine sales both ticked down by 1% in 2020, partially because of the effects of the pandemic.

Read More: GlaxoSmithKline stumbled with COVID-19 shots. Now it’s facing an exodus of US talent and an uncertain future as the world’s vaccine leader.

2. Can GSK remain a leader in the vaccine industry?

GlaxoSmithKline once boasted about having the world’s largest vaccine business. That’s no longer the case, as coronavirus-vaccine developers are expected to fly past GSK in overall vaccine sales this year.

The real intrigue lies beyond the pandemic, because the technology that companies such as Moderna and Pfizer-BioNTech used in their coronavirus vaccines may give them an enduring advantage over GSK.

That technology is called messenger RNA, and it’s been proved to be a speedy and precise way of creating new vaccines. Still, it’s unclear how it will fare against other diseases.

GSK has made its own investments in mRNA. The company’s vaccine leader, Roger Connor, previously told Insider that the firm is building its mRNA-manufacturing capabilities and expects to be a leader in the space. He also hinted on an April earnings call that he’d have more to share in June.

A spokesperson told Insider that GSK plans to give updates on several mRNA programs “going into clinical development over the next year.” 

GlaxoSmithKline's Roger Connor, president of global vaccines

Roger Connor, GlaxoSmithKline’s president of global vaccines.

GSK


The mRNA war may play out in the near term in two areas: flu and respiratory syncytial virus. A mix of traditional vaccine technologies and mRNA approaches are being thrown at both viruses.

Expect GSK to talk up its vaccine candidate for RSV, a virus that can be deadly in infants and the elderly. GSK is in a prime position to lead this space and launch the first RSV vaccine in 2023, SVB Leerink analysts recently estimated. But it’s a crowded space, with other vaccines in the works from Sanofi, Johnson & Johnson, Pfizer, Merck, Moderna, Novavax, and others.

GSK is also a leader in the

flu-shot
market, a position that could be threatened as companies such as Moderna and BioNTech see flu as an ideal area to test out the faster mRNA approach.

3. How will the consumer-healthcare spinoff work?

GSK’s business has been divided into three buckets: drugs, vaccines, and consumer healthcare.

Walmsley’s plan, announced in 2019, is to separate the consumer-healthcare business into its own company. The mechanics of this separation, slated for next year, could take up a decent portion of Wednesday’s presentation.

Many investors value GSK for its size, stability, and high

dividend yield
. How will spinning its consumer-health unit — the only unit that grew its sales in 2020 — affect that perception?

GSK has already said the dividend of the remaining company, dubbed New GSK, will be lower.

4. Is Hal Barron’s cancer strategy working?

A headshot of GlaxoSmithKline Chief Scientific Officer and R&D President Hal Barron

GlaxoSmithKline Chief Scientific Officer and R&D President Hal Barron

GlaxoSmithKline


Hal Barron arrived to lead GSK’s R&D strategy in 2018, less than a year after Walmsley took over. A renowned cancer-drug developer, Barron has steered GSK into the competitive space of oncology, vowing to develop a new wave of cancer drugs called immunotherapies, which work by harnessing the body’s immune system to fight the disease.

Cancer drugs can be lucrative, but the field is highly competitive. Three and a half years into his tenure, Barron has spent a lot of money with few successes.

Last year, Geoffrey Porges, an analyst at SVB Leerink, calculated that GSK had spent more than $21 billion on R&D from 2017 to the third quarter of 2020, and an additional $8.3 billion on mergers and acquisitions and licensing deals. That investment of nearly $30 billion has netted drugs set to bring in about $6.7 billion in revenue by 2026, Porges calculated.

On Wednesday, Barron may be under the microscope after a recent set of failures.

In January, Barron highlighted five cancer drugs that GSK hoped could eventually bring in more than $1 billion in annual sales. Two of them have since failed in midstage studies. A third drug, Jemperli, won approval, but faces intense competition because six similar drugs are already available.

The other two are already on the market.

Of course, failures are an inevitable part of the biopharma business.

Zooming out, GSK’s business doesn’t look radically different from when Walmsley and Barron took over. GSK’s cancer-drugs portfolio made up just 2% of its pharmaceutical sales last year.

5. When will partnerships with 23andMe and Jennifer Doudna’s lab produce results?

Jennifer Doudna, inventor of the revolutionary gene-editing tool CRISPR photographed in the Li Ka Shing Center on the Campus of the University of California, Berkeley

Jennifer Doudna, the inventor of the revolutionary gene-editing tool CRISPR.

Nick Otto/Getty Images


Barron has also emphasized the importance of understanding genetics and big data, and GSK has struck partnerships with two of the most exciting names in healthcare: 23andMe and Jennifer Doudna, a CRISPR pioneer.

Next month marks the third anniversary of a four-year deal with 23andMe. GSK invested $300 million in the direct-to-consumer genetics leader to use its genetics database to craft better medicines by going after new genetic targets.

Last summer, GSK unveiled the first drug candidate from this collaboration: an experimental cancer medicine that has now started early-stage human testing. It’s unclear what more GSK may reap from its investment.

In 2019, Barron established the Laboratory for Genomics Research at the University of California’s Berkeley and San Francisco campuses, led by CRISPR pioneers Doudna and Jonathan Weissman. Over the past two years, that work has only received brief references in GSK earnings calls and presentations.

The investment of less than $100 million is relatively tiny for a company of GSK’s size, and the work may be a science side project. But if there is something to this collaboration that could add to GSK’s ambitions in cancer research and genetics, Wednesday would be as good a time as any to detail it.

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