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LONDON (Alliance News) - GlaxoSmithKline PLC Wednesday slashed the amount it is planning to pay shareholders in the wake of its transformational deal with Novartis and said it would only keep its ordinary dividend flat for the next three years, in an effort to shelter itself against the possible introduction of generic competition to obstructive pulmonary disease treatment Advair in the US as well as possible investments it will have to make in its ViiV Healthcare joint venture and consumer healthcare business.
As it set out its growth targets for the next five years in the wake of the Novartis deal, Glaxo also said it has opted to retain its existing holding in its HIV joint venture ViiV Healthcare, citing the positive outlook for the business. It had previously been mulling an initial public offering for a minority stake in the venture.
The pharmaceutical giant said it now plans to pay out about GBP1 billion, or 20 pence a share, as a special dividend in the wake of the Novartis deal, less than the GBP4 billion it had suggested back in March. It added that it plans to keep its ordinary dividend at the 2014 level of 80 pence for each of the next three years, having increased its dividend incrementally from 63 pence in 2010.
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.
The British pharmaceutical giant set out its guidance for 2015 and for 2016 through to 2020. For 2015 it expects to see its core earnings per share decline at a high-teens percentage rate on a constant currency basis, mostly due to pricing pressure on Advair in the US and Europe, and the dilutive effect of the deal with Novartis.
However, it expects to see core earnings per share recover significantly in 2016, with percentage growth expected to reach double-digits at constant currency rates as the adverse impacts seen in 2015 begin to diminish, and it begins to see the sales and synergy benefits of the Novartis deal.
It expects core earnings per share to grow at a compound annual growth rate in the mid-to-high single digits on a constant currency basis over the five years between 2016 and 2020, and expects revenue to grow at a compound annual growth rate of low-to-mid single digits over the same period at constant currency.
For the first quarter to end-March the company posted a pretax profit of GBP9.92 billion, up from GBP903 million a year before, due to a one-off GBP8.71 billion gain from its three part deal with Novartis. Revenue rose to GBP5.62 billion from GBP5.61 billion a year before.
A 12% decline in Global Pharmaceuticals, hit by generic competition in the US to high triglyceride treatment Lovaza and in Europe to its established products portfolio, was offset by growth in ViiV, Consumer Healthcare and Vaccines.
Vaccines was boosted by sales from the new products acquired from Novartis, and Consumer Healthcare was boosted by the launch of Flonase OTC and strong growth from toothpaste Sensodyne.
Sales in Advair, the company's biggest seller, fell 14% as a result of continued price pressure in the US and Europe and generic competition in Europe.
The company said it now has three major restructuring programmes underway, and it continues to expect to deliver total synergies of GBP1 billion in relation to the Novartis deal. However, it now expects to achieve over half of these savings in 2016, rather than in 2017 as previously expectedm and for the programme to be substantially complete in 2017.
In total it expects to produce total yearly benefits of GBP3 billion from a combination of restructuring and synergy programmes by the end of 2017, as it is also undertaking cost cutting measures in Consumer Healthcare, Vaccines and its global Pharmaceuticals business.
Glaxo expects new products in its pharmaceutical and vaccine segments to generate sales of at least GBP6 billion per year by 2020 at constant currency.
It continues to expect the next few years to be challenging for the healthcare industry, and specifically expects to see further declines in sales of Advair.
In its Pharmaceuticals arm, the company continues to expect sales of Advair to decline, but expects its total respiratory sales to return to growth in 2016 thanks to new products hitting the market. By 2020 it expects total respiratory sales to be at, or above, the level of sales in 2015 whether or not there is generic competition to Advair.
The company said it has decided to prioritise the use of its cash for ordinary dividends and accelerated investment, which is why it has opted to reduce the level it is returning to shareholders in the wake of the Novartis deal. However, it said that any future returns to shareholders "will be subject to its strategic progress, visibility on potential put options and other capital requirements".
"With the completion of the Novartis transaction, we have reviewed future prospects for the newly shaped group, including the opportunities offered through the integration and our cash allocation strategy," Chief Executive Officer Andrew Witty said in a statement.
"We have done so recognising that our operating environment is shifting radically, particularly in relation to pricing and that we must be prepared for specific uncertainties, including the possible introduction of generic Advair in the US and the potential exercise of put options from partners in ViiV Healthcare and our Consumer Healthcare Business," Witty added.
"We believe the group's new composition strengthens our ability to offer cost effective healthcare options to payors and governments and enables us to increase access for patients and consumers to our products," the CEO added.
Glaxo shares were trading up 1.3% at 1,520.00 pence Wednesday afternoon.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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