GSK Reports Third Quarter EPS of 23.7p; Significant new Operational Excellence Programme Announced

Results Announcement for the third quarter 2007

LONDON, Oct. 24, 2007-GlaxoSmithKline plc (GSK) today announces its unaudited results for the third quarter ended 30th September 2007. The full results are presented under ‘Income Statement’ on pages 7 and 8, and are summarised below.

FINANCIAL RESULTS*

Q3 2007£m Q3 2006£m

Growth

9 months 2007 9 months 2006

Growth

CER%

£%

£m

£m

CER%

£%

Turnover

 5,476

5,642

1

(3)

16,742

17,266

3

(3)

Operating profit

1,910

2,023

(1)

(6)

6,005

6,108

6

(2)

Profit before tax

1,882

2,022

(2)

(7)

5,921

6,089

5

(3)

Earnings per share

23.7p

24.7p

1

(4)

74.7p

74.5p

9

-


 

SUMMARY*

  • Group turnover up 1% to £5.5 billion; pharmaceutical turnover down 2% to £4.6 billion impacted by generic competition in the USA and a decrease in Avandia sales:
    • Seretide/Advair +7% to £835 million - Valtrex +13% to £229 million
    • Vaccines +49% to £593 million - Avandia products -38% to £225 million
    • Lamictal +14% to £275 million - Zofran -86% to £32 million
  • Consumer Healthcare delivers strong Q3 performance with sales up 16% to £871 million:
    • OTC sales up 24% to £417 million, with new weight loss treatment alli contributing £34 million
  • New Operational Excellence programme to deliver annual pre-tax cost savings of up to £700 million by 2010 and improve GSK’s long-term productivity and efficiency:
    • £350 million of pre-tax cost savings expected in 2008
    • Savings will partly mitigate the expected impact to 2008 earnings from generic competition and lower Avandia sales in 2008
    • Charges of approximately £1.5 billion expected over the period 2007-2010.
  • Q3 dividend of 13p (2006: 12p). Expected full year dividend increased 10% to 53p (2006: 48p)
  • £1.7 billion of shares repurchased as part of £12 billion share buy-back programme (1st August to 23rd October)
  • GSK expects earnings per share growth of 8 to 10% at constant exchange rates in 2007, excluding charges related to its new Operational Excellence programme
  • R&D Neuroscience seminar announced – 13th December 2007, New York

* 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.

Commenting on the performance in the quarter and GSK’s new Operational Excellence programme, JP Garnier, Chief Executive Officer, said: “GSK remains on track to meet its earnings guidance for the year, despite significant challenges. We continue to strengthen our product portfolio with 15 products launched, approved or filed so far this year, and we remain very focused on delivering more from our late-stage pipeline. We are also increasing R&D investment in key areas of future growth, such as biopharmaceuticals, oncology, vaccines and neuroscience.

GSK is also constantly seeking ways to adapt its operations and its cost base to remain competitive. Operational Excellence is part of our culture and in our new programme we will be accelerating and expanding many initiatives to improve GSK’s productivity. This will include streamlining our manufacturing, adapting our selling model and improving efficiencies in R&D.

We are very conscious that these initiatives will impact our staff in certain areas of our business and we regret that job reductions will be a necessary part of this programme. We will do everything we can to support those employees who are affected. However, by making the changes we envision, GSK will be better placed to address the challenges we face in 2008 and be in a stronger position to create long-term value for patients and shareholders.”

PHARMACEUTICAL UPDATE

Total pharmaceutical turnover fell by 2% to £4.6 billion. In the United States, turnover fell 7% to £2.2 billion, impacted by continued generic competition and a reduction in Avandia sales. In Europe turnover was up 1% to £1.3 billion, with sales growth of vaccines and newer products offsetting generic competition to older products and further price cuts mandated by European governments. Sales in International were £1.0 billion, up 9%, with good growth seen in emerging markets including India and China.

Seretide/Advair sales up 7% to £835 million

Total sales of Seretide/Advair, for asthma and COPD, were up 7% to £835 million. In the USA, sales grew 5% to £452 million. Estimated underlying US growth of Advair in the third quarter was 8%. In Europe, sales grew 8% to £293 million and in International sales grew 15% to £90 million.

In the USA, new treatment guidelines issued by the National Institute of Health were published in August and support the use of combination therapies, such as Advair, as initial therapy in moderate or severe patients with asthma. GSK also continues to see increased use of Advair in the treatment of COPD and is in ongoing discussions with the FDA to expand product labelling for use of Advair in this patient group.

Vaccine sales up 49% to £593 million; impressive US performance driven by flu and hepatitis vaccines In the USA, vaccine sales rose 97% to £237 million. Sales growth was driven by orders for flu vaccines, Fluarix and FluLaval, which together contributed sales of £93 million and continued good performance of Infanrix/Pediarix, (+40% to £58 million), and hepatitis vaccines (+82% to £66 million). In August, the FDA accepted a marketing application for Rotarix, GSK’s vaccine to prevent rotavirus gastroenteritis in infants.

Sales in Europe grew 22% to £206 million also benefiting from demand for flu vaccines. Sales in International markets grew 35% to £150 million, with increased use of Rotarix and successful tenders for Varilrix and Priorix.

Following approval by the EMEA in September, GSK has recently launched Cervarix, its vaccine to prevent cervical cancer, in 12 European markets, including the UK, Germany and Belgium. Further launches are expected in other European markets during the fourth quarter. Cervarix has already been approved in several International markets, and in September was the first vaccine of its type to be filed in Japan. GSK also filed Cervarix for WHO prequalification in September as part of its commitment to making the vaccine available in the developing world.

Avandia product group sales declined 38% to £225 million

Sales of the Avandia product group, for the treatment of type 2 diabetes, fell 38% to £225 million for the quarter, with US sales down 48% to £130 million. Sales in European and International markets declined 11% to £50 million and 22% to £45 million respectively.

On 30th July, an FDA Advisory Committee met to discuss the potential cardiovascular risks associated with the use of thiazolidinediones, with a specific focus on Avandia. The FDA is currently reviewing the committee’s recommendations.

Lamictal, Valtrex and Requipcombined sales grew 16% to over £550 million

Sales of Lamictal, for the treatment of epilepsy and bipolar disorder, grew 14% to £275 million, with strong sales performance in the USA, up 20% to £224 million. In September, GSK received an FDA approvable letter for Lamictal XR, a once-daily extended-release treatment for epilepsy. The company is discussing with the FDA the next steps for the application.

Sales of Valtrex, for herpes, rose 13% to £229 million, with US sales up 11% to £162 million. Sales of Requip, for Parkinson’s disease and restless legs syndrome (RLS), grew 31% to £87 million in the quarter, driven by strong sales in the USA, up 39% to £59 million. In August, GSK received an approvable letter for Requip 14hr for treatment of RLS. A decision from the FDA on the marketing application for Requip 24hr for Parkinson’s disease is expected in December.

Other key growth drivers contribute £154 million of sales in third quarter:

Avodart, for enlarged prostate, continued to perform strongly with sales up 33% to £72 million. During the quarter, GSK announced new results from the CombAT study – combination therapy with Avodart and tamsulosin. These data, which have been submitted to regulators, showed that Avodart and tamsulosin in combination provide significantly greater urinary symptom improvement for men with enlarged prostate than either treatment used as monotherapy.

GSK’s share of the co-promotion income for Boniva/Bonviva, the only once-monthly medicine for postmenopausal osteoporosis, was up 56% to £41 million. Sales of Arixtra, a once-daily anticoagulant, doubled to £25 million. During the quarter Arixtra was also approved in Europe for the treatment of acute coronary syndromes.

Sales of Tykerb, for breast cancer, were £16 million in the quarter with the product continuing to gain share of the Her2+ metastatic breast cancer market.

Other products

Total sales of HIV products were £360 million, up 3%, with strong sales growth from new products Epzicom/Kivexa (+33% to £80 million) and Lexiva (+19% to £37 million) offsetting competition to older products, Combivir (-4% to £115 million) and Epivir (-13% to £38 million).

Sales of Relenza, GSK’s anti-viral for influenza, were £28 million, down 7%, reflecting lower demand from governments to stockpile it for use in the event of a flu pandemic.

Sales of Zofran (-86% to £32 million), Flixonase/Flonase (-23% to £49 million) and Wellbutrin XL (-41% to £114 million ) decreased as a result of generic competition to these products.

Total sales of Coreg IR and Coreg CR, for heart conditions, were £145 million, down 20%, reflecting generic competition to Coreg IR which began in September. Sales of Coreg CR were £31 million during the quarter.

PHARMACEUTICAL PIPELINE UPDATE

Neuroscience seminar

GSK today announced that it intends to hold a meeting for investors and analysts on 13th December in New York, to focus on products in its clinical pipeline for the treatment of neuroscience diseases and disorders, such as Alzheimer’s, schizophrenia, multiple sclerosis and depression.

R&D pipeline

Earlier this month, the company published an update on its R&D pipeline . GSK currently has 149 projects in clinical development comprising 89 NCEs, 37 PLEs and 23 vaccines. GSK has 33 key assets currently in phase III development or registration.

GSK has recently signed three major in-licensing agreements, further strengthening its late-stage pipeline in key therapeutic areas: oncology, auto-immune diseases and neuroscience.

STA-4783 – a first in class oxidative stress inducer, for the treatment of metastatic melanoma, was in-licensed from Synta Pharmaceuticals. STA-4783 is in phase III clinical development.

Otelixizumab (TRX4) – a novel anti-CD3 monoclonal antibody, currently in phase II development for type 1 diabetes and in phase I development for psoriasis, was in-licensed from Tolerx.

Lunivia – an agreement to market Lunivia, a new treatment for insomnia, worldwide (excluding the USA, Canada, Mexico and Japan), was completed with Sepracor. A marketing application for Lunivia was submitted to the EMEA in July.

Approvals and filings

GSK received a positive opinion from European regulatory authorities in October for use of Avamys to treat allergic rhinitis in adults and children. Also in October, the FDA approved Hycamtin capsules for the treatment of relapsed small cell lung cancer.

In August, Atriance was approved in Europe for the treatment of patients with T-cell acute lymphoblastic leukaemia (T-ALL) and T-cell lymphoblastic lymphoma (T-LBL).

Responses have also been submitted to the FDA following requests from the agency for additional information on Entereg, for management of post-operative ileus, and Trexima, for migraine.

CONSUMER HEALTHCARE UPDATE

Continued strong quarterly sales growth of 16% to £871 million, driven by strong performance of OTC medicines and key brands, Lucozade, Aquafresh and Sensodyne In North America sales grew 35% to £240 million benefiting from the launch of alli and the integration of new brands, Breathe Right and FiberChoice, which were acquired in 2006. In Europe, sales grew 8% to £386 million and International sales were up 14% to £245 million.

Over-the-counter (OTC) medicine sales grew 24% to £417 million, reflecting the successful launch of alli in the USA, which contributed sales of £34 million, and strong growth of Panadol, up 13% to £60 million. Combined sales of Breathe Right and FiberChoice were £22 million for the quarter, and grew 24% compared with the same period last year, when marketed by CNS Inc.

Oral care sales grew 11% to £260 million. Sales of Sensodyne grew 23% to £75 million, benefiting from the introduction of the new Pronamel brand. Sales of the Aquafresh product line grew 12% to £75 million benefiting from the launches of Aquafresh White Trays, Aquafresh Advance and Aquafresh IsoActive gel.

Nutritional healthcare product sales grew 8% to £194 million. Lucozade grew 12% to £95 million benefiting from the launch of new flavours. Sales of Horlicks grew 18% to £47 million while sales of Ribena declined 7% to £41 million.

FINANCIAL REVIEW

Operational Excellence

GSK today announced a significant new £1.5 billion Operational Excellence programme to improve the effectiveness and productivity of its operations. Operational Excellence programmes have been a key part of the company’s financial strategy for several years and have delivered cost savings and process improvements in a wide variety of business areas.

The new programme is expected to deliver total annual pre-tax savings of up to £700 million by 2010 with savings realised across the business: manufacturing (40%); selling and administration (40%) and R&D infrastructure savings (20%). GSK expects to realise the majority of annual savings within the first two years of the programme, with approximately £350 million expected by 2008 and £550 million by 2009. These savings will partly mitigate the expected impact to 2008 earnings from generic competition and lower Avandia sales and the associated adverse impact on GSK’s gross margin.

The new programme will accelerate and expand many initiatives to improve productivity and efficiency, including further streamlining of manufacturing, adapting GSK’s selling model and improving efficiencies in R&D.

In manufacturing, GSK will reduce the overall number of sites operating in its network and simplify processes and site activities to reduce over-capacity. The company will also continue to seek opportunities to outsource manufacture of existing products and for low-cost sourcing of materials, whilst focusing its capability on new products.

GSK will continue to adapt its selling model. As a result of its changing product portfolio, GSK has already expanded its capabilities into specialist areas such as oncology and vaccines. GSK has also conducted several sales force pilot initiatives to assess new sales structures and selling techniques. Results from these initiatives have provided GSK with new opportunities to evolve its traditional selling methods competitively, including adopting more tailored and customised sales approaches in both developed and emerging markets.

In R&D, GSK will continue to invest in the development of its promising late-stage pipeline and will increase investment in key areas of future growth, such as biopharmaceuticals, oncology, vaccines, neuroscience and emerging markets such as China. Cost savings in R&D will be focused on simplification and streamlining of support infrastructure.

Total one-off costs for implementation of the new programme are expected to be approximately £1.5 billion, incurred over the period 2007 to 2010. In total, approximately 70% will be in cash expenditures and 30% will be in accounting write-downs.

GSK business units will implement the new programme consistent with their business needs. Any proposed initiatives, including outsourcing, site closures and staff reductions will be subject to consultations with staff, works councils, trade unions and other employee representatives in accordance with applicable employment legislation.

From Q4 2007, GSK will introduce a 3-column approach to the income statement. ‘Business performance’ will show GSK’s underlying results excluding the one-off costs of the programme. The middle column will show the one-off costs related to the new Operational Excellence programme and the ‘Total’ column will show the full IFRS statutory results.

Earnings guidance is now given on the business performance basis, excluding the costs of the new Operational Excellence programme.

Dividends

The Board has declared a Q3 2007 dividend of 13 pence per share. This compares with a dividend of 12 pence per share for Q3 2006. The equivalent interim dividend receivable by ADR holders is 53.2584 cents per ADS based on an exchange rate of £1/$2.0484. The ex-dividend date will be 31st October 2007, with a record date of 2nd November 2007 and a payment date of 10th January 2008. The full-year dividend for 2007 is expected to be 53 pence compared with 48 pence in 2006.

Share buy-back programme

Following the announcement in July 2007 of a two-year £12 billion share buy-back programme GSK repurchased £1.7 billion of shares in the period 1st August to 23rd October, to be held as Treasury shares.

Operating profit and earnings per share

Operating profit of £1,910 million decreased by 1% in CER terms compared with Q3 2006 and was below turnover growth of 1% in CER terms, reflecting higher legal charges and lower other operating income partially offset by lower R&D costs.

In the quarter, gains from asset disposals were £22 million (£63 million in 2006), costs for legal matters were £64 million (£22 million in 2006), fair value movements on financial instruments resulted in a charge of £31 million (income of £22 million in 2006) and charges related to restructuring programmes were £13 million (£124 million in 2006).

Profit after taxation decreased by 1% in CER terms, in line with the decrease in operating profit as a lower expected tax rate for the year was offset by higher net interest costs.

EPS of 23.7 pence increased 1% in CER terms (4% decrease in sterling terms) compared with Q3 2006. The adverse currency impact of 5% on EPS reflected the strength of sterling against the US dollar.

Currencies

The Q3 2007 results are based on average exchange rates, principally £1/$2.03, £1/Euro 1.48 and £1/Yen 237. The period-end exchange rates were £1/$2.04, £1/Euro 1.43 and £1/Yen 234. If exchange rates were to hold at the Q3 2007 average level for the remainder of 2007, the adverse currency impact on EPS growth for the full-year would be around 7%.

2007 earnings guidance

GSK expects business performance earnings per share growth of 8 to 10% at constant exchange rates in 2007, excluding charges related to the new Operational Excellence programme.

GlaxoSmithKline – one of the world’s leading research-based pharmaceutical and healthcare companies – is committed to improving the quality of human life by enabling people to do more, feel better and live longer. For company information including a copy of this announcement and details of the company’s updated product development pipeline, visit GSK at www.gsk.com.

Enquiries:

UK Media

Philip Thomson

Claire Brough

Alice Hunt

Joss Mathieson

(020) 8047 5502

(020) 8047 5502

(020) 8047 5502

(020) 8047 5502

US Media Nancy Pekarek

Mary Anne Rhyne

(215) 751 7709

(919) 483 2839

European Analyst / Investor David Mawdsley

Sally Ferguson

(020) 8047 5564

(020) 8047 5543

US Analyst / Investor Frank Murdolo

Tom Curry

(215) 751 7002

(215) 751 5419

Brand names appearing in italics throughout this document are trademarks of GSK or associated companies with the exception of Levitra, a trademark of Bayer, Bonviva/Boniva, a trademark of Roche and Vesicare, a trademark of Astellas Pharmaceuticals in many countries and of Yamanouchi Pharmaceuticals in certain countries, all of which are used under licence by the Group.

Cautionary statement regarding forward-looking statements

Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, the company cautions investors that any forward-looking statements or projections made by the company, including those made in this Announcement, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Factors that may affect the Group's operations are described under ‘Risk Factors’ in the ‘Business Review’ in the company’s Annual Report 2006.

For full report, see attachment

Posted: October 2007


View comments

Hide
(web3)