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LONDON (Alliance News) - GlaxoSmithKline PLC on Wednesday said it was on track to achieve its guidance for 2015, and said it remains confident in its outlook for 2016, as exceptional gains from asset sales helped boost profit in its first half.
At the time of its first-quarter results, Glaxo said it expects to see core earnings per share decline at a high-teens percentage rate on a constant currency basis for 2015, mostly due to pricing pressure on obstructive pulmonary disease treatment Advair in the US and Europe, and the dilutive effect of its deal with Novartis AG.
However, Glaxo said then and repeated Wednesday it expects to see significant recovery in core earnings per share in 2016, with percentage growth expected to reach double digits on a constant currency basis.
The FTSE 100-listed pharmaceutical giant posted a pretax profit of GBP10.08 billion for the half year to end-June, increased from GBP1.89 billion a year before primarily, as a result of a GBP8.45 billion gain related to the sale of its oncology business to Novartis.
Glaxo agreed a three-part deal with Novartis last year to sell the Swiss company its its oncology portfolio, buy Novartis' global vaccines business, and create a joint consumer healthcare business. Its second quarter results are its first quarter since the completion of this deal.
Revenue rose to GBP11.51 billion from GBP11.17 billion.
Core operating profit fell by 10% in the first half, although only by 4% in the second quarter. Core results exclude amortisation, impairment, major restructuring costs, acquisition costs, legal charges and other exceptional costs.
Core earnings per share for the half year was 34.5 pence, down from 40.1 pence a year before, and for the second quarter was 17.3 pence, down from 19.1 pence a year before. It attributed the decline in core earnings per share to dilution from the Novartis transaction and ongoing pricing pressure, although this has been partly offset by cost reductions.
Research and development expenditure fell 4% at constant currency in the half year, as a result of cost reduction programmes in its pharmaceuticals and vaccines segment and the phasing of ongoing project spending. Glaxo said that it remains "focused on delivering an improved return on its investment in research and development."
It said it was on track to deliver its targeted cost savings of GBP3 billion from all of its restructuring programmes.
Glaxo kept its second quarterly dividend at 19 pence, and reiterated its expectations for a full year dividend of 80 pence.
It continues to expect to return around GBP1 billion to shareholders through a special dividend alongside its fourth quarter ordinary dividend. At the time of its first quarter results, the company slashed the amount it plans to return to shareholders, having previously suggested it would return GBP4 billion. At that time the company also said it plans to maintain its total dividend at 80 pence per share for the next three years.
The company took these measures in an effort to shelter itself against the possible introduction of generic competition to Advair in the US, as well as possible investments it will have to make in its ViiV Healthcare joint venture and consumer healthcare business.
During the half year revenue from pharmaceuticals fell 7%, whilst vaccines were up 11%, and consumer healthcare was up 37%.
In Pharmaceuticals the fall in revenue was mostly as a result of the sale of the Oncology business, and adjusted for this, turnover fell 2% due to an 8% decline in respiratory sales due to falling sales of Advair, and a 13% decline in sales of established products, partly offset by growth in HIV sales of 51%. The growth in Vaccines revenue was boosted by the products Glaxo acquired from Novartis, although on a pro-forma basis it fell 1% as growth in the US and Europe was offset by a decline in international sales.
In Consumer Healthcare, on a pro-forma basis, sales were up 7%, with strong growth in the US and Europe offset flat sales in international markets.
Sales in Advair fell 14% in the half year. However the company said that growth in its new pharmaceuticals products is more than offsetting sales declines in Advair.
Glaxo said it has 40 new molecular entities in phase II/III clinical development, focused on HIV, oncology, vaccines, cardiovascular, immuno-inflamation and respiratory diseases.
Last Friday, Glaxo's malaria vaccine candidate got a positive opinion from the Committee for Medicinal Products for Human Use or CHMP of the European Medicines Agency. Following this positive opinion, two of the World Health Organisation's independent advisory groups will jointly review the evidence base for the candidate and make a joint policy recommendation. It also will need to be ultimately approved by the national regulatory authorities in the countries it is intended for.
On a call with journalists Wednesday, Chief Executive Officer Andrew Witty said Glaxo had "no reason to be anything other than optimistic" on the vaccine's approval progress.
"This is our first full quarter of performance since completion of the transaction with Novartis and it is encouraging. Our integration and restructuring plans are on track and we remain confident that we can achieve our targets for this year and return the group to earnings growth in 2016," Witty said in the company's statement.
Liberum has kept its Hold rating on Glaxo following the results, with a price target of 1,350 pence, saying core earnings per share beat its expectations by 2%, driven by an 170 basis points beat on gross margin and research and development costs coming in 7% lower than expected. It said the results show "some signs of stability".
"We remain of the view the business is highly challenged but that the current valuation is fair," Liberum said.
Berenberg also reiterated its Hold rating with a price target of 1,570 pence, saying that "given the share underperformance and the prolonged period of earnings disappointment, an in-line set of figures should be well received."
Shares in GlaxoSmithKline were up 2.9% at 1,366.50 pence Wednesday afternoon, the third best blue-chip performer in London.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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