By Ben Hirschler
LONDON (Reuters) - GlaxoSmithKline (L:GSK) could consider more partial public share offerings for component units as it evolves in the coming years, potentially pointing to a break-up of the group if this offers value to shareholders.
Chief Executive Andrew Witty told Reuters the group's large consumer health business would be more viable as a standalone operation following the conclusion of a $20 billion (13 billion pound) asset swap with Novartis (VX:NOVN), especially if it bought additional assets.
While nothing is planned for the near term, Witty said the options for changing the structure of the group were considerable and management would be very pragmatic.
Britain's biggest drugmaker announced plans in October for an initial public offering (IPO) of a minority stake in its HIV business, ViiV Healthcare, which could serve as a model for future moves, he said.
"Post-Novartis, particularly if we did more transactions in the consumer space, the idea of the consumer company being a standalone consumer powerhouse is much more tenable," Witty said in an interview.
GSK is forming a consumer health joint venture (JV) with Novartis, as well as buying vaccines and selling cancer drugs. The deal is expected to close in the first half of 2015 and Novartis has an option to sell its JV stake to GSK after three years.
"It is pretty unlikely anything substantial can happen until after that point, so this is all very much in the world of strategic theory rather than tomorrow morning's press release," Witty said.
The willingness to embrace change comes at a testing time for the company and as other drugmakers, most notably Pfizer (N:PFE), also debate the case for break-ups.
ROUGH RIDE
GSK had a rough ride in 2014, after being fined nearly $500 million for bribing Chinese doctors and suffering a bigger than expected fall in sales of its ageing but still top-selling lung drug Advair.
A new chairman, Philip Hampton, will take over in September but management is not waiting around to shake things up, given investors' concerns about an underperforming share price. In addition to the spin-off of ViiV, GSK is also cutting costs by a further 1 billion pounds ($1.5 billion).
Despite high-profile setbacks with an experimental heart drug and a cancer vaccine, Witty is confident GSK still has a compelling new drug pipeline, which augurs well for the core pharmaceuticals business.
The company has 129 distinct pharmaceutical research milestones pending in 2015, ranging from first-in-man tests of new drugs to numerous clinical trial results to potential regulatory approvals.
In addition to promising treatments, there are also high hopes for the enlarged vaccines business, which will be boosted by the inclusion of meningitis shots from Novartis.
However, pressure on drug prices from governments and insurers is a growing risk, and the new GSK emerging from the far-reaching deal with Novartis could change its identity in the years ahead.
The entire drugs sector is undergoing major upheaval at present, reflected in a wave of deal-making as companies seek to build up in areas of strength, while jettisoning businesses where they lack critical mass.
With more mergers and acquisitions predicted for the industry as a whole, GSK will continue to eschew big, pricey drug deals, Witty said.
"Future M&A in the consumer space could get quite interesting again," he said.
