Editor's note: Adds comments from earnings conference call.
GlaxoSmithKline CEO Andrew Witty is sitting pretty. For the second straight quarter, his much-maligned growth strategy has come through for the drugmaker, which delivered beats on both earnings and revenue.
Sales for the quarter rose by 4% in constant currencies to hit £6.5 billion, topping analyst expectations by about £200 million, Bernstein analyst Tim Anderson wrote in a note to clients. And all three of the company’s units contributed to growth, with vaccines and consumer health making 11% and 7% jumps, respectively.
Glaxo went out on a limb back in 2013 to bulk up in those units, trading away its assets in oncology--a fast-growing, en vogue field--to Novartis in return for the Swiss drugmaker’s vaccines and an OTC partnership. The way Witty saw it, he could increase volume in the traditionally low-margin businesses while dodging the pricing pressure that’s increasingly hurting pharma units across the industry--though investors weren’t convinced.
Now, though, “the rebuilding of GSK is well underway,” Anderson wrote, with those units playing a big role in the turnaround. But the company’s pharma division--which represented another big question mark after its cancer drugs changed hands--also churned out its fair share of sales.
New products “were all ahead of expectations,” Anderson wrote--meaning it wasn’t just GSK’s HIV standouts buoying the unit, as they have in recent quarters. Those meds did continue their hot streak, with Triumeq putting up sales of £409 million and Tivicay chipping in with £225 million. But respiratory therapy Breo also surpassed predictions with £146 million--helping GSK’s respiratory portfolio offset declines from aging giant Advair for the first time ever.
The revenue boost showed through on the bottom line, too, where EPS climbed 24.5 pence in constant currencies. And on that front, Glaxo tweaked its guidance for the year slightly upward, narrowing its previously guided range; it now expects core EPS percentage growth of between 11% and 12% instead of the 10% to 12% range it earlier forecast.
With Witty set to step down next March, it'll be up to the company's as-yet-unnamed incoming CEO to keep the expansion coming--and Witty doesn't intend to tell the newcomer what to do when he hands over the reins. "The last thing a new CEO wants is an instruction manual from a predecessor," he told investors on the earnings conference call.
But whatever path the company takes in Witty's absence, his successor--who won't face the "constant stream" of patent expirations that the drugmaker's seen over the past 7 to 8 years--will be well set up for the future.
"The new CEO has the platform to be able to build growth and focus on how to drive those elements of growth in the vaccine, consumer and pharmaceutical businesses without having to always be taking two steps back before they take one step forward," he said.
- read GSK's release (PDF)
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