GlaxoSmithKline CEO Asks Investors to Give Him Three Years to Turn Around Consumer Health Unit Before Considering a Break Up

GlaxoSmithKline CEO Asks Investors to Give Him Three Years to Turn Around Consumer Health Unit Before Considering a Break Up
February 4, 2016
By Alex Keown, BioSpace.com Breaking News Staff

LONDON – Three years. That’s how much time GlaxoSmithKline ’s Andrew Witty asked for investors to allow him to improve profitability in the company’s consumer health unit, Bloomberg reported Wednesday night.

Some of the company’s biggest shareholders have been calling for GSK to break up into multiple entities. Some shareholders have also called on GSK’s board of directors to seek a replacement for Witty, the chief executive officer.

During a conference call with investors and the media, Witty said the healthcare unit had a fourth-quarter core operating margin of 11.5 percent, Bloomberg said. Witty told reporters the consumer health care business has the potential to be a “very, very big business in its own right,” Bloomberg added. The unit is seen as something that can blunt the volatility of its pharmaceuticals business, which fell 1 percent to 3.76 billion pounds in the fourth quarter. That division was bolstered somewhat by a 51 percent increase in revenue from GSK’s HIV drugs, including Tivicay. During the J.P. Morgan Healthcare Conference in January, Witty said he would consider the breakup suggestions, but that any such split wouldn’t happen for at least a year or two. In particular, it would have to wait until the company finishes integrating the changes that came with last year’s Novartis deal.

Although the company reported a 5 percent growth in emerging markets in 2015, sales in Europe were flat and in the U.S. sales were down about 10 percent as the result of formulary and contract changes to asthma drug Advair. Glaxo is under pressure to develop new drugs that aren’t threatened by generics. There is hope that the company’s newer COPD inhaler Breo will spark a revenue turnaround.

The breakup calls started shortly after GSK announced a deal with Novartis AG in March 2015. GSK bought Novartis’s global vaccines business, excluding the influenza vaccines, it created a Consumer Healthcare joint venture with Novartis, and sold its Oncology business to Novartis. On Wednesday Witty said “the chances of us doing something in an accelerated time frame is extraordinarily low,” the Telegraph of London reported. GSK’s consumer health business includes brands like Sensodyne toothpaste, Panadol painkillers and Voltaren joint-pain cream.

Since Witty took over the helm of GSK, sales and earnings have dropped 6 percent and 9 percent respectively. The company has also faced a few scandals under Witty’s leadership. In 2012, GlaxoSmithKline agreed to plead guilty and to pay $3 billion to resolve its criminal and civil liability arising from the company’s unlawful promotion of certain prescription drugs, its failure to report certain safety data and its civil liability for alleged false price reporting practices. The resolution is the largest health care fraud settlement in U.S. history and the largest payment ever by a drug company. GlaxoSmithKline was fined nearly $500 million by the Chinese government when it was revealed that some employees of the pharmaceutical company were bribing doctors with extravagant gifts to prescribe Glaxo medications to their patients. Additionally the company was also accused of violating China’s personal privacy laws through illegal videotaping. Last year, Glaxo faced allegations sales reps in Syria bribed doctors and officials to boost sales of its medicines.

Earlier this year, two of GSK’s scientists were charged in a scheme to steal biopharmaceutical trade secrets from the company. According to the indictment, the defendants engaged in a scheme to steal trade secrets related to GSK research data, procedures, and manufacturing processes for biopharmaceutical products. Many of the biopharmaceutical products targeted were designed to treat cancer or other serious diseases, the indictment said. One product under development was a monoclonal antibody designed to link to HER3 receptors on human body cells.

GSK’s tock dropped in after-market trading to $42.05 per share. GlaxoSmithKline’s stock has slipped over the past year, down from a high of $48.81 in March 2015 to a low of $37.56 in September.

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