GlaxoSmithKline's ($GSK) second-quarter results are about what you'd expect: Sharply curtailed Avandia sales, now that the drug is withdrawn in Europe and restricted in the U.S. Big declines in flu-related drugs and shots, now that GSK isn't benefiting from pandemic sales. And suffering sales of Valtrex, the antiviral that fell off patent at the end of 2009. All of this adds up to a 2% decline in overall revenues.
But the operative word throughout GSK's earnings statement was "underlying sales growth." Backing out the effects of Avandia, Valtrex and flu fighters, the company's sales grew by 5%. It sounds disingenuous--like a used car salesman dismissing a dented fender because the rest of the car looks shiny-new. In this case, however, Glaxo is trying to point out that, with any luck, better numbers lie just ahead.
"[T]he drag from these three factors is now set to decline significantly," CEO Andrew Witty points out, promising that "underlying sales growth" will become "sustainable reported sales growth" on the advent of 2012.
The rest of Glaxo's report, like the rest of Big Pharma's Q2 results so far, reflect current industry trends; sales in U.S. and Europe are on the wane, thanks in part to pricing pressures from cash-strapped governments. Cost-cutting helped deliver bottom-line improvements, and that drive will continue. The company has already identified another £300 million worth of cuts to annual spending, bringing the restructuring savings to £2.5 billion a year. Plus, GSK is eyeing more cost reductions, some of which mimic Novartis' efficiency efforts, namely supply-chain and procurement efficiencies, and cash-conversion improvements.
GSK's numbers also illustrate Witty's ongoing strategies, particularly the push into emerging markets. Sales outside U.S. and Europe grew in the double digits, and they now account for 37% of the company's underlying sales. "We are well on track in the delivery of our strategy," Witty said.