Pharmaceutical companies ditch their consumer healthcare arms
GSK and Pfizer are merging their consumer-healthcare businesses. GSK can now concentrate on its drugs pipeline. Alex Rankine reports.
Pfizer and GlaxoSmithKline (GSK) have finally done a deal, says Carol Ryan in The Wall Street Journal. "And it's a big one." The two pharma giants plan to combine their consumer healthcare businesses in a joint venture.
GSK will have a 68% stake in the resulting behemoth, which will be the world's largest over-the-counter drug company and boast brands such as Panadol, Advil and Sensodyne toothpaste. The plan is to demerge the company within three years through a separate listing on the London Stock Exchange.
The promise of a "big windfall by 2022" will be a relief to many British investors as it enables GSK chief executive Emma Walmsley to "guarantee the company's dividend this year and next". GSK management has long resisted calls to demerge its "reliable consumer products business" from the more "volatile prescription pharmaceutical side", notes Ben Marlow in The Daily Telegraph. Yet it now looks like Walmsley has "caved into shareholder pressure", says Marlow.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The reasoning behind the status quo was always that GSK was more resilient with the consumer and vaccines divisions supporting the riskier pharmaceutical operation through bad times. Walmsley held senior roles at the group's consumer arm for seven years before taking the top job. Her pragmatic decision to spin it off means that "at least no-one can accuse her of sentimentality".
Back to the lab
Drugmakers once "envisioned controlling every corner of home medicine cabinets", but the latest deal is a sign that pharmaceutical operators are "slowly turning away from the grocery store and back to the laboratory", say Timothy Annett and James Paton for Bloomberg Quint. The growing power of Amazon and Walmart has driven down the prices of consumer staples.
General Electric was this week reported to have filed to spin off its own health business. It seems that Pfizer and Glaxo are also keen to get out of a low-margin, fiercely competitive marketplace.
"GSK has evolved more times than the malaria parasite over the centuries," writes Jim Armitage in the Evening Standard. Bravo to Walmsley for reshaping GSK into a "far more sensible structure". "Pragmatic" restructuring is all very well, says Nils Pratley in The Guardian, but GSK desperately needs to produce "a fatter pipeline of new drugs". This is the "main worry hanging over" the company, and a key reason the share price has traded sideways for a decade.
The Pfizer deal is a "step in the right direction", liberating the pharmaceutical business from the "funding straightjacket" of generous dividend payments and freeing up cash to spend on new drug development. Yet without drug breakthroughs, "the wider picture hasn't changed fundamentally". Shareholders should monitor the news from two important clinical trials due next year carefully. "If GSK can clear those hurdles, it would become easier to believe in Walmsley's reinvention plan."
Britain's ten most-hated shares
Company | Sector | Short interest on 20 Dec (%) | Short interest on 20 Nov (%) |
Arrow Global Group | Financial Services | 12.1 | 11.69 |
Kier Group | Construction | 11.73 | 13.98 |
Marks & Spencer | General Retailers | 11.6 | 11.3 |
Ultra Electronics | Defence | 10.82 | 11.86 |
Plus500 | Financial Services | 10.42 | 10.73 |
Debenhams | General Retailers | 10.26 | 9.76 |
Pets at Home | Pet Retailers | 9.33 | 12.14 |
Anglo American | Mining | 9.18 | 8.96 |
IQE | Semiconductors | 8.42 | 8.87 |
AA | Support Services | 7.97 | NEW ENTRY |
These are the ten most unpopular firms in the UK, based on the percentage of stock being shorted (the "short interest"). Short-sellers aim to profit from falling prices, so it helps to see what they're betting against. The list can also highlight stocks that may bounce on unexpected good news when short-sellers are forced out of their positions (a "short squeeze"). New entrant AA, the motoring group, has been in short-sellers' sights for some time after a year of profit warnings, dividend cuts and mounting debts. Its membership continues to fall.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
How ‘Bed & ISA’ could save you £15,000 over a decade
Moving your investments into a tax-free wrapper through ‘Bed & ISA’ transactions could save you thousands over the long run by cutting your tax bill
By Katie Williams Published
-
House prices hit record high, says Halifax
UK house prices rose 3.9% over the past year, with a typical property now costing £293,999. We look at which regions are seeing the strongest growth, and whether the rally in house prices will continue next year
By Ruth Emery Published