4th Feb 2014 16:27
LONDON (Alliance News) - The UK's two largest pharmaceuticals companies will report 2013 earnings this week, with AstraZeneca expected to show a fourth quarter loss when it reports Thursday, while GlaxoSmithKline profits are expected to have flatlined over the year as a whole.
Both companies are facing the same central issue: their current portfolio of top-selling drugs is mature and facing increasing competition from generic drugs, while their current pipeline of new drugs is not producing the potential blockbusters to replace them. The problem is worse for AstraZeneca, but Glaxo has additional issues as it continues to try and overcome the bribery scandal in China.
Both companies are also facing a hit from currency volatility in recent months, particularly from the rise in sterling.
Analysts are expecting Glaxo to report a 2013 pretax profit of GBP6.69 billion, according to a consensus forecast from Morningstar, flat on the 2012 figure. Earnings per share are expected to be 112.44 pence, down slightly from 112.7 pence.
"While the recent past at GSK has been about a return to reported growth, the route to the future growth lies in the ability of GSK to replace its mature marketed portfolio," Shore Capital said in a recent note to clients.
In recent years, Glaxo, like many of the pharmaceutical industry's giants, has been selling assets and re-focusing its operations on a smaller number of businesses. Its three main divisions are now pharmaceuticals, vaccines and consumer healthcare, and within pharmaceuticals Glaxo's focus is on areas including respiratory diseases, cancer, and diseases of the central nervous system.
Shore, which has a Buy rating on the stock, will be watching for news about Glaxo's respiratory franchise. The UK's largest pharma company has now received approval for its Breo and Anoro respiratory treatments, and Shore wants to see evidence of how well these products are launched.
Glaxo will announce plans to launch late stage clinical trials on ten new drugs over the next two years, The Daily Telegraph reported Monday without saying where it got the information. The list will include medicines in Glaxo?s key areas of cancer and respiratory disease, and some of the drugs have never been detailed before because the company doesn't publish information on products in early development, the paper said.
Glaxo wasn't immediately available to comment on the report.
Investors will also be looking for the latest on Glaxo's issues in China. The company is being probed by Chinese authorities following allegations that senior Glaxo executives in China had been involved in payments of up to USD500 million to doctors and hospital executives over the past six years. The allegations have led to the arrest of four Glaxo managers, with several more under house arrest.
When the company released its third quarter results in October, it said it had seen pharmaceutical and vaccine sales in China drop 61%, although at that time it was too early to quantify the long-term impact of the investigations.
Glaxo's target of achieving modest operating profit margin expansion will be helped by its sale of its drinks business to Suntory, but Shore thinks its goal will be undermined by the situation in China and the hit from foreign exchange movements.
Berenberg thinks exchange rate movements, particularly the pound's strength, could erode Glaxo's sales by around 5%, while product divestments will also weigh. However, this will be offset by "new product rollouts that will go some way to providing momentum to two of GSK's key franchises: respiratory and HIV," the bank said.
Berenberg, which has a Hold rating on the stock with a GBP17.5 price target, expects Glaxo to report 2% sales growth for the fourth quarter, but core operating profit to fall by 4% compared with the previous year.
AstraZeneca, meanwhile, is expected to report a fourth quarter pretax loss of USD562 million, according to consensus forecasts provided by the company, compared with a USD1.85 billion profit a year earlier. The forecast is only from analysts that have taken into account AstraZeneca's previously announced USD1.7 billion impairment charge relating to diabetes treatment Bydureon.
AstraZeneca has been one of the worst affected of the world's pharma giants by blockbuster drugs coming off patent. Sales of key drugs have been declining as generics have been launched, prompting the company to make acquisitions in recent years to try and boost its pipeline. It also embarked on a big restructuring programme, cutting thousands of jobs as it pared back its own research and development programmes.
Berenberg said that it expects AstraZeneca to report a 1.1% sales decline in the fourth quarter, with operating profit down as much as 5.7%.
AstraZeneca saw revenue and pretax profit decline in the third quarter as it lost exclusivity on several of its brands, and at that time it said it continued to anticipate a mid-to-high single-digit decline in revenue for the full year.
AstraZeneca's deal to buy Bristol-Myers Squibb out of their diabetes joint venture for USD4.1 billion plus royalty payments completed Monday and will come too late to contribute to the company's 2013 results.
However, Berenberg thinks the deal "will be immediately accretive to sales but will not boost earnings for some time."
AstraZeneca said in January that it expects revenues for 2017 to be roughly in line with 2013, and that it believes it will return to growth earlier than analysts were expecting.
"Although we do not quite get there," Berenberg said "we consider the majority of the gap is filled by the Bristol-Myers deal."
Glaxo was trading down 0.1% at 1,569.50 pence Tuesday afternoon, ahead of its results Wednesday. Astrazeneca were trading down 0.5% at 3,852.50 pence.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
Copyright © 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
AstrazenecaGlaxosmithkline