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What reliable targets for the "New GSK"?

By the Editors with Reuters - 24 June 2021
Emily Field, head of European pharmaceuticals at Barclays, discusses the various issues at play for GlaxoSmithKline's annual general meeting taking place Wednesday - CNBC

June 23, all eyes were on GlaxoSmithKline's chief executive Emma Walmsley, as she detailed the group's prospects after her planned restructuring. She confirmed the split between the huge consumer arm and the focused drug and vaccines company - "New GSK". Planned demerger confirmed mid-2022 will create new world leader in consumer healthcare. The new Consumer Healthcare company will have a portfolio which generated annual sales of more than £10 billion in 2020

In what was considered by analysts as the most important day of her career, and in spite of the opposition from activist investor Elliott in the face of a flagging share price, she confirmed that she would run the core pharmaceuticals business after the split.

According to several analysts, management had to convince the market that the Pharmaceuticals business can live without Consumer Healthcare. Over the next five-year period, New GSK expects to deliver sales growth of more than 5 % and operating profits of more than 10 %, as the company will shift towards vaccines, high-tech medicines for cancer or HIV. "The double digit profit growth over the next five years will need to be underpinned by a belief in the products in development and the segments the company will be focusing on", investment firm Quilter Cheviot said.

Additionally, GSK has identified a further £200 million of annual savings from the Separation Preparation programme and has revised its cost savings target from £800 million to £1 billion with no extra costs for delivery. By 2026, cash generated from operations for New GSK is expected to exceed £10 billion.

While many shareholders had feared that the group would opt for an IPO of the consumer arm to raise new money from outside investors, Emma Walmsley announced the demerger of the business, at least 80% to shareholders, with GSK retaining up to 20% "as a short-term financial investment that would be sold at a later stage".

New GSK will be focused across four core therapeutic areas (TAs): Infectious Diseases, HIV, Oncology and Immunology/Respiratory. The company currently has a pipeline of 20 vaccines and 42 medicines.

By 2031, New GSK aims to deliver sales of more than £33 billion (at constant exchange rates), thanks to new medicines, not including those in the early stage pipeline, or Covid-derived revenues. "The 2031 Biopharma Revenue target of more than 33 billion pounds is far above our expectations", JP Morgan analysts said.

In the meantime, the company will lose the patent of its blockbuster HIV treatment Dolutegravir in 2028 and 2029 in the US and Europe (with about 3 billion pounds in annual sales expected to vanish.), but said the loss of revenue would be more than made up by sales from its late stage pipeline of medicines now in development. " We will need to understand how GSK plan to get to their ambitious 2031 revenue target, in particular, how they will navigate the dolutegravir patient expiry in 2028", JP Morgan added.

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