Forget a consumer spinoff. GlaxoSmithKline is plotting a $525M cost-cutting drive instead

Forget the speculation you’ve heard over the past few days: GlaxoSmithKline is sticking with its three-unit structure, CEO Emma Walmsley told investors Wednesday. And in fact, it’s so committed to that structure that it’s rolling out a cost-cutting plan to make sure all three businesses have the funds they need.

Following reports that GSK’s chairman was discussing a consumer spinoff with the company’s major investors in the wake of its Novartis joint-venture buyout, Walmsley stressed on the drugmaker’s second-quarter conference call that “the board’s position on the group structure is unchanged.”

“We believe that the three-business structure of the group offers significant opportunities in the current healthcare environment and provides GSK with more stability in our earnings,” she said.

That belief is subject to each business “continuing to perform competitively and having access to capital,” though, and to ensure those conditions are met, the British pharma unveiled a restructuring blueprint Wednesday morning. If all goes according to plan, the cost squeeze will deliver £400 million per year in savings by 2021, while costing the company £1.7 billion over the next three years to put into place.

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The savings program “aims to significantly improve the competitiveness and efficiency of the group’s cost base, with savings delivered primarily through supply chain optimization and reductions in administration costs,” CFO Simon Dingemans said on the call. And the company intends to plow those savings directly back into targeted increases in pharma R&D, as well as launches for new products such as shingles vaccine Shingrix.

Speaking of Shingrix, it helped GSK’s vaccines unit steal the Q2 show, with the business hauling in £1.25 billion and growing by 16% year over year in constant exchange rates. The new shot raked in sales of £167 million over the period, prompting a 2018 forecast from GSK of between £600 million and £650 million for the full year.

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The company’s HIV unit also stood out, with sales swelling 11% to £1.19 billion. For the rest of the pharma unit, though, the quarter wasn’t so rosy. While newer respiratory products Trelegy and Nucala got market expansion boosts during the period, Advair continued its downward spiral. Dingemans reiterated his prediction that the drug would decline by 30% over 2018—and that’s if a generic doesn’t hit the market.

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Still, the company was able to take its full-year guidance up a notch on the back of the strong Shingrix start and Novartis consumer health buy, as well as the frustrations wannabe Advair copycats have suffered at the hands of the FDA. If Advair generics don’t make it to market this year, Glaxo expects adjusted EPS growth to reach between 7% and 10%, and if one arrives by Oct. 1, that range will shift to between 4% and 7%.

For the quarter, the company recorded Street-beating earnings of 9 pence per share, while revenue also exceeded expectations at £7.3 billion.