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GSK opens issue of spinning off consumer division

Warren Little | Getty Images

GlaxoSmithKline's chief executive has opened the possibility of the group being broken up in the future as he pushes through a sweeping overhaul of Britain's biggest drugmaker.

Sir Andrew Witty said GSK had the option to spin off its consumer healthcare business if a time came when it offered more value as a standalone company.

He made clear there were no such plans in the near term but, by raising it as a possibility, he signaled his openness to further restructuring at a time of mounting challenges for the company.

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A profits warning last week increased pressure on Sir Andrew after a torrid year in which GSK has been mired in a damaging Chinese bribery scandal.

However, in an interview with the Financial Times, he declared confidence that his strategy was on track to deliver fresh growth.

Much of his optimism stems from a $20 billion deal with Novartis in April under which the pair swapped a series of assets and agreed to set up a joint venture in consumer healthcare.

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The JV, to be controlled by GSK, would create one of the world's biggest consumer healthcare businesses with annual sales of more than $10bn from brands including Aquafresh toothpaste, Panadol painkillers and Nicotinell smoking cessation gum.

GSK will own 63.5 per cent of the JV when it is launched next year, with Novartis having the right to sell its stake to GSK after three years.

Sir Andrew stressed there was a strong case for keeping the consumer business attached to the broader group because of synergies between pharmaceuticals and over-the-counter drugs, particularly in emerging markets where the categories are especially fluid.

However, he said he was "willing to accept" that there might come a point where it could be argued the businesses were more valuable as standalone entities.

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"Through our transaction with Novartis we are making all of our businesses stronger together and stronger as individual components. This will deliver enhanced value through the existing structure and it delivers enhanced optionality for the long run."

His remarks signaled an attempt to refocus attention on GSK's long-term growth potential after disappointing second-quarter results last week exposed weakness in its core respiratory business.

Bribery allegations have also darkened the mood around the company since it was accused by Chinese authorities last year of funneling hundreds of millions of dollars to doctors and officials in return for prescribing GSK medicines.

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Sir Andrew stressed his "zero tolerance" for any form of corruption and said he was pleased if wrongdoing had been brought to light so it could be stamped out. "Any company that doesn't get whistleblower letters isn't looking hard enough," he said. "If you are not getting anything: don't dream. It can't be perfect 100 per cent of the time."

New allegations of malpractice by GSK employees emerged last week in connection with operations in Syria, adding to similar claims involving Iraq, Lebanon, Jordan and Poland.

"It really saddens me every time I see something like this," Sir Andrew said. "Sometimes when you see allegations you think, 'what were those people thinking when they thought that would be a good idea?'"

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