On Wednesday, GlaxoSmithKline plc (ADR) (NYSE:GSK) divulged its growth goals. This is an endeavor to persuade investors that concentrating on consumer health and vaccines would bring back long-term growth.
It also discarded plans to float its HIV drug business ViiV Healthcare pointing to its strong outlook. Further, it pledged to disburse a regular dividend of 80 pence a share over the next three years.
Chief Executive Andrew Witty is facing a lot of pressure to demonstrate to investors that a $20 billion asset swap with Novartis AG (ADR) (NYSE:NVS) can propel GSK’s ascent. This is subsequent to a damaging decline in lung drug sales and a big corruption scandal in China.
Britain’s largest drugmaker stated that it anticipated group sales to grow by a low-to-mid single-digit percentage rate yearly till 2020. Its pharmaceuticals, vaccines and consumer health enterprises would experience yearly sales growth by low single digits, mid-to-high digits, and mid-single digits respectively.
In an attempt to safeguard its dividend, GSK scaled down plans to give 4 billion pounds of cash coming from the Novartis transaction. Rather, it will disburse 1 billion pounds as a special dividend.
GSK traded its cancer drugs portfolio for Novartis’s vaccines.Simultaneously, it entered into a joint venture with the Swiss firm to enhance its consumer health enterprise.
This move decreases GSK’s dependence on risky drug development and boosts its exposure to more stable consumer and vaccines operations. The latter possesses long lasting products and lower margins when it comes to consumer health.
Certain investors are very doubtful of the logic of decreasing exposure to prescription drugs development at a juncture when industry competitors are leveraging the latest science to create a host of potential novel blockbusters.
However Witty, who is managing the largest shake-up since GlaxoSmithKline plc (ADR) (NYSE:GSK) was created through a merger fifteen years back, is gambling on diversification and views its enlarged consumer health division as a potent player in an expanding market.