GSK focused on split as cost checks, COVID-19 easings aid earnings

Plans for GSK to split in two are "well underway" it said on Wednesday, as a cost clampdown and rising clinic visits for critical treatments after an easing of COVID-19 curbs helped it land better-than-forecast first-quarter earnings.

GSK, which trails competitors in the coronavirus vaccines race, is under the microscope after a report that US activist investor Elliott built up a significant stake.

The British drugmaker said it would give details on June 23 on its plan to separate next year into an over-the-counter business and another for prescription drugs and vaccines.

Chief Executive Emma Walmsley said she was focused on GSK's broader transformation, adding that while GSK's consumer health business had great prospects and a "fantastic" leadership team, she would focus on the bigger picture.

Walmsley, a former head of GSK's consumer business, became CEO in 2017 despite some investor pressure to name an outsider and such calls may grow with Elliott's arrival on the register.

"I'm very focused on leading GSK through that successful separation and beyond," Walmsley told journalists without naming the activist fund, adding that she saw her role as CEO as setting strategy, hiring top people and allocating capital, while leaving the medical science to the experts.

R&D LEADERSHIP

"I've clearly laid (strategy) out from day one ... and included in that has been the best possible R&D leadership in the world," Walmsley said in response to suggestions that her lack of scientific background meant she would be better suited to lead the consumer business once GSK splits in two.

Preparations have hurt earnings, but GSK hopes the streamlining of operations will pay off in the long term.

"With or without Elliott's alternative vision, it looks set to be a year of forced evolution at GSK," said Steve Clayton, manager of Hargreaves Lansdown's Select UK Income Shares fund.

GSK said that turnover for the quarter to March fell 15% to 7.42 billion pounds ($10.28 billion) at constant currency rates, as the year-earlier period was inflated by people stocking up on medicines because of the pandemic.

In addition, sales of cold and flu remedies like Theraflu or Robitussin fell because social distancing prevented infections, mirroring the experience at Sanofi and Novartis.

Adjusted earnings were 22.9 pence per share, down by a third, compared to analysts' expectation of 21.9 pence per share on sales of 7.83 billion pounds.

"GSK endured a pretty lacklustre 2020 ... Worryingly, their 2021 performance looks all too familiar," Third Bridge analyst Sebastian Skeet said in a note after it stuck to its forecast of a mid-to-high single digit fall in earnings this year. However, GSK expects its vaccines division to recover in the second half, as healthcare systems and consumer trends "approach normality."