GlaxoSmithKline

THE FUTURE OF EMMA WALMSLEY

JOHN MOLSON MBA INTERNATIONAL CASE COMPETITION – CASE 5

2023
EXECUTIVE SUMMARY
Executive summary with the most important elements of the solution.

ANALYSIS NEED TO RESTRUCTURE GSK

ALTERNATIVES 5 ALTERNATIVES: PRE-SPIN-OFF, POST-SPIN-OFF,

ELLIOTT’S WISH, 2X NEW ALTERNATIVES

RECOMMENDATION 3 SEPARATE ENTITIES

1. HUMAN RESOURCES: RESTRUCTURING

2. PR: JUDGEMENT OF GSK
IMPLEMENTATION 3. OPERATIONS: TIMETABLE
4. STRATEGY: CONTINGENCY PLAN
5. FINANCE: EFFECTS

IMPACT EQUITY VALUE OF £144 BILL.

EXECUTIVE SUMMARY
Executive summary with the most important elements of the solution.

ANALYSIS NEED TO RESTRUCTURE GSK

ALTERNATIVES MAIN CHALLENGE

5 ALTERNATIVES: PRE-SPIN-OFF, POST-SPIN-OFF,
ELLIOTT’S WISH, 2X NEW ALTERNATIVES

RECOMMENDATION 3 SEPARATE ENTITIES

COMPROMISE BETWEEN WALMSLEY AND
ELLIOTT
1. HUMAN RESOURCES: RESTRUCTURING
2. PR: JUDGEMENT OF GSK
IMPLEMENTATION3. OPERATIONS: TIMETABLE
4. STRATEGY: CONTINGENCY PLAN
5. FINANCE: EFFECTS

IMPACT EQUITY VALUE OF £144 BILL.

 01 ANALYSIS

02 ALTERNATIVES

STRUCTURE
03 RECOMMENDATION

04 IMPLEMENTATION

05 IMPACT
 01 ANALYSIS

02 ALTERNATIVES

STRUCTURE
03 RECOMMENDATION

04 IMPLEMENTATION

05 IMPACT
 MARKET ANALYSIS
GSK is behind its competitors due to slowing revenue increase and misguided R&D spendings.

SHARE PRICE DEVELOPMENT

200 In FY17 GSK and its competitors had
180 the same share price.
180 178

160
In FY20 GSK could reach the level of
140 Pfizer but far behind from
130
117 122 120 AstraZeneca.
120 128
115 118
100 100
87 90 IN FY21 share price decreased
97
80 significantly.
FY17 FY18 FY19 FY20 FY21

AstraZeneca Pfizer GSK

GSK is at a significant disadvantage compared to its main competitors.

 COMPETITOR ANALYSIS
The Pharmaceutical industry is driven by R&D to find the new „STAR” products.

R&D PRODUCTIVITY OF GSK

2.5 Prevention is more and more

important in the pharmaceutical
2.0 industry

1.5
R&D is a key success factor in the
1.0 pharmaceutical indsutry

0.5
The number of new patents is a
1999 2005 2010 2015 2020 competitive advantage

GSK is at a significant disadvantage compared to its main competitors

regarding R&D.
 COMPANY ANALYSIS: REVENUE BY DIVISION
The Company's revenues shifted towards Vaccines and Consumer health division.

GKS’s revenue by division in 2016 GKS’s revenue by division in 2020

Pharma:
Specialty medicines
26% 29%
Consumer 50%
58% healthcare:
16% OTC 21%

Vaccines
Pharmaceuticals Vaccines Consumer healthcare Pharmaceuticals Vaccines Consumer healthcare

CONCLUSION 2
There was an 8% drop in Pharmaceuticals revenue, a 5% increase in Vaccines and a 3% increase in
Consumer healthcare
 COMPANY ANALYSIS: BCG MATRIX
Each division performs acceptable, but there is room for improvement .

HIG CORE STRENGHTS

H
One of the largest pharma company:
V 1
7% global share
BUSINESS GROWTH

2 150 countries, 100 000 employees

P 3 20 late stage drugs

? 4
Nine power brands in Consumer
Healthcare

CHALLENGES
CH 1 Covid-19 late vaccine
2 Cancer research faild
3 Of 125 top managers, 100 changed
LOW HIG
H 4 Drop in share price
RELATIVE MARKET SHARE
 COMPANY ANALYSIS: BCG MATRIX
Each division performs acceptable, but there is room for improvement .

HIG CORE STRENGHTS

H

V V 1
One of the largest pharma company:
7% global share
BUSINESS GROWTH

2 150 countries, 100 000 employees

P P
3 20 late stage drugs

? 4
Nine power brands in Consumer
Healthcare

CHALLENGES
CH 1 Covid-19 late vaccine
2 Cancer research faild
3 Of 125 top managers, 100 changed
LOW HIG
H 4 Drop in share price
RELATIVE MARKET SHARE
 COMPANY ANALYSIS: BCG MATRIX
Each division performs acceptable, but there is room for improvement .

HIG CORE STRENGHTS

H

V V 1
One of the largest pharma company:
7% global share

CONCLUSION OF THE ANALYSIS

BUSINESS GROWTH

2 150 countries, 100 000 employees

P P
3 20 late stage drugs

? 4
Nine power brands in Consumer
NEED TO RESTRUCTURE GSK
Healthcare

CHALLENGES
CH 1 Covid-19 late vaccine
2 Cancer research faild
3 Of 125 top managers, 100 changed
LOW HIG
H 4 Drop in share price
RELATIVE MARKET SHARE
 01 ANALYSIS

02 ALTERNATIVES

STRUCTURE
03 RECOMMENDATION

04 IMPLEMENTATION

05 IMPACT
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES PRE-SPIN-OFF
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES PRE-SPIN-OFF
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES POST-SPIN-OFF
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES PRE-SPIN-OFF
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES POST-SPIN-OFF
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES NEW ALTERNATIVE
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES PRE-SPIN-OFF
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES POST-SPIN-OFF
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES NEW ALTERNATIVE
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES NEW ALTERNATIVE
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES PRE-SPIN-OFF
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES POST-SPIN-OFF
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES NEW ALTERNATIVE
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES NEW ALTERNATIVE
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES ELLIOTT’S WISH
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES IMPORTANT TREND IN HEALTHCARE
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE IMPORTANCE OF PREVENTION*:
GROWING

*VACCINES ARE THE MOST IMPORTANT

CONSUMER SUBSECTOR OF PREVENTION
PHARMACEUTICALS VACCINES
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES IMPORTANT TREND IN HEALTHCARE
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE IMPORTANCE OF PREVENTION*:
GROWING

*VACCINES ARE THE MOST IMPORTANT

CONSUMER SUBSECTOR OF PREVENTION
PHARMACEUTICALS VACCINES
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE

EQUITY VALUE BASED ON MARKET

VALUATION
CONSUMER £20,9 BILL.
PHARMACEUTICALS VACCINES
HEALTHCARE

EQUITY VALUE BASED ON

FORECASTED CASH-FLOW
PHARMACEUTICALS VACCINES
CONSUMER £24,2–31.4 BILL.
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE
GSK COULD SELL THE SEGMENT
WITH A DOWNSIDE DISACOUNT
CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE
 DEVELOPMENT OF ALTERNATIVES
Based on the analysis, GSK has 5 restructuring alternatives.

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE

EQUITY VALUE BASED ON MARKET

VALUATION
CONSUMER £20,9 BILL.
PHARMACEUTICALS VACCINES
HEALTHCARE

EQUITY VALUE BASED ON

FORECASTED CASH-FLOW
PHARMACEUTICALS VACCINES
CONSUMER £24,2–31.4 BILL.
HEALTHCARE

CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE
GSK COULD SELL THE SEGMENT
WITH A DOWNSIDE DISACOUNT
CONSUMER
PHARMACEUTICALS VACCINES
HEALTHCARE
 01 ANALYSIS

02 ALTERNATIVES

STRUCTURE
03 RECOMMENDATION

04 IMPLEMENTATION

05 IMPACT
3 SEPARATE ENTITIES
The recommendation is based on 3 different entities: pharma, vaccines and consumer healthcare.

MAIN CHALLENGE: COMPROMISE BETWEEN WALMSLEY AND ELLIOTT

3 SEPARATE ENTITIES
The recommendation is based on 3 different entities: pharma, vaccines and consumer healthcare.

MAIN CHALLENGE: COMPROMISE BETWEEN WALMSLEY AND ELLIOTT

WHAT DID ELLIOTT ASK FROM GSK?

3 SEPARATE ENTITIES
The recommendation is based on 3 different entities: pharma, vaccines and consumer healthcare.

MAIN CHALLENGE: COMPROMISE BETWEEN WALMSLEY AND ELLIOTT

WHAT DID ELLIOTT ASK FROM GSK?

WALMSLEY’S PREFERENCE

1 SAME LEADERSHIP: CEO – WALMSLEY

2 CONSUMER HEALTHCARE: NOT SOLD

3 SEPARATE ENTITIES
The recommendation is based on 3 different entities: pharma, vaccines and consumer healthcare.

MAIN CHALLENGE: COMPROMISE BETWEEN WALMSLEY AND ELLIOTT

WHAT DID ELLIOTT ASK FROM GSK?

WALMSLEY’S PREFERENCE ELLIOTT’S PREFERENCE

1 SAME LEADERSHIP: CEO – WALMSLEY 3 NON-EXECUTIVE DIRECTORS IN BOARD

2 CONSUMER HEALTHCARE: NOT SOLD 4 PHARMA & VACCINES: NO INTEGRATION

5 BIGGER R&D BUDGET FOR GSK

 01 ANALYSIS

02 ALTERNATIVES

STRUCTURE
03 RECOMMENDATION

04 IMPLEMENTATION

05 IMPACT
 HUMAN RESOURCES: RESTRUCTURING
To grow, we must focus on the people within the Organization.
GlaxoSmithKline
 HUMAN RESOURCES: RESTRUCTURING
To grow, we must focus on the people within the Organization.

PHARMACEUTICALS
GlaxoSmithKline

VACCINES

CONSUMER HEALTH
 HUMAN RESOURCES: RESTRUCTURING
To grow, we must focus on the people within the Organization.

NON-EXECUTIVE
PHARMACEUTICALS 1.
BOARD MEMBERS
GlaxoSmithKline

FIND THE RIGHT

VACCINES 2.
EXPERTS

CONSUMER HEALTH 3. KEEP EMPLOYEES

 HUMAN RESOURCES: RESTRUCTURING
To grow, we must focus on the people within the Organization.

1. Industry experts
NON-EXECUTIVE
PHARMACEUTICALS 1. 2. Scientists
BOARD MEMBERS
3. Investors
GlaxoSmithKline

FIND THE RIGHT

VACCINES 2.
EXPERTS

CONSUMER HEALTH 3. KEEP EMPLOYEES

 HUMAN RESOURCES: RESTRUCTURING
To grow, we must focus on the people within the Organization.

1. Industry experts
NON-EXECUTIVE
PHARMACEUTICALS 1. 2. Scientists
BOARD MEMBERS
3. Investors
GlaxoSmithKline

1. Partnering with universities

FIND THE RIGHT
VACCINES 2. 2. Organize events and competition
EXPERTS
3. Target great minds

CONSUMER HEALTH 3. KEEP EMPLOYEES

 HUMAN RESOURCES: RESTRUCTURING
To grow, we must focus on the people within the Organization.

1. Industry experts
NON-EXECUTIVE
PHARMACEUTICALS 1. 2. Scientists
BOARD MEMBERS
3. Investors
GlaxoSmithKline

1. Partnering with universities

FIND THE RIGHT
VACCINES 2. 2. Organize events and competition
EXPERTS
3. Target great minds

1. Compensation
2. Motivation
CONSUMER HEALTH 3. KEEP EMPLOYEES
3. Organizational culture
 PR: JUDGEMENT OF GSK
GSK should be the leader in collaboration and supporter of the healthcare ecosystem.

IMPROVEMENT BASED ON THE VCI MODEL

VISION CULTURE

IMAGE
 PR: JUDGEMENT OF GSK
GSK should be the leader in collaboration and supporter of the healthcare ecosystem.

IMPROVEMENT BASED ON THE VCI MODEL VISION: conveyed image, the values
showed outward by the Company.

VISION CULTURE CULTURE: „iceberg” – visible

elements, values, routines,
beliefes.

IMAGE: reflection of the company,

external perceptions..

IMAGE
 PR: JUDGEMENT OF GSK
GSK should be the leader in collaboration and supporter of the healthcare ecosystem.

IMPROVEMENT BASED ON THE VCI MODEL VISION: conveyed image, the values
showed outward by the Company.

VISION CULTURE CULTURE: „iceberg” – visible

elements, values, routines,
beliefes.

IMAGE: reflection of the company,

external perceptions..

Becoming the center of collaboration

IMAGE and an active player in the
healthcare ecosystem.
OPERATIONS: TIMETABLE
For the upcoming 2 years GSK have to focus on inner development, instead of dowsizing.

# ACTIVITY 2023/1 2023/2 2024/1 2024/2

1. Look for new board members

2. Working with consulting partners
3. Working experts on the field of HR
4. Restructuring
5. Partnering with universities
6. Building out collaboration
7. Employee branding
8. Cultural education
9. R&D development
STRATEGY: CONTINGENCY PLAN
GSK’s restructuring has many risks and challenges.

RISKS MITIGATION SOLUTION

Building
1 Lack of synergies in

Impact
the Company. collaborations.

Attract the best 2

2 Low return on R&D.
experts.
4
Organizational Motivating and
3 resistance. compensating employees. 1

Difficulties of Working with consultants

4 collaboration. and experts.
3

Probability
FINANCE: EFFECTS
In order to implement the strategy, the company have to invest 657 – 709 million £

Overall extra cost in FY23

The estimated cost of creating new entities is
1
1. Cost of 150 – 200 million £
organizational
restructuring
2 Increased personnel expenses due to the need
for new employees: 250 – 300 million £
2. Personnel expenses

Increase of the R&D budget on a yearly basis:

3
3. R&D budget 150 – 200 million £

4. OOE Other operating expenses like employee

4
education will increase as well: 7 – 9 million £
 01 ANALYSIS

02 ALTERNATIVES

STRUCTURE
03 RECOMMENDATION

04 IMPLEMENTATION

05 IMPACT
 FINANCIAL IMPACT
GSK’s equity value is £144 billion.

60,000
Financial Forecast

50,000 48,247
44,673 Declining profit in the initial
41,364
40,000 38,300 phase of the transformation
35,463
30,000
From FY 24 the operating profit
20,000 will increase

9,091 9,682 10,321

10,000 8,188 8,544

Equity value: 144 billion pounds

-
2023 2024 2025 2026 2027

Total revenue Operating profit

EXECUTIVE SUMMARY
Executive summary with the most important elements of the solution.

ANALYSIS NEED TO RESTRUCTURE GSK

ALTERNATIVES 5 ALTERNATIVES: PRE-SPIN-OFF, POST-SPIN-OFF,

ELLIOTT’S WISH, 2X NEW ALTERNATIVES

RECOMMENDATION 3 SEPARATE ENTITIES

1. HUMAN RESOURCES: RESTRUCTURING

2. PR: JUDGEMENT OF GSK
IMPLEMENTATION 3. OPERATIONS: TIMETABLE
4. STRATEGY: CONTINGENCY PLAN
5. FINANCE: EFFECTS

IMPACT EQUITY VALUE OF £144 BILL.

 EXECUTIVE SUMMARY
Executive summary with the most important elements of the solution.

ANALYSIS NEED TO RESTRUCTURE GSK

QUESTIONS
5 ALTERNATIVES: PRE-SPIN-OFF, POST-SPIN-OFF,
ALTERNATIVES
ELLIOTT’S WISH, 2X NEW ALTERNATIVES
SPINNING OFF CONSUMER HEALTHCARE IS A GOOD IDEA? YES.
HOW CAN GSK REGAIN ITS POSITION IN THE3INDUSTRY?
RECOMMENDATION 3 DIFFERENT ENTITIES.
SEPARATE ENTITIES
HOW TO MAKE GSK BE INNOVATIVE AND EFFICIENT? DIFFERENT ENTITIES: DIFFERENT CHALLENGES.
HOW TO CONVINCE ELLIOTT ABOUT THE PLAN? COMPROMISE (MAIN CHALLENGE).
1. HUMAN RESOURCES: RESTRUCTURING
2. PR: JUDGEMENT OF GSK
IMPLEMENTATION 3. OPERATIONS: TIMETABLE
4. STRATEGY: CONTINGENCY PLAN
5. FINANCE: EFFECTS

IMPACT EQUITY VALUE OF £144 BILL.

 GlaxoSmithKline
THE FUTURE OF EMMA WALMSLEY

JOHN MOLSON MBA INTERNATIONAL CASE COMPETITION – CASE 5

2023
COMPANY`S VALUATION

Pound billion Eliott Market

Equity value 104.4 71.2
Sales 34.1 34.1
Price/Sales 3.1 2.1
Operating profit 7.8 7.8
Price/Operating profit 13.4 9.1
PAT 6.4 6.4
Price/PAT 16.3 11.1
CONSUMER HEALTHCARE`S VALUATION

Pound billion FY20

Consumer healthcare revenue 10
Price/Sales multiple 2.1
Equity value consumer healthcare 20.9
CONSUMER HEALTHCARE`S VALUATION – BASE CASE
CONSUMER HEALTHCARE`S VALUATION – PESSIMISTIC CASE
FINANCIAL FORECAST

Perimeter 2023 2024 2025 2026 2027

8.0% 35,463 38,300 41,364 44,673 48,247
(34.3)% (12,172) (13,146) (14,198) (15,333) (16,560)
23,291 25,154 27,166 29,340 31,687
(33.6)% (11,764) (12,867) (13,897) (15,009) (16,209)
(5,285) (5,708) (6,165) (6,658) (7,191)
331 357 386 417 450
8 1,616 1,608 1,600 1,592 1,584
(15,103) (16,610) (18,076) (19,658) (21,366)
8,188 8,544 9,091 9,682 10,321
23.1% 22.3% 22.0% 21.7% 21.4%
VALUATION – BASE CASE

FY23 FY24 FY25 FY26 FY27 TV

Revenue 35 38 41 45 48
Operating profit 8 9 9 10 10
FCFF 90.0% 7.4 7.7 8.2 8.7 9.3
WACC 8.0%
Time factor 0.5 1.5 2.5 3.5 4.5
Discount factor 0.96 0.89 0.82 0.76 0.71
PV 7.1 6.9 6.7 6.7 6.6 6.6
SUM of PVs 33.9
PV of TV 3.0% 131.4
EV 165.3
Debt (20.9)
Equity Value 144.5
VALUATION – PESSIMISTIC CASE

FY23 FY24 FY25 FY26 FY27 TV

Revenue 35 38 41 45 48
Operating profit 8 9 9 10 10
FCFF 90.0% 7.4 7.7 8.2 8.7 9.3
WACC 9.5%
Time factor 0.5 1.5 2.5 3.5 4.5
Discount factor 0.96 0.87 0.80 0.73 0.66
PV 7.0 6.7 6.5 6.3 6.2 6.2
SUM of PVs 32.8
PV of TV 3.0% 95.0
EV 127.8
Debt (20.9)
Equity Value 106.9