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ALEX BRUMMER: Activist investor Elliott's arrival on the doorstep of GSK may require boss Emma Walmsley to strengthen the defences

This Is Money logo This Is Money 15/04/2021 Alex Brummer for the Daily Mail
a person wearing glasses and smiling at the camera: MailOnline logo © Provided by This Is Money MailOnline logo

The arrival of activist investor Elliott Management on the doorstep of Glaxosmithkline's glistening headquarters in Brentford has caught Emma Walmsley and her team on the hop. 

The pharmaceutical group is aware of investor disquiet about a lagging share price compared with peers on both sides of the Atlantic. 

The crossover in valuations between its main UK counterpart Astrazeneca and GSK, previously regarded as the UK's top rated big pharma group, has underlined perceived under-performance.

a woman wearing glasses and smiling at the camera: Under pressure: GSK shares have been a disappointment, dropping 14 per cent since Emma Walmsley took the helm © Provided by This Is Money Under pressure: GSK shares have been a disappointment, dropping 14 per cent since Emma Walmsley took the helm

Walmsley has moved aggressively to change this. The choice of highly-rated Hal Barron to take charge of pharma and R&D with the aim of bringing new biotech skills to the table and speeding up new compounds has been part of that. It would be a huge step backwards were one of Elliott's demands be to pare back research spend, which is up 30 per cent since Walmsley's appointment as chief executive four years ago. 

She also listened to shareholder pressure to release value with the proposal, to be executed early next year, to split the group's cash-generating consumer healthcare arm from drugs and vaccines. A further division between pharma and vaccines has been resisted since it would involve in doubling up, among other things, on regulatory teams around the globe. 

It has been an acute disappointment that GSK's joint vaccine development with Sanofi came up with a dud first time around. 

It is worth noting, however, that this was never going to a profits gusher because GSK, similarly to AZ, made it clear that initially it was going to be a vaccine for humanity sold at close to cost. 

Perversely, though, the success of vaccine rollout by AZ, Pfizer, Moderna, Johnson & Johnson et al has hurt GSK. 

In recent times it has been the great vaccine innovator, developing the blockbuster Shingrix injection for shingles, a stream-lined inoculation treatment for HIV, the HPV vaccines against cervical cancer as well as a shot for some forms of meningitis. 

With health systems around the world working flat out to deliver Covid vaccinations in the hope of stemming the pandemic, other programmes – notably the Shingrix jab – have fallen by the wayside causing a revenue hit for GSK. 

The group's great breakthrough in the pandemic, a monoclonal antibody VIR-7831 for Covid infections developed with Vir Biotechnology, has received scant attention. 

Yet indications are remarkable, showing an 85 per cent efficacy in early treatment of Covid19 patients, guarding against hospitalisation and death – in other words, a medicine which could halt the dangers from Covid in its tracks. The European Medicines Agency has just begun a review of the data which already is being examined at by the Food & Drug Administration in Washington. GSK is working on alternate ways to administer the compound which at present requires a jab. 

GSK's main financial advisers Citibank are well aware of the record of Elliott, which in the past has forced Softbank, Whitbread, BHP and eventually Akzo Nobel managements to change course. 

The threat may require Walmsley and the board to strengthen the defences by bringing in extra advisers experienced in dealing with activists. One curiosity is that in the past, Elliott has been very specific about its goals and has issued detailed manifestos making the case for change. So far there is no word as to what Elliott wants, although there is speculation around Walmsley's role after the split, a less generous dividend payout and clawback of R&D budgets. 

The is no escaping the fact that GSK shares (which I hold) have been a disappointment, dropping 14 per cent since Walmsley took the helm. This is in a period when AZ stock has advanced 40 per cent from an admittedly low start. Elliott may have ideas for extracting early gains, but cool heads should bear in mind that drug development is a long-term activity and anything which disrupts the UK's leadership in life sciences should be robustly challenged.

Code breaking 

The City referee, the Takeover Panel, has a reputation for gnomic pronouncements, which has advisers scrambling for copies of its rulebook the City Code.

In the latest change, included in Instrument 2021-22, the Panel is giving a nod to the 'woke' agenda. 

From July 5 amendments will come into force under which gender specific terms will be replaced with gender neutral terms following a period of consultation. Order the new edition now or be hurt in the rush. 

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