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LONDON (Alliance News) - Drugs giant GlaxoSmithKline PLC Wednesday reported a drop in revenue and net profit for the first quarter due to asset sales and a decline in sales of pharmaceuticals in the US, but the company also raised its dividend and reiterated its full-year profit guidance despite making its sales guidance more vague.
The company is going through a major revamp, selling off some treatment areas and acquiring assets to bolster others. Going forward, it will be focused on respiratory and HIV treatments. Last week it did a deal with Switzerland's Novartis AG under which it will sell the Swiss company its oncology portfolio, acquire Novartis's global vaccines business, and create a joint consumer healthcare business.
That means comparison of its results is increasingly difficult.
Its net profit fell to GBP668 million in the three months to end-March from GBP961 million a year earlier, as revenue declined to GBP5.61 billion from GBP6.47 billion. That was mainly due to asset sales and masked lower costs that resulted from its restructuring programme.
Excluding the asset sales it made in 2013, its revenue was down 2% at constant exchange rates, hit by a 15% decline in pharmaceuticals sales in the US due to de-stocking by retailers and wholesalers. Sales of pharmaceuticals were up in all the company's other major regions.
Overall sales of vaccines were up 3% and HIV drug sales were up 4%, while consumer healthcare sales were flat due to temporary supply interruptions for some products in the US and Europe.
In the US sales of asthma treatment Advair were down 30% to GBP455 million, hit by generic competition.
In Glaxo's US Oncology business sales rose 31%, boosted by strong performances from cancer treatment Votrient and anaemia treatment Promacta, and the launches of melanoma drugs Tafinlar and Mekinist. Dermatology products continued to be hit by generic competitors, declining 58%.
Vaccine sales in the US rose 25% as sales of diptheria, tetanus and pertussis vaccine Infanrix/Pediarix doubled, benefiting from stockpile movements at the Centers for Disease Control, a national public health institute.
In Europe pharmaceuticals and vaccines revenues rose 3%, but were hampered by restructuring and refocusing on the business. Pharmaceutical sales were up 2% as strong sales growth in Votrient, Promacta and enlarged prostate treatment Avodart were offset by a decline in asthma drug Seretide.
Emerging Markets pharmaceutical and vaccine revenues rose 2%, as 7% growth in pharmaceuticals offset an 8% decline in Vaccines, mostly caused by the phasing of tender sales of pneumococcal vaccine Synflorix.
In China, where the company is weathering wide-ranging bribery investigations from authorities, sales were down 20%. Elsewhere in Emerging Markets, the company saw strong performances in Brazil and Latin America.
In Japan, pharmaceutical and vaccines revenue rose 13%, with pharmaceutical sales growth of 15% offsetting a decline in vaccines of 45%. In Japan the government has suspended its recommendation for the use of vaccines for human papilloma virus, which has impacted Glaxo's Cervarix product.
Glaxo's earnings per share rose 2% to 21.0 pence at constant exchange rates and excluding disposals, as the company continued to cut costs and improve its operating efficiency.
It declared a first dividend for the year of 19 pence, up from 18 pence last year, and said it is still targeting share buybacks of between GBP1 billion and GBP2 billion in 2014 as a whole.
"This quarter has amply demonstrated the very significant changes that are underway in GSK's portfolio. Our strategy to broaden the company's sales base is evidenced with the transition we are making to new products in our core franchises of Respiratory and HIV, further R&D delivery and the three-part transaction we announced last week with Novartis," Chief Executive Andrew Witty said in a statement.
Glaxo also reiterated its 2014 profit guidance, saying it expects core earnings per share to rise by between 4% and 8% at constant exchange rates. However, it now says sales are expected to rise at constant exchange rates and excluding asset sales, dropping the specific growth guidance of about 2% it had previously given.
"The exact level of sales growth will depend on a number of factors, including the roll-out of new products, the level of generic competition to older products, including Lovaza for which a generic approval was granted in April, and the phasing of resupply of products in our Consumer Healthcare business," Witty said.
Glaxo noted that were exchange rates to stay at the same level as they were at the end of the first quarter, it expects a 7% revenue hit from the strengthening of sterling. It said that, if there are no further exchange gains or losses, it expects a hit on core EPS of 11%.
Glaxo's recently launched chronic obstructive pulmonary disease treatment Breo has been slower than it anticipated, the company said, due to delays in coverage from insurers in the US.
The product launched in the fourth quarter of 2013, and sold GBP1 million in the first quarter, Glaxo said. However, the company said that coverage levels of the product had risen from 2% at the start of the year to 70% at the beginning of May.
The company launched its Anoro Ellipta product at US pharmacies on Monday, and on a call with journalists Wednesday, Witty said that the initial returns on the product had been "extremely encouraging."
When asked about the potential acquisition of fellow FTSE100 pharmaceutical giant AstraZeneca PLC by US based Pfizer Inc, Witty said that Glaxo was only an "interested observer". In respect of Glaxo's own large scale deal with Novartis, Witty said that Glaxo had considered what type of transaction it would undertake that would not defocus its research and development agenda.
"Merger and acquisition should be done sparingly," he said. "It's right for some situations, not all situations."
Broker Liberum maintained its Hold posture on Glaxo, noting the "shocking performance" of respiratory products in the US, as well as poor sales of Breo, stocking issues in Japan, and low emerging market sales growth. These factors leave Liberum "concerned for the future, despite the Novartis deal."
"We believe Breo forecasts must come down materially and that the respiratory franchise as a whole will decline every year to 2019," Liberum said.
Berenberg maintained its Hold recommendation on Glaxo, noting that the weakness of Advair would emphasise the importance of the newly launched Anoro.
"Glaxo's reliance on Advair has long been a concern for investors," said Berenberg analyst Alistair Campbell. "That is why the new respiratory products being rolled out now are vital to the future of this franchise. We remain sceptical on Breo and the Q1 US sales number of £1m clearly does not impress."
However, Berenberg was more positive about Anoro, forecasting " sales of £1.2bn by 2020 in the US", as the product has "genuine differentiations and real value for COPD patients".
Glaxo shares were down 1.4% at 1,641.50 pence Wednesday.
By Steve McGrath and Hana Stewart-Smith; stevemcgrath@alliancenews.com; @SteveMcGrath1; hanassmith@alliancenews.com; @HanaSSAllNews
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