GlaxoSmithKline sales tick up, but China probe will hit growth

GlaxoSmithKline's second-quarter results took a back seat to the goings-on in China. But the numbers tell their own kind of story: Sales are up just a tick. Profits dropped, falling short of analyst expectations. The company's planned sell-offs are on track. And three new product approvals have come through this year, including Breo Ellipta, a follow-up to the company's big-selling lung drug Advair.

In other words, it's a sort of chug-chug-chug toward the company's long-term goals. With quarterly sales at £6.62 billion ($10.15 billion) and EPS at 26.3 pence, Glaxo ($GSK) beat analyst expectations, Reuters says. The company's full-year forecast remains unchanged--except for sales in China, but we'll get to that in a minute.

Overall, emerging markets, a key segment of CEO Andrew Witty's growth strategy, grew by 4% for the first half of the year, with sales of £2.562 billion ($3.928 billion). Two new launches, another on the way, and three more drugs filed for approval are signs that GSK can "deliver valuable new product flow on a sustainable basis," he said in a statement. The company is gearing up now for the roll-out of Breo Ellipta, which it's expecting to start this quarter or next.

As for "simplifying" the company's operations, GSK took £173 million worth of restructuring charges for the quarter, including £90 million under the "Operational Excellence" cost-cutting program. GSK's R&D expenses were down, but SG&A was up, partly because of a one-time pension adjustment. And the paring off of various assets continues: Aspen Pharmacare's deal for a couple of hypertension remedies amounts to about £700 million, the company says, and its sale of the drinks brands Lucozade and Ribena is expected to wrap by year's end.

Ironically enough, sales in China were up 14% for the quarter. That's not expected to continue. The company says the Chinese corruption probe will dig into sales there, though it's too early to determine the extent of the pain. Notwithstanding the troubles in China, the company expects these fast-growing countries to keep fueling its own sales increases: "Going forward, we continue to expect sales to grow broadly in emerging markets," Witty said.

- read the GSK release (PDF)
- get more from Reuters

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