GSK delivers Q3 EPS of 28.5p before major restructuring and dividend of 15p up 7%

- Return to sales growth with Q3 turnover +3% CER; +15% sterling

- Continued improvement expected in Q4

Summary

Portfolio diversification and investment in key areas drives return to sales growth: Emerging Markets (+25%); Japan (+19%) and Consumer Healthcare (+8%)

Further growth expected in Q4 2009 including significant sales of influenza products

US sales -12% primarily due to continued adverse impact of generic competition

Significant progress made to expand new vaccines portfolio:

Cervarix approved in USA and Japan; Pandemrix approved in Europe. Menhibrix filed in the USA in August; Major new contract secured in Brazil for Synflorix

Pipeline momentum sustained with 30 assets in late-stage development:

US approvals of Votrient and Arzerra; US/EU filings of Avodart for prostate cancer risk reduction and progress made in darapladib and Horizon development programmes

Cumulative net cash inflow from operating activities up 10%; Q3 dividend 15p, up 7%

EPS before major restructuring 28.5p -3% CER, up 13% in sterling terms

GSK’s strategic priorities

GSK has focused its business around the delivery of three strategic priorities, which aim to increase growth, reduce risk and improve GSK‘s long-term financial performance:

Grow a diversified global business

Deliver more products of value

Simplify GSK’s operating model

Chief Executive Officer’s review

LONDON, Oct. 29, 2009--The dynamics of GSK’s business are changing. We are seeing direct evidence of success in our strategy to grow and diversify the business away from a dependency on ?white pill/western markets?. Less than 30% of this quarter‘s sales were generated from these products and markets compared to 38% in the second quarter of 2008.

This quarter‘s total sales were up 3%, marking a return to growth and reflecting the reallocation of resources to key investment areas: sales in Emerging Markets were up 25%; in Japan up 19% and in Consumer Healthcare up 8%.

GSK‘s Consumer Healthcare performance is especially impressive given it was set against a backdrop of estimated global market growth of only 1.5%. GSK‘s OTC, Oral Healthcare and Nutritional Healthcare businesses grew 9%, 10% and 4%, respectively, in the quarter. We are continuing to look for further investment opportunities, and last month for example signed a new agreement with a leading distributor to launch Lucozade across China.

Sales in Emerging Markets now represent 14% of pharmaceutical turnover compared to 12% this time last year. Growth in these markets is being driven both organically, notably through Seretide, Augmentin and vaccines, and through newly acquired products, which contributed over £35 million this quarter.

Further progress in building our long-term presence in these markets was demonstrated with two major new partnerships this quarter. In Brazil, we signed a 10-year agreement with the Fiocruz Foundation to supply Synflorix; whilst in China, we reached an agreement with the Walvax Biotech Company to develop paediatric vaccines.

In Japan, new product momentum continues. Earlier this month Cervarix was approved and we submitted a regulatory application for Promacta. Both of these are ?firsts‘ in their class and this is indicative of the innovation on which we are building this business. We have now received regulatory clearance for 4 major new products this year – Allermist, Avolve (Avodart), Cervarix and Tykerb.

Vaccines sales were lower this quarter, in part due to phasing of shipments. As this business continues to grow, I expect that the volatility associated with the timing of large tenders and bulk shipments will be a recurring factor in GSK‘s reporting. Year to date sales were up 8% to nearly £2.2 billion and represented 11% of Group turnover.

As I said earlier this year, the US marketplace is changing and there are many dynamics at play, including the progress of healthcare reform and increased pricing pressure, to which we are actively responding.

We have made significant changes to adapt our US business and continue to manage a major transition to our US product portfolio. Overall, the number of products facing generic competition is reducing, although 2010 will remain challenging as the impact of expected generic competition to Valtrex is absorbed. At the same time, we are rapidly increasing the number of new products.

In the last two weeks, we have received US approvals for Cervarix, Votrient and Arzerra. This quarter 2 key FDA filings were also completed: Avodart for prostate cancer risk reduction and Menhibrix, a vaccine to protect against meningococcal disease and Haemophilus influenzae type b (Hib).

It is clear that improvements in performance for our US business will take time; however, I do expect that the changes within our product portfolio and the outputs of our restructuring programme will become increasingly evident.

In Europe, we received approval for Pandemrix, our pandemic H1N1 vaccine. This follows more than 10 years of investment and effort into research of pandemic influenza. To date we have announced orders worldwide for approximately 440 million doses of the vaccine.

The positive impact on sales growth of the acquisitions made over the last 12 months is becoming apparent. This quarter, Stiefel dermatology products contributed more than £100 million of sales.

To improve transparency and understanding of our increasingly diversified business, we have decided to make some changes to our financial reporting next year. From the first quarter of 2010, we will report additional P&L information for all of our major business units.

Our strategic priorities are designed to drive both turnover and profit growth and we must now translate the good progress we have made at the sales level into improved and sustainable earnings growth.

Cost containment is therefore very high on my agenda. Our restructuring programme to deliver £1.7 billion in annual savings is making good progress and cumulative annualised cost savings now amount to £1 billion. This programme is helping to improve productivity and support investment in our strategic priorities.

Return on investment and effective deployment of capital are critical measures in the investment decisions we are making and in the management of our business. This is evident in our allocation of SG&A expenditure. For example, in the third quarter whilst SG&A spend grew 12% in key investment areas, expenditure was actively contracted in US and European pharmaceutical markets by 6%.

To discharge risk in R&D we are consciously assessing resource and allocation of investment. This quarter, darapladib, a potential new treatment for atherosclerosis, passed a key checkpoint in its phase III development programme by meeting interim safety criteria in the STABILITY trial. Development of this asset will therefore continue as planned with another large-scale CV outcome study due to commence shortly. We also started phase III trials for project Horizon in COPD this month.

In the same manner, our decision to terminate development of Rezonic was ultimately dictated by where we could best allocate R&D and launch investment to deliver success.

Sustained cash generation is also an important measure of GSK‘s progress. Cumulative net cash inflow from operating activities was up 10%. This has further supported our progressive dividend policy. The Q3 dividend is 15p, up 7%.

In conclusion, and as I have previously described, our third quarter performance reinforces our expectations of an improved performance for GSK in the second half of 2009. In the fourth quarter, I expect further improvement including significant sales generated from our influenza products.

The delivery of our strategic priorities is required over a multi-year time frame, but I believe that the progress we have made so far provides us with a strong platform to realise our long-term objective of delivering sustainable growth for shareholders.

Andrew Witty

Chief Executive Officer

Video summaries of Andrew Witty discussing today’s results are available on www.gsk.com

Trading update

Turnover and key product movements impacting performance – Q3 2009

Total Group turnover grew 3%, with pharmaceuticals up 2% and Consumer Healthcare up 8%. Within pharmaceuticals, a decline in US turnover (-12%) was offset by growth in Europe (+3%), Emerging Markets (+25%) and Japan (+19%). Stiefel contributed £111 million to pharmaceutical turnover in the quarter.

Sales of Seretide/Advair grew 5% to £1.2 billion in the quarter. Reported US sales were down 1% to £587 million. Underlying US growth for the quarter is estimated to be around 4%, with the difference primarily due to wholesaler stocking patterns. Total Advair growth was boosted by strong performances in Europe (+9% to £378 million), Emerging Markets (+25% to £66 million) and Japan (+32% to £44 million). Elsewhere in the respiratory portfolio, sales of Ventolin (+28% to £110 million) continued to be strong, in particular benefiting from successful retail contracting initiatives in the USA.

Relenza sales were £182 million reflecting continued orders from Governments for pandemic stockpiling. Other strong pharmaceutical performances included Avodart (+14% to £131 million), Lovaza (+27% to £111 million) and Tykerb (+54% to £46 million).

Vaccine sales declined 2% in the quarter to £802 million. Performance benefited from strong growth of Rotarix (+92% to £84 million) and Boostrix (+55% to £39 million) and from the start of Synflorix (sales of £13 million). These were offset, however, by sales declines of Infanrix/Pediarix (-10%) which continues to be impacted by increased competition in the DTPa segment in the USA, and lower sales of Hepatitis vaccines (-12%) which resulted from lower sales to the military and return of competitor supply in the USA. Sales of Fluarix/Flulaval declined 14% to £147 million primarily as a result of lower sales in the USA. Cervarix sales of £28 million in the quarter were adversely impacted by the timing of tender shipments in Europe.

Sales of several products continue to be significantly impacted by generic competition in the USA: Imigran (-74% to £53 million), Lamictal (-21% to £121 million) and Requip (-30% to £43 million). Wellbutrin XL sales fell 81% to £6 million, reflecting the sale of the product in the USA to Biovail in Q2.

Total Consumer Healthcare sales rose 8% to £1.2 billion, with growth in all regions: Europe (+9%), USA (+3%) and Rest of World (+11%).

Oral care sales rose 10% to £375 million, driven by continued strong performances of Sensodyne (+20%) and denture products Polident, Poligrip and Corega (+10%). Sales of recently acquired dry mouth treatment Biotene were £7 million in the quarter. Nutritional healthcare sales were up 4%, with growth of Horlicks (+13%) and Lucozade (+4%) partially offset by a decline in Ribena sales (-9%) resulting from a reduction in ?impulse sector‘ demand in the UK. OTC sales rose 9% to £567 million. Helped by the ongoing launches in Europe, weight loss treatment alli continues to perform well with sales more than doubling to £49 million in the quarter. Other strong OTC performances included Panadol (+7% to £96 million), Contac (sales more than doubled to £21 million) and Abreva (+36% to £18 million). These were partially offset by a 16% decline in NRT sales resulting primarily from the comparison with Q3 2008 which benefited from the stocking for the launch of Nicorette whitening gum in the USA and the launch of NRT products in Japan.

Operating profit and earnings per share commentary – Q3 2009

Results before major restructuring

Operating profit before major restructuring for Q3 2009 was £2,223 million, a 3% decline in CER terms.

Cost of sales was 25.6% of turnover, higher than Q2 2009 and prior year (Q3 2008: 24.8%), principally reflecting the impact of generic competition to higher margin products in the USA and changes to product mix in the quarter. The company continues to expect cost of sales to be in the range of 24% to 25% of turnover for the full year.

SG&A costs as a percentage of turnover increased to 30.5% in the quarter (Q3 2008: 28.3%). The increase over prior year reflected investment in growth markets, increased pension costs and the consolidation of the Stiefel business for the first time, partially offset by the benefits of the restructuring programme. Excluding legal costs of £63 million, SG&A costs were 29.6% of turnover (Q3 2008: 27.3%). The company continues to expect SG&A costs excluding legal charges to be around 29% of turnover in 2009 (2008: 27.7%).

R&D expenditure was 12.8% of turnover in the quarter, benefiting from a provision release due to reassessment of a receivable balance in the quarter. Excluding this item, R&D expenditure was 13.6% of turnover as restructuring savings were partially offset by increased investment in vaccines. The company now expects full year R&D costs as a percentage of sales to be broadly in line with 2008 (14.4%).

In the quarter, gains from asset disposals were £17 million (Q3 2008: £21 million), costs for legal matters were £63 million (Q3 2008: £58 million) and fair value movements on financial instruments were £nil (Q3 2008: £37 million charge).

Other operating income in the quarter was £123 million comprising royalty income of £103 million which included a royalty receipt of £29 million following settlement of a royalty dispute in the quarter (Q3 2008 royalty income: £80 million), a £79 million gain resulting from the same settlement and asset disposals of £17 million, offset by an £83 million equity investment impairment.

EPS before major restructuring of 28.5p decreased 3% in CER terms (a 13% increase in sterling terms) compared with Q3 2008. The favourable currency impact of 16 percentage points reflected the weakness of Sterling against most major currencies, compared with the same period last year.

Total results after restructuring

Operating profit after restructuring for Q3 2009 was £2,071 million, a 7% increase in CER terms. This included £152 million of restructuring charges related to the current restructuring programme (Q3 2008: £322 million); £50 million was charged to cost of sales (Q3 2008: £130 million), £82 million to SG&A (Q3 2008: £157 million) and £20 million to R&D (Q3 2008: £35 million). EPS after restructuring of 26.3p increased 11% in CER terms (a 31% increase in sterling terms) compared with Q3 2008.

Cash flow and net debt

Net cash inflow from operating activities in Q3 2009 was £2,081 million, up 10% in sterling terms. For the nine months net cash inflow from operating activities was £5,580 million, a 10% increase in sterling terms over the previous year. This cash inflow was used to fund net interest payable of £309 million, capital expenditure on property, plant and equipment and intangible assets of £1,232 million, acquisitions of £2,677 million and the dividend paid to shareholders of £2,290 million.

Net debt at 30th September 2009 of £10.2 billion, comprising gross debt of £16.9 billion and cash and liquid investments of £6.7 billion, remains at the same level as at 31st December 2008.

At 30th September 2009, GSK had short-term borrowings (including overdrafts) repayable within 12 months of £1.9 billion with no further borrowings repayable in the subsequent year.

On 6th July 2009, GSK issued a €1.6 billion bond under its Euro Medium Term Note programme. The bond matures on 6th July 2015 and has a coupon of 3.875%.

Dividends

The Board has declared a third interim dividend of 15 pence per share (Q3 2008: 14 pence). The equivalent interim dividend receivable by ADR holders is 49.002 cents per ADS based on an exchange rate of £1/$1.6334. The ex-dividend date will be 4th November 2009, with a record date of 6th November 2009 and a payment date of 7th January 2010.

Currency impact

The Q3 results are based on average exchange rates, principally £1/$1.62, £1/€1.14 and £1/Yen 149. The nine month exchange rates are given on page 27. The period end exchange rates were £1/$1.60, £1/€1.09 and £1/Yen 143. If exchange rates were to hold at these period end levels for the rest of 2009, the estimated positive impact on full year 2009 sterling EPS growth before major restructuring would be around 15 percentage points.

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