Key points
- Consumer healthcare split – will shareholders get a stake?
- Departure of research boss is disappointing
- Sales recovery seen in Q3 needs to continue
The GlaxoSmithKline (LSE: GSK) share price has risen this week after news emerged that Unilever has offered £50bn for Glaxo’s consumer healthcare business.
This is a big story, but I don’t think it’s the only thing that shareholders need to consider in 2022. In this piece I want to talk through three risks that could affect GlaxoSmithKline shares this year.
#1: Consumer healthcare split
We already knew that Glaxo’s consumer healthcare division was going to be split from its parent company this year. The big question is how it will happen. I believe this is likely to affect the share price.
The current plan is for the consumer healthcare unit to be spun out into a new stock market listing. Shareholders will then receive shares in the new company, in addition to their existing Glaxo stock.
Selling the consumer healthcare business to a private buyer would change the outcome for shareholders. GSK would be likely to receive most of the payment in cash. CEO Emma Walmsley would then have to decide what to do with the money.
One option would be to return all of the cash to shareholders. But I’d guess that Walmsley might choose a partial return, keeping some cash for future acquisitions. I think this could disappoint some shareholders, given Glaxo’s mixed track record in recent years.
In my view, the GSK share price is likely to be influenced by how the consumer healthcare split plays out. I’d guess that a stock market listing is the preferred option for most investors, especially now that former Tesco CEO Dave Lewis has been lined up to chair the consumer business.
#2: New product approvals
When Walmsley took charge at GSK in 2017, one of the first things she did was hire respected drug developer Hal Barron as chief scientific officer. Barron has now said he’s leaving to join an anti-ageing start-up in Silicon Valley.
Glaxo’s pipeline of new products has improved since Barron took charge of research. But developing new medicines is a slow process. I think it would have been reassuring to have Barron on board as GSK transforms to a standalone pharma business.
Investors will want to see continued evidence that the group is developing successful new products. Failed trials could hit investor sentiment.
#3: Will the recovery continue?
GlaxoSmithKline is one of the world’s largest vaccine producers, but the company’s efforts to produce a Covid-19 vaccine have not yet been successful. To make matters worse, the pandemic caused many routine vaccinations (sold by GSK) to be cancelled or postponed.
During the third quarter of last year, we saw this situation start to improve. Glaxo’s sales for the period rose by 10% to £9.1bn, while earnings were 3% higher. The rebound was led by a 41% increase in sales of shingles vaccine Shingrix.
Broker forecasts suggest GSK’s earnings will rise by a further 8% in 2022. I think that progress against this target could have a big impact on the Glaxo share price.
My view: there are lots of moving parts here. But if I was buying a pharma stock today, I’d certainly consider GlaxoSmithKline. I think the shares are reasonably priced and the outlook is improving.
