Glaxo drops plans to float 'gamechanging' HIV drugs arm, favouring in-house profits

Shareholders said they would rather keep HIV treatment profits in-house

Researchers in a GlaxoSmithKline laboratory (Rex Features)

GlaxoSmithKline has dropped last year’s plans to spin out its HIV treatments into a separate FTSE-100 company after shareholders said they would rather it keep them in-house and reap the future profits.

The chief executive Andrew Witty declared prospects for its HIV drugs arm had improved dramatically in the past few months, thanks to a rapid increase in sales and some new forms of medicine being on the cusp of major breakthroughs.

Analysts had thought the business could have been worth as much as £18bn. However, Mr Witty said shareholders had sent a clear message that they would rather retain the business and benefit from future upside growth.

“This is a gamechanger in HIV treatment and we want to make sure the GSK shareholder gets the full value of it,” he said.

Mr Witty is attempting to turn around GSK after a time of falling sales for its key asthma treatments in the US and a high-profile corruption scandal in China. The decision on the HIV business was accompanied by a wider strategy to deal with investors’ concerns about the future for the business.

While pledging to retain the dividend for the next three years, he admitted that, partly as a result of the lack of a quick sale of the HIV business, he would have to scale back its planned return of cash to shareholders from £4bn to £1bn. The money had been pledged as payback from its swap of assets with Novartis last year. That deal saw GSK offload its cancer treatments in return for Novartis’ vaccines.

Also, for the first time, GSK set out growth targets, taking into account the potential that generic versions of its patented asthma blockbuster Advair might come on to the market. Compound growth of its pharmaceuticals would still be in “low single digits” every year to 2020, GSK said.

New chairman Philip Hampton, who takes over fully this week, was involved in the decision to retain the HIV cures. Mr Hampton, who attended GSK’s presentations to investors, is famed for running the board at RBS after the taxpayer bailout and his arrival has spurred talk of renewed pressure on Mr Witty. Mr Witty said: “Our working relationship has got off to a very good start.”

The small print of first quarter profits figures showed that the HIV treatments arm, which has Pfizer and a Japanese company Shionogi as minority shareholders, had increased in value by £700m since the float idea was mooted last year.

One treatment in phase II trials, called cabotegravir, could enable HIV sufferers to switch from a daily pill to a once monthly injection. Mr Witty said this could even be reduced to as little as twice a year.

However, Professor John Lyon, of Warwick Business School and a former global vice-president of US drug development company Covance, said: “Time is not on the side of Mr Witty, who leads a company with a dull share price, and lots of ‘hope value’.”

Election effect: 'Protect the patent box'

GSK chief executive Andrew Witty said he was not hugely concerned about who wins the general election – as long as the patent box, a tax break for products invented in the UK concocted by the previous Labour government and implemented by the coalition, is not tampered with. “I don’t think it will change but if it did, it would force us to make some difficult decisions,” he said. “Since the patent box, we’ve invested in upgrading 15 or 16 of our sites in the UK. It has made Britain the go-to place for our industry.” On Labour’s proposed personal taxes on the wealthy, he said: “I am British and proud. A few percentage points more [tax] will not make any difference.”