Investors' Fears Eased as Glaxo Posts Solid Results -- Update
February 03 2016 - 10:04AM
Dow Jones News
By Denise Roland
LONDON-- GlaxoSmithKline PLC Wednesday posted fourth-quarter
revenue and profit in line with analyst expectations and reinforced
guidance that earnings would grow strongly in 2016, sending its
shares higher.
Glaxo, based in the London suburb of Brentford, said revenue in
the quarter ended Dec. 31 climbed to GBP6.3 billion ($9.1 billion),
thanks to a strong performance from its vaccine and consumer
health-care arms.
Core operating profit fell 23% to GBP1.4 billion, largely due to
Glaxo's shift to a higher-volume, lower-margin business following
its $20 billion three-part transaction with Novartis AG .
Glaxo shares were up 1.1% at 1,442 pence in London trading.
The Novartis deal, which closed in the first quarter of 2015,
involved Glaxo trading its high-margin cancer drugs for the Swiss
company's lower-margin vaccines business and the pair pooling their
consumer-health-care arms into a joint venture controlled by
Glaxo.
Chief Executive Andrew Witty is placing a long-term bet that the
expanded vaccines and consumer health care businesses will provide
a buffer for the riskier pharmaceuticals business, which he has
said is exposed to political shifts on issues such as drug
pricing.
Restructuring costs from the transaction meant that Glaxo swung
to a net loss of GBP354 million in the fourth quarter, compared
with a GBP1 billion profit a year earlier, while revenue climbed
from GBP6.2 billion to GBP6.3 billion.
Glaxo expects earnings to return to growth in 2016, when the
year-earlier comparisons will no longer include the company's old
cancer-medicines business. It reiterated guidance that core
earnings per share will grow by a double-digit percentage this
coming year, while confirming it will pay investors an ordinary
dividend of 80 pence and a special dividend of 20 pence.
In a call with reporters, Mr. Witty also raised the prospect of
an eventual breakup of Glaxo but cautioned that it was very
unlikely within the next two years.
The pharmaceuticals giant has faced calls to break up from
prominent U.K. investor Neil Woodford, who said splitting the
company into its constituent parts--pharmaceuticals, vaccines and
consumer health care--would leave shareholders better off.
Mr. Witty said the consumer health care business, which sells
over-the-counter drugs such as painkiller Panadol as well as
non-pharmaceuticals like toothpaste, was big enough to constitute a
stand-alone company following the Novartis transaction.
But he added that it would be "unwise" to consider breaking it
off until Glaxo had finished integrating the Novartis business.
Glaxo is nearly a year into a three-year plan to double the margin
of the joint consumer health care business.
The Glaxo boss added that even after the business had reached a
"steady state," he would be "very thoughtful" about the prospect of
a breakup. "It makes a lot of sense for these businesses to be
together," he said.
Glaxo's pharmaceuticals division has come under heavy pressure
in the U.S., where increasingly powerful insurers have forced the
company to cut the price of its blockbuster inhaler Advair to win a
favored place on their formularies.
Mr. Witty said these pressures continued into the fourth
quarter. Still, Glaxo's newer drugs more than offset Advair's
decline, generating GBP620 million in revenue for the quarter,
against a GBP90 million fall in Advair sales.
One bright spot for the pharmaceuticals business was Glaxo's
majority-owned HIV business, ViiV Healthcare. Sales of HIV drugs
increased 51% to GBP695 million in the fourth-quarter, mainly due
to the growth of two recently-launched drugs, Triumeq and
Tivicay.
Meanwhile, vaccine sales increased 20% to GBP963 million, and
revenue from consumer health increased 47% to GBP1.6 billion.
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
February 03, 2016 10:49 ET (15:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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