23rd Jul 2014 13:03
LONDON (Alliance News) - GlaxoSmithKline PLC Wednesday lowered its full-year earnings per share expectations, saying it now expects to record broadly similar to 2013, as it saw pretax profit decline in the half-year to the end of June.
At the time of its first quarter results in April, Glaxo had previously guided between 4% and 8% core earnings per share growth at constant exchange rates.
The pharmaceuticals giant Wednesday proposed an interim dividend of 19 pence per share, up from 18 pence. It noted that, given the strengthening of sterling on its free cash flow, share repurchases over 2014 were likely to be "immaterial."
Glaxo posted a pretax profit of GBP1.89 billion for the half-year, down from GBP2.70 billion, as revenue declined to GBP11.17 billion from GBP13.10 billion, hit by falling sales in its pharmaceuticals and vaccines segment, and its consumer healthcare segment.
The company said that its progress on newly launched products is being offset by pricing and contracting pressure in the US, additionally, generic competition to its high triglyceride treatment Lovaza has been more substantive and has hit earlier than expected, said Glaxo.
Pharmaceuticals and vaccines revenue dropped 4% in the half-year, particularly hit by the weaker performance in the US, which offset growth in emerging markets, and flat sales in Europe. In the US pharmaceuticals revenue was down 13% and vaccines were up 9%.
Oncology products in the US performed well in the first-half, with sales up 36%, boosted by strong performances from renal cell carcinoma treatment Votrient and low blood platelet treatment Promacta, as well as Glaxo's recent launches of melanoma treatments Tafinlar and Mekinist.
Generic competition continued to hit dermatology products in the US, leading to a 60% decline.
In emerging markets, pharmaceuticals and vaccines revenue rose 7%, however, the ongoing investigation in China adversely effected sales growth by an estimated three percentage points. In China, sales of established products were down 17%.
In Japan pharmaceuticals and vaccines turnover rose 5%, with pharmaceuticals up 6% and vaccines down 27%. Growth in pharmaceuticals benefited from government stockpiling of influenza drug Relenza and strong growth of prostatic hyperplasia treatment Avodart, offset by weaker sales of its respiratory portfolio. The decline in vaccines was due to the continued suspension of the recommendation for the use of human papillomavirus vaccines hitting sales of Cervarix.
Revenue at its joint venture specialist HIV company ViiV Healthcare rose 9% as growth generated by Epzicom and the launch of Tivicay more than offset the impact of generic competition on older products.
Established product revenues fell 18%, hit by generic competition to Lovaza, and continuing generic competition across a number of products in the portfolio.
Worldwide vaccines revenues rose 4% as performances in the US and Emerging Markets were partly offset by lower sales in Europe and Japan.
In consumer healthcare sales were down 4% due to supply interruptions in the US and Europe; the company said this supply position was now beginning to improve, and it expects sales in the segment for the full-year to be broadly flat.
The company's key product, the asthma and chronic obstructive pulmonary disease treatment Advair, continued to be hit by generic competition in the US, and dropped 24% in the half-year, said the company.
Glaxo said that while sales of this product will continue to reduce, it expects its new products in the respiratory franchise including Breo, Anoro and Incruse, together with some of its pipeline products, to generate new sales growth. On a call with journalists Chief Executive Andrew Witty expressed confidence in the prospects of Glaxo's pipeline, saying that the only challenge it to acquire new market share as quickly as Advair declines.
The FTSE 100-listed company said that it was a "critical moment" to make the right choices, particularly around its investment to secure its long-term prospects.
Alongside the new product launches, the company said that in the second-half it expects to see a regulatory decision from the US Food and Drug administration on its ICS monotherapy product for Asthma. Its treatment for severe asthma, mepolizumab, will also be filed with regulators by the end of the year, it said.
It launches a new treatment for type II diabetes, Tanzeum, in the US this week.
Glaxo also focused on its three-part deal with Novartis International AG in April, under which it will sell the Swiss company its oncology portfolio, acquire Novartis's global vaccines business, and create a joint consumer healthcare business.
Glaxo said that, subject to consultation and necessary approvals, these businesses will represent around half of its revenues over the coming years, and are expected to generate mid-single digit sales growth on a more consistent basis.
As part of its efforts to shift and rejuvenate its portfolio, Glaxo has begun the process of selling US and European products in its established products portfolio with total sales of around GBP1 billion. It said that, subject to achieving appropriate shareholder value, it expects to reach an agreement before the end of the year.
Glaxo has been hampered by scandals over the last year, most stemming from the ongoing investigations in China into allegations that it paid up to USD500 million to doctors and hospital executives over the past six years.
In the UK, the Serious Fraud Office has launched an investigation into Glaxo's commercial practises, also addressing allegations of bribery.
Glaxo Wednesday said that it was continuing to fully co-operate with Chinese authorities on the ongoing investigation into allegations of bribery in the country. It reiterated that it was not possible to make a reliable estimate of the financial effect that would result from the investigations.
Witty stressed that the company is "very clear in what it expects from its staff," saying that he believes a vast majority of staff act ethically, and that the companjy investigates every claim made.
Broker Liberum kept its Hold rating for the company, saying it believes that its dividend is becoming increasingly difficult to sustain.
"As tempting as it may seem, we would avoid GSK even down here, if the dividend gets rebased in the coming year or so, the shares will enter freefall, in our opinion," Liberum said.
Berenberg also gave a Hold rating for the stock, saying that the results were a "significant disappointment" as multiple pressures dragged on the numbers.
"No doubt these results will prompt significant (c5%) downwards revisions to consensus, and investors will focus even more keenly on the outlook for the respiratory division. Breo and Anoro will need to gain traction to reassure investors that GSK can return to a reasonable growth trajectory in coming years," Berenberg said.
Shares in GlaxoSmithKline were trading 5.9 lower at 1463.50 pence per share, the biggest faller on the FTSE 100 Wednesday afternoon.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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