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GSK blames respiratory woes as sales drop

Published on 05/02/15 at 07:57am
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GlaxoSmithKline’s respiratory business has been flagged as the key factor in the firm’s fourth quarter financial misfortunes, as its total sales drop by 8% since the same period last year.

US losses relating to lung drug Advair and heart pill Lovaza have hit the British company hard, leaving adjusted net cash from its operations down 20%, raking in £5.9 billion for the year. Adding to that, profits have also seen a decline of £2.5 billion over prior year.

Speaking via a webcast on GSK’s website, chief executive Sir Andrew Witty declares: “Last year our environment was dynamic to say the least.” Before adding: “Having said that I am very pleased with the position we now have in terms of our contractual cover going forward into 2015 and 2016.”

Citing strong evidence of emerging market volume and with ‘demand that is growing’ however, Sir Andrew says this will present much opportunity for GSK as it expands its footprint there. “For 2015 we want to rebuild our sales growth momentum, after the challenges of last year we have some opportunities to do that. Especially from our recently-launched product portfolio.”

Tellingly he notes the pharma giant will “continue to focus on our costs and restructuring programmes, where we’ve already taken substantial costs out of the business”.

Last year was a tough one for GSK, which was saw the firm continue to get hit by both declining sales of blockbuster Advair, and a record fine over allegations of corruption in its business in China.

Sir Andrew confirmed on the back of these latest results that his target is now to return its respiratory business to growth next year, pinning hopes on newer products like its Anoro Ellipta inhaler and Breo to gain headway in the market, which have got off to a slow start.

Ketan Patel, an analyst at Ecclesiastical Investment Management, says of GSK’s future: “The key in 2015 will be the ability of management to deliver on the cost-cutting programme, the pipeline and stabilising the revenues in respiratory, all of which should not be underestimated.”

GSK’s other big news of course is its major pact with Swiss rivals Novartis, that is to see the manufacturers combine their consumer health units under GSK’s majority (63.5%) control, while also in effect swapping some of their major assets.

Patel says that the strategic options available to GSK post any deal with Novartis, include potential asset disposals, especially the HIV joint venture with Pfizer, which will naturally give the firm financial flexibility going forward.

That potential looks to be taking shape sooner rather than later now as Sir Andrew has just told Reuters his company would take the next two to three months to analyse the pros and cons of an initial public offering (IPO) regarding its HIV meds unit ViiV, along with deciding how much of it to sell.

Apparantly GSK will then decide around mid-year whether to go ahead with the float.

Patel adds: “If the board decide to cut the dividend in 2016 it would be a watershed moment, as no large cap pharmaceutical company has cut its dividend, excluding M&A deals, since the turn of the century.

Keen to highlight a company in the midst of a transformation, Sir Andrew says: “The Novartis transaction itself, once approved, will have a very substantial impact on the company. It changes the shape of the business. It is an important part of rebalancing the group’s future.”

Brett Wells

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