GSK Reports Second Quarter EPS of 24.0p, Up 11% CER (3% Reported); Share Buy-back Programme Increased to £12 Billion
full report, see attachment
LONDON, July 25, 2007-GlaxoSmithKline plc (GSK) today announces its unaudited results for the second quarter ended 30th June 2007. The full results are presented under ‘Income Statement’ on pages 7 and 8, and are summarised below.
Q2 2007 Q2 2006 Growth H1 2007 H1 2006 Growth
£m £m CER% £% £m £m CER% £%
Turnover 5,674 5,811 3 (2) 11,266 11,624 3 (3)
Operating profit 1,929 1,911 9 1 4,095 4,085 10 -
Profit before tax 1,896 1,897 8 - 4,039 4,067 9 (1)
Earnings per share 24.0p 23.3p 11 3 51.0p 49.8p 12 2
• Group turnover up 3% to £5.7 billion, with EPS up 11% CER
- Reported sterling growth adversely impacted by exchange rate movements
• Pharmaceutical turnover level at £4.8 billion, key growth drivers offset impact of generic
competition in the USA and a decrease in Avandia sales:
- Seretide/Advair +12% to £871 million - Lamictal +18% to £271 million
- Vaccines +6% to £398 million - Valtrex +14% to £226 million
- Avandia products -22% to £349 million - Coreg +37% to £202 million
• Continued progress on five key pharmaceutical product launches expected in 2007:
- Tykerb, for breast cancer, Coreg CR, for heart conditions, and Veramyst, for allergic rhinitis, all now
launched in the USA
- Cervarix, for prevention of cervical cancer, launched in Australia and granted positive EU opinion
- Trexima for migraine – FDA action date on 1st August
• Consumer Healthcare delivers record quarterly sales growth, up 18% to £899 million:
- OTC sales up 29% to £446 million with successful US launch of alli, the new OTC weight loss
treatment, which generated sales of £76 million
- Strong growth of key products, Lucozade, Aquafresh and Sensodyne; sales up 17% to £248 million
• Q2 dividend of 12p announced
• Share buy-back programme increased to £12 billion with completion expected over two-years
Commenting on the performance in the quarter and GSK’s outlook, JP Garnier, Chief Executive Officer, said: “GSK has delivered a good earnings performance in a challenging quarter. Whilst some uncertainty remains around Avandia, we stand firm in our belief that it is an effective and valuable treatment for patients with diabetes. We continue to see very good progress across the rest of our portfolio with the successful launch of alli and five major pharmaceutical products already completed this year. This is strong evidence of our pipeline’s momentum and its ability to create long-term value for GSK. We also continue to accelerate returns to shareholders and have today increased our share buy-back programme to £12 billion”.
* The Group's practice is to discuss its results in terms of constant exchange rate (CER) growth. All commentaries compare 2007 results with 2006 in CER terms unless otherwise stated. See 'Accounting Presentation and Policies' on page 21.
Total pharmaceutical turnover was level at £4.8 billion. In the United States, turnover fell 2% to £2.3 billion, impacted by continued generic competition to Zofran and Wellbutrin XL and a decline in Avandia sales.
In Europe turnover was up 1% to £1.4 billion, with sales growth of newer products offsetting generic competition to older products and further price cuts mandated by European governments. Sales in International were £1 billion, up 3%, with growth impacted by lower sales of Avandia in some markets and a reduction in vaccine tender orders.
Seretide/Advair sales of £871 million; EU label extended for broader use in COPD patients
Total sales of Seretide/Advair, for asthma and COPD, were up 12% to £871 million. In the USA, sales grew 11% to £467 million, with continued expansion into the COPD market helping to maintain volume growth in prescriptions. In Europe, sales grew 8% to £313 million. In International markets, sales grew 25% to £91 million, with £5 million of sales contributed from Japan, following launch of the product in June.
In July, following a review of the TORCH (TOwards a Revolution in COPD Health) study data, European regulatory authorities granted a licence extension for Seretide for use in a broader population of COPD patients and inclusion of the study results in the label. On 1st May, an FDA Advisory Committee also reviewed the TORCH data and unanimously agreed that the Advair 500/50?g strength dose significantly reduced the risk of exacerbations in COPD patients. The FDA’s review of the TORCH data is ongoing with an action date of 10th August.
Vaccine sales of £398 million; strong US performance of Infanrix/Pediarix and hepatitis vaccines
In the USA, vaccine sales rose 27% to £105 million. Sales growth was largely driven by continued good performance of Infanrix/Pediarix, GSK’s combination vaccines for children (+44% to £51 million), and hepatitis vaccines (+21% to £47 million).
Total sales in Europe and International were £293 million, level with last year and adversely impacted by the loss and phasing of vaccine tenders. Rotarix, GSK’s vaccine to prevent gastroenteritis caused by rotavirus, contributed sales of £15 million during the quarter.
The company expects to see an improvement in growth for the vaccines business in the second half of 2007, driven by sales from existing flu vaccines (Fluarix/FluLaval), and GSK’s new pre-pandemic flu vaccine, together with further sales of Rotarix and expected launches of Cervarix.
Avandia sales declined 22% to £349 million
Sales of the Avandia product group, for the treatment of type 2 diabetes, fell 22% to £349 million following publication in May of a meta-analysis which raised concerns of possible cardiovascular side effects. GSK strongly disputes the conclusions drawn from this meta-analysis. The company has conducted clinical trials of Avandia in over 52,000 patients. Data from these trials, which include large-scale, longterm studies, have demonstrated that Avandia has a comparable cardiovascular profile to other antidiabetic medicines, with the exception of congestive heart failure, a well known risk associated with the thiazolidinedione (TZD) class. Additionally, data from large, managed care databases have shown no increased cardiovascular risk for Avandia. On the 30th July, the FDA intends to hold an Advisory Committee meeting to discuss the potential cardiovascular risks associated with the use of TZDs, with a specific focus on Avandia.
Performance for the quarter was impacted most in the USA, where sales declined 31% to £226 million. Reported US sales growth was also impacted by comparison to a strong performance in Q2 2006 (when sales grew 33%), which benefited from restocking of Avandia and Avandamet. For the week-ending 13th July 2007, Avandia’s share of new and total retail prescriptions in the oral anti-diabetic market was 6.2% and 7.4%, respectively compared with shares of 11.5% and 11.7% respectively for the week-ending 18th May 2007. These represent decreases of approximately 46% and 37% in the volume of new and total prescriptions since the publication of the meta-analysis.
Sales in Europe grew 20% to £63 million driven by growing use of Avandamet with limited impact on performance to date from the published meta-analysis. Sales in International markets declined 9% to £60 million.
Lamictal, Valtrex, and Coreg – combined sales grew 22% to £699 million
Sales of Lamictal, for the treatment of epilepsy and bipolar disorder, grew 18% to £271 million, driven by strong sales performance in the USA, up 28% to £221 million. Sales of Valtrex, for herpes, rose 14% to £226 million, with US sales up 16% to £161 million.
Sales of Coreg and Coreg CR, for heart conditions, were £202 million, up 37%. Based on the most recent retail prescription data, Coreg CR now represents over 21% of new prescriptions for the total Coreg franchise.
Avodart, Requip, Boniva and Arixtra delivered combined turnover of £213 million, up 54%
Sales of Requip, for Parkinson’s disease and restless legs syndrome, grew 41% to £84 million in the quarter. Avodart, for benign prostatic hyperplasia (enlarged prostate), continued to perform strongly with sales up 39% to £67 million. GSK’s share of the co-promotion income for Boniva/Bonviva, the only oncemonthly medicine for post-menopausal osteoporosis, was £36 million.
Sales of Arixtra, a once-daily anticoagulant, doubled to £26 million. During the quarter, GSK received a positive opinion from EU regulatory authorities to extend use of Arixtra for the treatment of patients with acute coronary syndrome. In June, GSK launched Arixtra in Japan for the prevention of venous thromboembolism.
Successful new NCE launches – Tykerb/Tyverb, Veramyst and Altabax
Sales of Tykerb/Tyverb, for breast cancer, were £12 million in the quarter following launch in the USA at the end of March. During the quarter, GSK gained approval of Tykerb/Tyverb in Australia and Switzerland. Veramyst, a new once-daily nasal spray for the treatment of seasonal and year-round allergy symptoms in adults and children as young as two years of age, was launched in the USA in June. Altabax, for impetigo, was launched in the USA in May. In June, Altabax was approved for use in treatment of impetigo and other skin infections in Europe, where it will be known as Altargo.
Total sales of HIV products were £364 million, down 3%, reflecting competition to older products, Combivir (-13% to £117 million) and Epivir (-21% to £40 million), partially offset by strong sales growth from new products Epzicom/Kivexa (+43% to £79 million) and Lexiva (+9% to £33 million). Sales of Relenza, GSK’s anti-viral for influenza, were £67 million reflecting continuing demand from governments to stockpile it for use in the event of a flu pandemic. Sales of Zofran (-76% to £55 million), Flixonase/Flonase (-15% to £55 million) and Wellbutrin XL (-40% to £117 million ) decreased as a result of generic competition to these products.
PHARMACEUTICAL PIPELINE UPDATE
On 18th June, GSK held a seminar for investors and analysts on its expanding oncology portfolio and announced that the company expects to launch up to 5 major new compounds between 2007 and 2010 in cancer prevention, treatment and supportive care across a broad range of cancer types:
• Cervarix for prevention of cervical cancer
• Pazopanib for renal cell carcinoma
• Promacta for thrombocytopenia (initially ITP)
• Rezonic for post-operative and chemotherapy-induced nausea and vomiting
• Ofatumumab (HuMax-CD20) for follicular lymphoma (F-NHL) and chronic lymphocytic leukemia
Approvals and filings
So far this year, GSK has successfully launched in the USA: Tykerb for breast cancer, Coreg CR for heart conditions, Veramyst for allergic rhinitis and Altabax for impetigo. GSK continues to see good progress of other key late-stage assets, including:
Cervarix – in July GSK launched
for prevention of cervical cancer, in Australia for use in females
aged 10 to 45 years. A positive opinion was also received from
European regulatory authorities in July.
Trexima – the FDA action date for Trexima, a new treatment for migraine, is 1st August. Subject to approval, GSK plans to launch Trexima in Q3 2007.
Gepirone ER – in May, the FDA accepted the amended new drug application for the use of Gepirone ER to treat major depressive disorder and the file is under review. The FDA action date is 2nd November.
Rotarix – was filed in the USA in May. If approved, Rotarix will be the only vaccine against rotavirus induced gastroenteritis in the USA that offers completion of dosing by four months of age. Rotarix is already approved in Europe and many International markets.
Kinrix (DTaP-IPV combination vaccine) – a filing for potential use as a paediatric booster vaccine, to immunise children of 4 to 6 years of age, was accepted by the FDA in June.
CONSUMER HEALTHCARE UPDATE
Record quarterly sales growth of 18% to £899 million, driven by strong performance of OTC medicines and key brands, Lucozade, Aquafresh and Sensodyne
Second quarter sales grew 18% to £899 million with all regions contributing strong sales growth. In North America sales grew 51% to £278 million benefiting from the successful launch of alli. In Europe, sales grew 5% to £384 million and International sales were up 10% to £237 million.
• Over-the-counter (OTC) medicine sales grew 29% to £446 million driven by the successful US launch of alli in June, which contributed sales of £76 million and strong growth of Panadol, up 12% to £57 million. Sales of newly acquired brands, BreatheRight and FiberChoice, were £18 million for the quarter.
• Oral care sales grew 9% to £266 million. Sales of Sensodyne grew 13% to £74 million, benefiting from the new Pronamel product. Sales of the Aquafresh product line grew 20% to £80 million benefiting from the launch of Aquafresh White Trays and new toothpaste Aquafresh White & Shine.
• Nutritional healthcare products sales grew 9% to £187 million. Lucozade grew 17% to £94 million benefiting from the launch of new flavours. Sales of Horlicks grew 14% to £42 million and sales of Ribena declined 9% to £41 million.
These results have been prepared under International Financial Reporting Standards as adopted for use in the European Union (see ‘Accounting Presentation and Policies’ on page 21).
Balance sheet review
GSK has recently completed a review of its balance sheet and current levels of debt financing. The review considered the future financing requirements of the company, including the need to retain strategic flexibility, a capacity to absorb unforeseen costs, retention of a debt rating which allows unrestricted access to the debt markets, the Group’s current tax structure and limits on tax deductibility which restrict potential earnings per share enhancement derived from increased debt.
Share buy-back programme
The review has concluded that it is in the interests of shareholders for the company to increase the level of debt carried on its balance sheet by initiating a significantly increased return of capital. Having considered several options, the company has concluded that the most efficient mechanism for returning this capital should be via a substantial increase in its share buy-back programme. Consequently GSK is increasing its share buy-back programme to £12 billion (representing a £7.7 billion net increase compared to continuation of the existing programme). This is expected to be completed over the next two years. GSK continues to believe that the company’s strategy of building an innovative R&D pipeline of new products will deliver long-term value to shareholders. GSK will continue to align its financial policy towards this objective, whilst continuing to seek to improve financial returns to shareholders.
The company will also continue to increase cash returns to shareholders through its dividend policy. Dividends remain an essential component of total shareholder return and the company is committed to growing its dividend over the long-term.
The Board has declared a Q2 2007 dividend of 12 pence per share. This compares with a dividend of 11 pence per share for Q2 2006. The equivalent interim dividend receivable by ADR holders is 49.4712 cents per ADS based on an exchange rate of £1/$2.0613. The ex-dividend date will be 1st August 2007, with a record date of 3rd August 2007 and a payment date of 11th October 2007.
Operating profit and earnings per share
Operating profit of £1,929 million increased by 9% in CER terms compared with Q2 2006 and was above turnover growth of 3% in CER terms, reflecting lower R&D costs and higher other operating income. Other operating income was £97 million in Q2 2007 (Q2 2006: £45 million), including royalty income of £49 million, (an increase of £27 million) and a reduction in the fair value charge in respect of financial instruments, partially offset by lower asset disposal profits.
In the quarter, gains from asset disposals were £55 million (£91 million in 2006), costs for legal matters were £103 million (£123 million in 2006), fair value movements on financial instruments resulted in a charge of £12 million (charge of £69 million in 2006) and charges related to restructuring programmes were £27 million (gain of £4 million in 2006).
Profit after taxation grew by 10% in CER terms, 1% above the growth in operating profit due to a lower expected tax rate for the year, partially offset by higher net interest costs.
EPS of 24.0 pence increased 11% in CER terms (3% in sterling terms) compared with Q2 2006. The adverse currency impact of 8% on EPS reflected the strength of sterling against the US dollar and most other major currencies.
The Q2 2007 results are based on average exchange rates, principally £1/$1.98, £1/Euro 1.47 and £1/Yen 240. The period-end exchange rates were £1/$2.01, £1/Euro 1.49 and £1/Yen 248. If exchange rates were to hold
Posted: July 2007