New GlaxoSmithKline chief Walmsley makes early mark with sweeping pharma overhaul

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GlaxoSmithKline is in for some significant changes as new CEO Emma Walmsley looks to build pharma sales.

Big changes are afoot at GlaxoSmithKline as new CEO Emma Walmsley puts her own stamp on the U.K.'s largest drugmaker, with plans to get more from the company’s pharmaceuticals unit, including a major overhaul of R&D.

On the surface, Walmsley appears to be following the playbook given to her by her predecessor Andrew Witty, with a focus on pharmaceuticals, consumer health and vaccines. But below the surface the approach is all her own.  

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In her first earnings call since taking the top spot, she said the company will dump or divest about 30 R&D programs to focus on respiratory medications and HIV in particular, as well as exploring oncology and immuno-inflammation.

The shakeup will not affect just that unit, however. To find an additional £1 billion in annual cost savings by 2020 to fund its R&D and expand vaccines capacity, GSK will look to further streamline manufacturing, rid itself of 130 brands—products that have less than £500 million in annual sales—and extract savings from the supply chain.   

Walmsley said today that the company over time expects to reduce its pharma brands by 22%, and reduce its manufacturing network along the way.

The Big Pharma player expects the launch of at least one generic of its top-selling respiratory med Advair between now and 2020, but reiterated its guidance of sales sales growth at low-to-mid single digit percentage rates through 2020 and earnings per share at mid-to-high single digit percentage rates.

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“To deliver this outlook we have a lot of work to do,” she said during the investor presentation in which she outlined her plans in a 45-minute presentation. “The biggest change will be felt along our pharmaceutical business,” which she pointed out did not benefit from the same major boost from the 2015 asset swap with Novartis that the vaccines and consumer health businesses enjoyed.

All of these changes will happen even as the company is sensitive to pricing pressures from payers and the public, which Walmsley said has long been an issue in Europe but is now “a big concern in the U.S.”

The grand plan was laid out today as the U.K.’s largest drugmaker reported a 12% percent rise in adjusted earnings per share to 27.2 pence on revenues that were up 12% to £7.32 billion ($9.53 billion). That included pharmaceutical sales of £4.4 billion, up 3% in constant exchange rates, vaccines sales of £1.1 billion, up 5% CER and consumer healthcare sales of £1.9 billion, flat at CER.

Bernstein analyst Tim Anderson pointed out in the note to clients that GSK lowered 2017 guidance—up 3% to down 5% on core earnings per share—from up 5% to down 7%, with continued loss in Advair sales. 

While lauding the company’s success, Walmsley acknowledged the company is seeing a marked slowdown in growth of sales of Advair, which was down 14% CER to £848 million for the second quarter, as well as from hit and miss R&D projects in recent years.

“While recent delivery is encouraging it has to be set against the longer term context,” Walmsley said. “The reality is that longer term sales growth has been slower.”

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To turn that around, she said the company will look at bringing in fresh talent from outside the company. She has already hired Luke Miels from AstraZeneca to head the global pharma operations, Tony Wood from Pfizer as the new senior vice president, platform technology and science for pharma R&D, and yesterday announced the appointment of former Walmart Stores executive Karenann Terrell to the new senior position of chief digital and technology officer to help the company harness data and digital to push forward.

She said employees will have new expectations, including displaying “courage in decision making,” but also will be rewarded with a new incentive plan that will be rolled out next year.