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The British drugs group GlaxoSmithKline is planning to create a new £15bn FTSE 100 company by spinning out a subsidiary focused on treating HIV.
The pharmaceuticals group is looking to float a minority stake of ViiV Healthcare, a division in which it owns a near-80% stake and which raked in pre-tax profits of £880m last year. US rival Pfizer and Japanese drugs group Shionogi hold the rest of the shares.
GSK’s boss, Sir Andrew Witty, who has presided over a 23% slump in GSK’s value since May 2013 to around £65bn, suggested that the stock market was underrating ViiV’s prospects and said it could be worth more than Marks & Spencer or Sainsbury’s if allowed to stand on its own.
ViiV, based in Brentford, west London, has grown to 674 employees across 15 countries and Witty said it would be ranked in the FTSE 100 somewhere between the top third and number 40. “I think number 40 puts it at [the level of retailer] Next, which is £10bn, [while] number 31 is [utility group] SSE at £15bn.”
Witty said: “This is not a forecast, but this business will make a £1bn profit this year if you simply grossed up the nine months’ year-to-date on a straight line basis. That, I think, tells you straight away what the kind of underpinning profit number of this business might be.
“Obviously, this business is on an accelerating curve, it is an important business going through a very expansionary phase … and obviously we are keen that our shareholders get to be the full beneficiaries of that.”
Witty ducked questions about why he might consider selling a stake in a division he believes is growing profits so aggressively. Industry watchers suspect that he is keen to pursue moves that might trigger an improvement in the GSK share price, which has been hit by setbacks including a bribery scandal in China.
Witty also announced a cost-cutting programme aimed at saving an annual £1bn within three years as pricing pressure in America hits profits on its top-selling lung drug, Advair. He added that the 2015 dividend would be held flat at 80p a share, breaking the company’s track record for increasing payouts to its owners, while also pledging to be the first company to release an Ebola vaccine by the end of this year.
GSK shares rose by 2.61% to 1,377p on the back of the cost-cutting plans, although the announcement also raised the possibility of job cuts.
Witty said: “As far as the restructuring programme is concerned, this will of course affect jobs around the world. I don’t expect it to have a very significant effect in the UK. It is also worth remembering that when we close the transaction with Novartis [in which the companies are swapping assets and combining their consumer health units], 14,000 people will join GSK – so GSK will become bigger by 14,000 people.
“Given that we will be bringing in a very substantial number of new headcount from Novartis, my expectation is that the total number of jobs in the UK will not be going down”.
GSK is in the process of switching its chairman from Sir Christopher Gent to Sir Philip Hampton, who it was announced last month would be joining after stepping down from the same position at Royal Bank of Scotland. Hampton is scheduled to join the board as a non-executive director in January and become chairman by September at the latest, although there have been suggestions in the City that some shareholders fear the timetable is too slow considering the upheaval at the group.
