At first glance it seems as if GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is struggling. The company’s shares have underperformed the FTSE 100 by around 13% over the past five years and earnings per share have fallen by 8% over the past five years.
However, behind the scenes Glaxo’s management is working hard to return the company to growth and over the past 12 months, management’s efforts to reignite growth have reached fever pitch.
Unlocking value
Glaxo is unlocking value from its portfolio, selling and spinning off non-core assets and mature drugs which are reporting falling sales.
For example, the company is currently in the process of auctioning off a portfolio of prescription medicine brands in Europe and the U.S. with annual sales of around £1bn. This package of treatments is expected to fetch a value of £2bn.
Glaxo is also looking to float the HIV business it set up with Pfizer five years ago. The entity, called ViiV Healthcare, could attract a valuation of up to £15bn, making it larger than Marks & Spencer and Sainsbury’s combined. What’s more, ViiV is growing rapidly with sales expanding by 18% during the third quarter of this year. ViiV has 11 HIV medicines currently on sales with one other product in clinical trials.
Glaxo owns around 80% of ViiV and plans to float a minority stake in the company but still, this is going to be a shot in the arm for Glaxo and the company’s investors.
The flotation of ViiV is part of Glaxo’s drive to cut £1bn of costs over the next three years. Management expects to make half of these cost savings during 2016.
Focused on growth
Glaxo is not just divesting assets, the company is shuffling its entire portfolio of treatments, in order to create a more focused business. Indeed, Glaxo’s three-way deal with Novartis earlier this year saw Glaxo dispose of its portfolio of cancer drugs in order to snap up a larger share of the global vaccines market. In addition, the deal has enabled Glaxo and Novartis to form a world-leading joint venture consumer healthcare business.
And that’s not all, as well as asset shuffling and asset sales, Glaxo is expanding. Glaxo has just signed a deal with Aspen Pharmacare Holdings Ltd, whereby Glaxo will take a 25% stake in Aspen’s Japanese subsidiary, as part of management’s plan to boost commercial operations in Asia.
This deal is structured in such a way that leaves the door open to further deals down the road between the two companies. Aspen is Africa’s biggest generic drugmaker and Glaxo is already a significant Aspen shareholder.
Only just beginning
Glaxo’s recent flurry of deals has set the company on a course for rapid growth over the next few years. These deals will only complement organic growth from the company’s current pipeline of treatments underdevelopment.
So, with the company set for growth, Glaxo is the perfect long-term investment and that hefty 5.4% dividend yield cannot be ignored.