Sector News

GSK chief: We don't need a breakup or a Pfizer deal

October 28, 2015
Life sciences

GlaxoSmithKline surpassed Wall Street’s earnings estimates in Q3, with lower spending in vaccines and consumer health largely driving the beat. But that’s not to say it didn’t turn in a couple of standout sales performances.

In particular, its HIV drugs unit–ViiV Healthcare–shot up by 67% year-over-year, with Tivicay delivering sales that expanded by 101%. Flu vaccines Fluarix and FluLaval grew by 56%, with sales of £190 million helping the vaccines unit hit the £1.18 billion mark and surpass analysts’ £1.08 million consensus.

Overall, revenue of £6.13 billion met expectations, and EPS of 23 pence topped the Street’s 19.3 pence prediction. Declines in SG&A and R&D spending helped GSK get there, as it worked to integrate the vaccines and consumer health assets it picked up in this year’s multibillion-dollar asset swap with Novartis. In short, the performance represents “the first green shoots of margin recovery, with the caveat that this is a single quarter’s worth of results,” Bernstein analyst Tim Anderson wrote in a note to clients.

The way Glaxo sees it, things will only be getting better from here. Its troubled respiratory unit will head into 2016 with the “best coverage we’ve ever had,” CEO Andrew Witty told investors, which should help slow-starting products Breo and Anoro pull their weight.

Securing that coverage means GSK will face yet another reduction in the price of aging giant Advair, which has seen sales plummet as the company traded discounts for formulary placement. But the rate of decline is decelerating, Witty promised investors, noting that “the give is not as great as it has been for the last couple of years.” As for any forthcoming generics of the drug–which have so far evaded knockoffs-makers in the U.S.–“we are less concerned about the threat than we were,” he said.

With that in mind, the British drugmaker is “very happy” with the strategy it’s laid out–one that focuses on volume in low-margin businesses like vaccines and consumer health, dodging much of the pricing pressure that’s been dogging some of its pharma peers. And that was the response Witty gave when asked about a potential takeover advance from Pfizer, whose chief exec said Tuesday is still very much interested in a tax inversion.

“We think it’s the right strategy to face a world of uncertainty, price pressures and dynamic change,” Witty told shareholders. “We think there is a very significant benefit of being focused on execution of that strategy. As a consequence, that is very much where our attention is devoted.”

And his response to a recent call for a Pfizer-style break-up from influential investor Neil Woodford? The pharma giant has already looked at an established products sale, but “that just wasn’t a good economic transaction to do,” Witty said. Instead Glaxo is focusing on how to “extract more margin from that business” that can then be redeployed.

Glaxo earlier this year considered divesting ViiV, too, and during that process, shareholders gave “very strong feedback that we should retain that business,” Witty reminded listeners, pointing out that over the course of that period expectations for the business grew “almost exponentially.”

“We took the decision not to separate it because we believed we were the best owners,” he said. “… And I think we’ve been vindicated since.”

By Carly Helfand

Source: Fierce Pharma

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