Pharma giant GlaxoSmithKline pushes up earnings estimates, but profits are still set to fall.
- Revenue of $7.8 billion, up 7%
- Adjusted operating profit up 3% to £2.17 billion
- Adjusted earnings per share (EPS) up 9% to 28.1p
- Dividend flat at 19p per share. Still expect 80p for the full year
Chief executive Emma Walmsley commented:
"GSK delivered continued good operating performance in Q2 despite the loss of exclusivity of Advair. We remain focused on strengthening our R&D pipeline and the execution of new product launches. We also expect to complete our joint venture with Pfizer (NYSE:PFE) shortly, laying the foundation for the creation of two great companies: one in Pharmaceuticals/Vaccines; one in Consumer Healthcare."
GSK now expects a decline in 2019 adjusted EPS of -3% to -5%. This new guidance represents an improvement to that previously given in February of an expected decline of -5% to -9%. It reflects improved operating performance, lower interest expense and a one-off benefit to Glaxo's share of after-tax profits of associates in the first quarter.
GlaxoSmithKline (LSE:GSK) discovers, develops and makes medicines to treat all sorts of medical conditions. Its vaccines business develops, produces and distributes over 1.9 million vaccines every day to people in over 150 countries.
Glaxo's Consumer Healthcare business is being combined with Pfizer's, and it will own a controlling equity stake of 68%, with Pfizer the balance. Following a period of transition and cost savings, management intends to separate the joint venture via a demerger and a listing of GSK Consumer Healthcare on the UK stock market.
To strengthen its pharmaceutical oncology (cancer drugs) business, GSK recently bought US company TESARO for $5.1 billion and entered into an alliance with rival Merck (NYSE:MRK).
Second-quarter sales rose at its Vaccines and Consumer Healthcare businesses, partially offset by a retreat for Pharmaceuticals.
Vaccines led the way, driven by rising sales of its Shingrix meningitis vaccine. Poor pharmaceuticals sales was partly due to the patent expiry of asthma drug Advair.
Glaxo's search for new blockbuster treatments to replace the likes of Advair continues at pace. Management pointed to positive clinical data received so far this year, creating new opportunities for products in oncology, HIV and respiratory.
The share price was little changed in mid-afternoon UK stock market trading.
Investor calls for a potential value-enhancing separation of the Consumer Healthcare business have finally been heard. Eventual independence for Pharma and Healthcare should provide more management focus.
However, pressure on the Pharma business to replace drug patent expiries with new blockbusters remains, while current debt from the two businesses is likely to end up on the shoulders of the Consumer Healthcare business. Despite big changes and an attractive dividend yield of over 4.5%, drug discovery remains key for Walmsley.
- R&D pipeline contains 44 new medicines and 13 vaccines
- Defensive qualities. Consumers need medicines even in a recession
- Dividend yield is attractive in the current low-interest rate environment
- Although improved, guidance still points to decline in annual profit
- Approval of generic competitor to Advair in the US to crimp 2019 profit
- No dividend growth
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