Investors' Fears Eased as Glaxo Posts Solid Results -- Update

By Denise Roland 

LONDON-- GlaxoSmithKline PLC Wednesday posted fourth-quarter revenue and profit in line with analyst expectations and reinforced guidance that earnings would grow strongly in 2016, sending its shares higher.

Glaxo, based in the London suburb of Brentford, said revenue in the quarter ended Dec. 31 climbed to GBP6.3 billion ($9.1 billion), thanks to a strong performance from its vaccine and consumer health-care arms.

Core operating profit fell 23% to GBP1.4 billion, largely due to Glaxo's shift to a higher-volume, lower-margin business following its $20 billion three-part transaction with Novartis AG .

Glaxo shares were up 1.1% at 1,442 pence in London trading.

The Novartis deal, which closed in the first quarter of 2015, involved Glaxo trading its high-margin cancer drugs for the Swiss company's lower-margin vaccines business and the pair pooling their consumer-health-care arms into a joint venture controlled by Glaxo.

Chief Executive Andrew Witty is placing a long-term bet that the expanded vaccines and consumer health care businesses will provide a buffer for the riskier pharmaceuticals business, which he has said is exposed to political shifts on issues such as drug pricing.

Restructuring costs from the transaction meant that Glaxo swung to a net loss of GBP354 million in the fourth quarter, compared with a GBP1 billion profit a year earlier, while revenue climbed from GBP6.2 billion to GBP6.3 billion.

Glaxo expects earnings to return to growth in 2016, when the year-earlier comparisons will no longer include the company's old cancer-medicines business. It reiterated guidance that core earnings per share will grow by a double-digit percentage this coming year, while confirming it will pay investors an ordinary dividend of 80 pence and a special dividend of 20 pence.

In a call with reporters, Mr. Witty also raised the prospect of an eventual breakup of Glaxo but cautioned that it was very unlikely within the next two years.

The pharmaceuticals giant has faced calls to break up from prominent U.K. investor Neil Woodford, who said splitting the company into its constituent parts--pharmaceuticals, vaccines and consumer health care--would leave shareholders better off.

Mr. Witty said the consumer health care business, which sells over-the-counter drugs such as painkiller Panadol as well as non-pharmaceuticals like toothpaste, was big enough to constitute a stand-alone company following the Novartis transaction.

But he added that it would be "unwise" to consider breaking it off until Glaxo had finished integrating the Novartis business. Glaxo is nearly a year into a three-year plan to double the margin of the joint consumer health care business.

The Glaxo boss added that even after the business had reached a "steady state," he would be "very thoughtful" about the prospect of a breakup. "It makes a lot of sense for these businesses to be together," he said.

Glaxo's pharmaceuticals division has come under heavy pressure in the U.S., where increasingly powerful insurers have forced the company to cut the price of its blockbuster inhaler Advair to win a favored place on their formularies.

Mr. Witty said these pressures continued into the fourth quarter. Still, Glaxo's newer drugs more than offset Advair's decline, generating GBP620 million in revenue for the quarter, against a GBP90 million fall in Advair sales.

One bright spot for the pharmaceuticals business was Glaxo's majority-owned HIV business, ViiV Healthcare. Sales of HIV drugs increased 51% to GBP695 million in the fourth-quarter, mainly due to the growth of two recently-launched drugs, Triumeq and Tivicay.

Meanwhile, vaccine sales increased 20% to GBP963 million, and revenue from consumer health increased 47% to GBP1.6 billion.

Write to Denise Roland at [e-mail]

(END) Dow Jones Newswires

February 03, 2016 10:49 ET (15:49 GMT)

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