Sector News

New GSK chairman backs CEO Witty to stay at helm

May 8, 2015
Life sciences
GlaxoSmithKline’s new chairman Philip Hampton has thrown his support behind the company’s current structure and chief executive despite pressure from some shareholders for a change.
 
In his first comments since becoming chairman at the conclusion of the drugmaker’s annual meeting on Thursday, Hampton told reporters he hoped that CEO Andrew Witty would continue to run GSK for a good length of time.
 
“Andrew has the complete support of the board. There are always shareholders who have points to make, but I certainly hope Andrew is here for a good while to come,” Hampton said.
 
He said there is no “hard and fast rule” about how long chief executives should serve.
 
Yet Hampton, also chairman of the Royal Bank of Scotland (RBS.L), said there is an issue about GSK’s relative performance in terms of shareholder returns.
 
“We haven’t kept up with some of the better-performing companies,” he said.
 
GSK shares have underperformed the European drugs sector .SXDP by 23 percent in the past year.
 
Hampton joined GSK’s board only after the company agreed a $20 billion-plus asset swap with Novartis (NOVN.VX) last year but said he “likes the mix now”.
 
POTENTIAL BREAK-UP?
 
Asked about the potential for a future break-up of GSK and spin-off of its consumer health division, Hampton said it was not obvious that such a move was warranted.
 
“To me, it isn’t a screaming case that this is a useless conglomerate that needs to be broken up,” he said. “There are absolutely good arguments for that (consumer) business to fit well with large pharma.”
 
Hampton said he was closely involved in Wednesday’s strategy presentation showcasing GSK’s new structure after the Novartis deal, particularly on the issue of protecting the company’s dividend for three years.
 
GSK’s 5 percent dividend yield is a major lure for investors, but several years of stagnant sales growth and stalling demand for its market-leading lung drugs have stretched its payout capacity.
 
Hampton said it is important to rebuild dividend cover, which would be done in part by the decision to scale back a planned one-off cash return to investors this year.
 
GSK is banking on consumer health and vaccines to help to deliver reliable long-term growth, while it is more wary than rivals about the ability of drugmakers to sustain current high prices for prescription drugs.
 
Hampton said this cautious stance made sense, given that current high valuations for early-stage drugs are viewed by many people as “a bit of a pharma market bubble”.
 
(Reporting by Ben Hirschler; Writing by Martinne Geller; Editing by David Goodman and David Evans)
 

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