Here you are: a public call for the head of GlaxoSmithKline’s CEO, Andrew Witty:
Witty, who’s led Britain’s largest drugmaker since 2008, is facing criticism for Glaxo’s lagging share performance and a depleted pipeline of promising medicines. A bribery scandal in China that led to a $489 million fine last year and sluggish U.S. sales also eroded support.
“Mr. Witty is running out of time,” said Stephen Bailey, a fund manager at Liontrust Asset Management Plc in London, which holds Glaxo shares. “He’s either got to deliver in the next 12 months or step aside.”
It has been rough over there recently, to say the least. Here’s one analyst’s take on what they should do:
Hampton should reinvest in research at Glaxo, which is failing to produce drugs capable of boosting earnings, said Laura Foll, a fund manager at Henderson Global Investors Ltd. in London, which owns about 7.6 million shares in Glaxo.
Profits are still tied to the aging asthma drug, Advair, while demand for two new respiratory medicines, Breo and Anoro, remains sluggish. The company is considering a spinoff of its HIV medicines, although it has few compounds capable of replacing them. Foll recommends cutting the dividend to fund research, a move some investors might resist.
Now, I like the sound of that very much. But I’ll be surprised if anything like that happens. After all, the company says itself that “We are committed to using free cash flow to support increasing dividends, share repurchases or, where returns are more attractive, bolt-on acquisitions.” Do you see anything in there about using any of the free cash flow to do more research of their own? A cynical investor might say that GSK got itself into the fix it’s in now by all that R&D stuff, so why would you want them to do it even harder? But more seriously, Merck also tried to tell investors to stop pestering them while they’re discovering drugs, and that didn’t seem to last for long, either.
My guess is that if GSK were to pop up with an announcement that they’re cutting the dividend and dialing back the share buybacks in order to do more R&D, the stock would get hammered, and a lot of high-level people would end up losing their jobs for having made such unpopular decisions. It’s a shame.