GSK expects 2022 sales growth of up to 6% from demerged Haleon consumer business

GlaxoSmithKline PLC's consumer health business, best known for household names including Sensodyne, Panadol and Advil, has been rebranded as Haleon ahead of the London Stock Exchange's biggest listing in a decade.

GSK expects that Haleon, which was formed from the integration of Novartis AG's consumer health portfolio and Pfizer Inc.'s consumer business in 2015 and 2019, respectively, is expected to deliver medium-term annual organic sales growth of 4%-6% after its listing in July. The initial dividend is likely to be at the lower end of the 30%-50% pay-out ratio range, the Brentford, U.K.-based drugmaker said at an investor strategy update Feb. 28.

Sales of the consumer health business, which includes the anti-inflammatory Voltaren, ear medicine Otrivin and Centrum vitamins, amounted to £9.5 billion in 2021. With the global consumer healthcare sector valued at over £150 billion, there is headroom for growth, notably in e-commerce, by accelerating innovation in the U.S. and China and spearheading expansion in emerging markets, Haleon CEO Brian McNamara said.

The demerger comes three years after GSK CEO Emma Walmsley announced plans to split off the consumer health business and six months after the drugmaker turned down a £50 billion bid for the unit by consumer goods giant Unilever PLC. Spinning off the business will allow GSK to focus on its core vaccines and biopharmaceuticals research — projected to yield £33 billion in annual sales by 2031 — while at the same time benefiting from the retention of a 20% stake in Haleon.

"The consumer healthcare separation remains on track for mid-2022, which we believe should crystallize significant value," said Jefferies analyst Peter Welford. The standalone business can support higher debt levels, deleveraging the so-called "new GSK" to below 1.5x and enabling investment for growth, said Welford, who rates GSK a 'buy.'

OTC switches

Other notable opportunities for expansion include switching some medicines currently only available on prescription so that they can be sold over the counter. Two planned switches in the U.S. are major growth opportunities, McNamara said.

French pharmaceutical giant Sanofi — which separated its consumer health group but intends to retain the business — cited the "transformational" potential of switches for erectile dysfunction pill Cialis and flu medicine Tamiflu in a Feb. 4 earnings call.

"We have executed four switches over the last eight years," McNamara said on GSK's media call. "That's more than any of our competitors, with the most recent being Voltaren in the U.S."

"This is a real area of expertise for us. We already have two confirmed projects in the pipeline, with expected launches in 2025 and 2026," McNamara said. "Importantly, our medium-term organic sales growth guidance doesn't include any benefit from ... switches."

2022 could be a strong year for Haleon as over-the-counter sales recover from a historically weak cough and cold season caused by pandemic-related social distancing measures, UBS analysts said. If the two upcoming switches — which GSK has not disclosed — are successfully executed, each could add 1% growth and perhaps lift sales out of the guided range, said analyst Laura Sutcliffe, who rates GSK 'neutral.'

GSK invested £257 million in research and development in 2021, representing 2.7% of sales, McNamara said. The executive pointed to Haleon's Naturals range — which has over 30 projects in the pipeline and introduced 10 new products in the past year — as growing faster than the sector average.

"The steps taken with our consumer healthcare business, which I joined GSK to shape and build over a decade ago, were all designed to accelerate this work," GSK CEO Walmsley said on the call. "The launch of Haleon now crystallizes all of this work and value for GSK shareholders."

"New GSK will focus purely on biopharmaceuticals with a new purpose: to unite science, talent and technology to get ahead of disease together, and with new ambitions for growth, representing a step-change in delivery for GSK, and starting this year," the CEO said.