Opinion | What India’s pharma CEOs can learn from GSK’s Emma Walmsley

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Opinion | What India’s pharma CEOs can learn from GSK’s Emma Walmsley

Emma Walmsley will leave GlaxoSmithKline Plc looking very different from when she took over. The chief executive officer, who’s been in office for eighteen months now, is moving to bulk up GSK and then break it up into two separately listed companies some years down the line.

Since she took over, on the deals front, GSK took full control of the consumer healthcare joint venture by buying out partner Novartis AG’s stake. Then GSK sold its Horlicks nutrition business to Unilever Plc for £3.1billion pounds, and on the same day announced the buyout of TESARO, an oncology-focused company for £4billion pounds.

Just as the investing community was ready to shutter their spreadsheets for the holidays, GSK followed up by hiving off its entire consumer health business to a joint venture with Novartis. GSK conceded a premium to retain management control in the 68:32 venture, and within three years of the transaction closing, this venture would be demerged and listed separately.

That will leave GSK’s investors two distinct choices, to own a stake in the pharmaceuticals and vaccines business, or the consumer health business or both. The financial structure is such that the pharma business is being left with a lighter balance sheet, giving it the required ability to invest in research and in capital expenditure to grow.

As in most things corporate, the long run will reveal how all this actually works out. But the moves appear bold and sensible, reshaping the company to face up to a changed business environment.

Indian homegrown pharmaceutical companies could also do reflect on what kind of transformation their business model calls for. That painfully irritating interview question, ‘Where do you see yourself five years from now?’ is a question that investors should put to pharmaceutical companies more often. Most of them look like clones of each other, starting off with a domestic generic business that scaled up well, moving on to sell in relatively easy to enter emerging markets, and finally moving on to the lucrative western markets.

The situation today looks dramatically different from a decade ago, when all of this made eminent sense. US markets are no longer the gift that keeps on giving. A combination of competition, price erosion and quality problems at plants have affected sales growth of some of the biggest companies. While the worst can be said to be over, that’s hardly the phrase that excites. Myriad problems such as price controls, currency fluctuations and political upheavals are affecting their performance in other markets.

Companies are trying different tactics within existing business lines, to become more profitable, lower expenditure and focus their research investments. But is that enough? This may be the time when chief executives can call their boards’ attention to the transformative changes happening in the West, and argue it’s time for bolder steps. Most companies have healthy balance sheets and that’s an invaluable ally when attempting change. The decline in valuations in recent years may also make investors more receptive to plans that may have short-term costs.

There is the domestic complication of owners also being managers, and their desire to change. What could these steps be? It will vary but it could be one or more of acquisitions, divestments and even the unthinkable — joining forces with domestic rivals in some markets or business lines.

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

2018-12-23 00:34:48

Images are for reference only.Images gathered automatic from google.All rights on the images are with their original owners.

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