GSK flags return to health as sales fall slows

GSK flags return to health as sales fall slows

London: GlaxoSmithKline Plc flagged its return to financial health on Tuesday, as a slide in sales slowed and the drugmaker’s new finance chief announced further efficiencies to lift margins from 2012.

Turnover was 4% down on a year earlier in the second quarter, as expected, but the decline was slower than in previous quarters and profit was markedly higher than in 2010, when Britain’s biggest drugmaker took a huge legal charge.

Chief executive Andrew Witty reiterated his confidence that GSK would return to sales growth next year, as it emerges from a run of drug patent losses ahead of its main rivals and delivers more new drugs to patients.

“As we move into 2012, 2013 and 2014, we believe we can synchronise new product delivery with the diminution of headwinds," he told reporters in a conference call.

“That will move us into a very attractive place in terms of relative company performance, just when everyone else is going into their darkest days."

GSK has been working its way through a revenue trough, reflecting sharp declines in sales of diabetes pill Avandia and herpes drug Valtrex, as well as the absence of last year’s windfall sales of vaccines and drugs for swine flu.

Quarterly sales of £6.72 billion ($10.9 billion) were broadly in line with analyst expectations and compared with declines of 10% and 11% in the preceding quarters.

Sales excluding pandemic flu products, Avandia and Valtrex increased by 5%.

Analysts, on average, had expected sales of £6.73 billion in the three months to 30 June, according to Thomson Reuters I/B/E/S.

Investors also took heart from plans by Simon Dingemans, the new chief financial officer who joined from Goldman Sachs, to deliver additional savings of about £300 million by 2012, and cut tax and interest charges.

Gradual Gains

Dingemans said expected improvements in operating margins would be “quite gradual" initially, while gains from financial improvements would drop through to the bottom line more quickly.

Shares in GSK rose 0.5% by 1345 GMT, outperforming a 0.6% lower European drugs sector .

Jefferies analysts, who recommend buying GSK shares, said the comments from Witty and Dingemans were “very positive" for growth and the potential to improve shareholder returns.

Higher dividends and a resumed share buyback programme have lifted returns and GSK has promised to hand back cash from the sale of non-core over-the-counter (OTC) products, which Witty said he expected to conclude in the fourth quarter.

Witty is diversifying the group to reduce reliance on “white pills in Western markets", the part of the business most vulnerable to generic competition and price cuts.

The result is an increased focus on consumer healthcare and emerging markets in a strategy that is starting to bear fruit.

Underlying sales outside the United States and Europe show impressive quarterly growth of 15%, and the business now accounts for 37% of turnover.

GSK still needs its core pharma operations to produce a decent array of new medicines, however, so news that platelet-boosting drug Promacta had been successful in a late-stage study in hepatitis C patients was encouraging. The drug is developed in partnership with Ligand Pharmaceuticals .

GSK expects to present Phase III clinical trial results on 14 new drugs this year and next.

Quarterly profits, as expected, were sharply up on 2010, due to the absence of last year’s £1.6 billion legal charge to settle litigation over Avandia’s links to heart risks and other matters.

Pretax profits before major restructuring were £1.78 billion, against 494 million a year ago—equivalent to earnings per share of 25 pence compared with a consensus of 25.3p and the 2.6p recorded in 2010.

Rising confidence that GSK is coming up the other side of its sales and earnings trough has buoyed the company’s shares in recent months within a depressed pharmaceuticals sector, and the stock now trades at a premium to many rivals.

With a 2011 price-to-earnings ratio of 11.9 times, GSK stands on a slightly higher rating to Swiss drugmakers Novartis and Roche , both of which pleased the market with their results last week.