GlaxoSmithKline CEO Andrew Witty has taken a lot of heat for his recent strategy, which involved bulking up in the traditionally low-margin areas of vaccines and consumer health. But both of those businesses came through for the company in Q1--a performance he took as validation.
The company reported revenues of £6.23 billion that topped analyst expectations by more than £200 million thanks to individual beats from the two units; vaccines put up £882 million to surpass consensus estimates of £792 million and grow by 14% year-over-year on a pro forma basis, while £1.76 billion in consumer revenue--a 4% year-over-year pro forma rise--outdid the £1.67 billion analysts thought they’d see.
That sales haul--in addition to an improved 17.2% operating margin in the consumer unit--also spurred an EPS beat, with profits of 19.8 pence per share beating out Wall Street’s 18 pence-per-share prediction. That mark represented an 8% year-over-year expansion in constant currencies, and the pharma giant now expects EPS growth for the year to reach between 10% and 12%, it said.
“A rebound has started, if measured from the rather deep hole that had been dug,” Bernstein analyst Tim Anderson wrote in a note to clients.
Witty--who, amid a wave of criticism from breakup-happy investors recently announced he’d be stepping down next year--was quick to talk up “the progress we have made in our strategy” in a statement and on the quarterly conference call. And analysts tried to figure out whether GSK would be sticking by that strategy--built to dodge the pricing pressures that have sent aging respiratory behemoth Advair into a recent tailspin--with a slew of succession questions for the chief exec.
While Witty didn’t give away too much, he did stress to investors that the board is unified around the path the company has been following, providing “one very key dimension of this equation.” Though ultimately, whoever follows him in Glaxo’s top spot--be it a newcomer or an internal hire--will “have it up to them individually to set their own priorities.”
Meanwhile, until the time comes to pack his bags, Witty says he’ll be “very focused on executing,” which will entail wrapping up the integration of the vaccines and consumer assets it nabbed from Novartis in a 2015 asset swap and continuing the momentum of its new pharma products, which now represent 20% of total pharma sales. HIV meds Tivicay and Triumeq have led the charge on that front, and they turned in another solid performance in Q1.
And as for Advair, which continued its downward spiral and could soon face generic competition? He’s not going to worry too much about it. The timing of copycat products’ rollouts, how switchable they’re perceived to be with the branded med, what volume they hit--all of those factors and more “can have enormous implications,” he said, pointing out that even if a window for knockoffs potentially opens in a year or so, “that window still has great uncertainties in it.”
Plus, because of the pricing squeeze payers have put on Advair--forcing Glaxo to plunge its price on the drug--“we’ve already absorbed a big chunk of the genericization effect,” Witty said. And with the contribution of the company’s new products factored in, the way he sees it, it’s a “very, very positive picture.”
- read the release (PDF)
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