GlaxoSmithKline To Split Into Biopharma and Consumer Healthcare Companies

Edward Kim  |

"Good" Earnings but Lower Than Expected

GlaxoSmithKline reported lower than expected revenue and earnings for the fourth quarter of 2019 on Wednesday, impacted adversely by price competition in the respiratory therapeutics market. The company showed solid growth in its vaccines business, particularly with SHINGRIX, its shingles (herpes zoster) vaccine that was approved in 2017. SHINGRIX sales increased over 100% to £1.81 billion (US$2.4 billion) in 2019, fueling a 21% increase across the vaccines business.

For the quarter, GSK's sales rose 11% to £8.90 billion pounds (US$11.6 billion), while adjusted operating profit fell 11% to £1.85 billion (US$2.4 billion) or 24.8 pence per share.

For the full year 2019, revenue rose 10% to £33.75 billion (US$43.9 billion), and adjusted operating profit rose 3% to £8.97 billion (US$11.66 billion) or 123.9 pence per share.

Our results demonstrate a good performance for GSK in 2019, with growth in sales and earnings, together with strong cash generation. We also made excellent progress in all three of our long-term priorities of: Innovation, Performance and Trust -- strengthening our pipeline, improving operational execution and reshaping the company.

- Emma Walmsley, CEO, GlaxoSmithKline

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Drug Pipeline Highlights

  • 39 therapeutic medicines in development
  • 15 vaccines in development
  • Eight regulatory submissions in 2019
  • Six positive pivotal trial results in 2019
  • Four new assets progressed into pivotal trials in 2019
  • In 2020, GlaxoSmithKline expects at least six potential approvals in oncology, HIV, specialty and respiratory
  • Company expects proof of concept data readouts on several key pipeline assets including four oncology medicines and vaccines for chronic obstructive pulmonary disease (COPD) and respiratory syncytial virus (RSV)

Two-year Separation Program

In December 2018, when GSK and Pfizer announced the formation of a consumer healthcare joint venture, GSK stated that it intended to spin out the venture via a demerger of its equity interest and a listing of the consumer healthcare business on the UK equity market. GSK provided details of the separation program today for the first time.

  • GSK will be split into two companies:
    • A Biopharma company with a research and development approach, focused on the immune system, use of genetics and new technologies.
    • A new leader in Consumer Healthcare.
  • GSK will look to optimize capital allocation and efficiencies of global support functions and further optimize its supply chain and portfolio, including divestments of non-core assets.
    • To this end, a strategic review of the prescription dermatology business is already underway.
  • GSK is targeting £700 million (US$910 million) in annual savings by 2022 with total costs estimated at £2.4 billion (US$3.1 billion) , with £1.6 billion (US$2.1 billion) of that in cash.
  • The two-year program is expected to deliver improved operating performance, with meaningful improvements beginning in 2022.
  • Anticipated divestment proceeds are largely expected to cover program cash costs, with additional one-time costs estimated at £600-700 million (US$780-910 million).
In 2020, our first priority remains Innovation, to progress our pipeline and support new product launches. Recent data readouts underpin our decision to further increase investment in R&D and these new products. At the same time, we are again focused on operational execution, including delivering a successful integration in Consumer Healthcare, and we are also preparing for the future, starting a new two-year program to get GSK ready for separation.

- Emma Walmsley, CEO, GlaxoSmithKline

Angus Liu at FiercePharma writes, "Considering a future for dermatology alongside the planned consumer health spinoff makes sense in that skin health prescription brands often find themselves competing against over-the-counter consumer products," citing similar moves made by Bayer and Novartis.

Reuters reported in June 2019 that GSK had begun shopping some consumer health brands in its Latin American and European portfolios as it seeks to raise about £1 billion (US$1.3 billion) to offset some of the restructuring costs.

While 2020 looks to be a transitional year for GSK, we're encouraged by the strong performance in vaccines and the outlook for the six new therapeutic approvals during the year. We note that the company also maintained its 80 pence dividend for the fifth year in a row.

Edward Kim is Managing Editor of Equities.com.

_____

Sources: Equities News

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