GlaxoSmithKline's waiting game continues. The U.K.-based drugmaker ($GSK) posted disappointing profits for the first quarter as sales took a backwards step, partly because of revenue lost in the sale of over-the-counter products. Now, the company is essentially in a holding pattern, counting on new drug approvals this year to reverse its long sales slide. So, analysts' ears pricked up when CEO Andrew Witty said it would sequester some older drug brands in a new division by next January. Is a spin-off coming?
GSK is already selling off two drink brands, saying they no longer fit with its global consumer-health aspirations. It unloaded a set of underperforming over-the-counter products last year. Creating a new, global established products business--comprising such big-name drugs as the heartburn remedies Tagamet and Zantac, and the migraine fighter Imitrex--of course raises the question of a spin-off, particularly because investors have responded so strongly to Pfizer's ($PFE) recent slim-down efforts, including an IPO for its animal health business Zoetis. The sales of those to-be-gathered established products last year amounted to about £3 billion. "[L]ooks like a precursor to a spin-off to us," Jefferies analysts said (as quoted by Reuters).
Deals aside, the company's fate depends on those hoped-for new products. And one decision is coming up soon. An FDA advisory panel backed GSK's new lung drug Breo Ellipta last week, and a final agency decision is due May 12. That's a product that could reach blockbuster status by 2020, Bernstein analyst Tim Anderson has said, pegging sales that year at some £703 million. The new AIDS fighter dolutegravir is on FDA's fast track, with a yea or nay due in mid-August. Three of the 6 products GSK hopes will debut this year are together expected to bring in $3 billion.
Meanwhile, CEO Andrew Witty continues to ask for patience. He hasn't promised a rose garden over the past couple of years; essentially, he's said things would get worse before they got better. But last year, he started pointing to more positive signs, particularly the "underlying sales growth" visible beneath all that patent-cliff pain. Unfortunately, European austerity brought a new level of hurt to GSK, and in February, the company said it would lay off employees in the region to compensate. GSK expects to slash at least £1 billion out of its annual costs by 2016.
This year, Witty says he's expecting revenue growth of about 1%, with earnings up 3% to 4%. If its new products win approval as hoped, next year could mark Glaxo's real post-patent-cliff rebirth. But the company will have to sell those new meds, assuming they win regulators' blessing, and that's not always a given. As Glaxo knows well, considering its disappointment in the lupus treatment Benlysta.
As for the current earnings report, sales fell by 3% to £6.47 billion, or (about $9.9 billion), and operating profit amounted to £1.58 billion, down from £2 billion a year ago, when the company was still reporting revenue from those sold-off products. Core earnings came in essentially flat at 26.9 pence.
- read the GSK release
- see the Reuters news
- get more from Bloomberg
Special Reports: GlaxoSmithKline - Top Pharma Companies by 2012 Revenues | GlaxoSmithKline - Top 10 pharma companies by employees