By Hester Plumridge
LONDON-- GlaxoSmithKline PLC's first-quarter profits slid by
almost a third, the company said Wednesday, a week after it
announced a series of multibillion-dollar asset swaps with Novartis
AG to bolster its consumer-health and vaccines businesses.
The U.K. drug maker's profits were dented by asset disposals,
currency pressures and falling sales of its established respiratory
drugs in the U.S. They highlight the pressures facing Glaxo and the
reasons behind its acquisition of Novartis assets to boost
growth.
Chief Executive Andrew Witty refused to comment on any
speculation that Glaxo could step in with a "white knight" offer
for fellow U.K. drug maker AstraZeneca PLC, after the latter
declined a takeover bid from Pfizer Inc. in January.
However, he said Glaxo's strategy was firmly focused on closing
the Novartis deal and on its own drug-development pipeline. Mr.
Witty has in the past ruled out signing large traditional
merger-and-acquisition deals.
"What we're focused on is ensuring that our organization is not
distracted in the core [research and development] business," Mr.
Witty said on a conference call Wednesday.
"We committed ourselves last week to a very, very major
transaction with Novartis," he added.
Sales at Glaxo fell 14% to GBP5.61 billion ($9.45 billion) from
GBP6.47 billion in the same quarter of the previous year, missing
market expectations. Sales were hurt by wholesalers and retailers
destocking Glaxo's asthma drugs after stocking up the previous
quarter, and the exclusion of Glaxo's best-selling drug--the asthma
treatment Advair--from U.S. prescribing lists in January.
Respiratory drugs are Glaxo's biggest profit driver, and the
disposal of its cancer-drug business to Novartis will increase this
reliance.
Sales of Advair--responsible for just under a fifth of Glaxo's
total sales--fell 15% at constant exchange rates in the first
quarter, against increased competition in the U.S. and Europe.
"Inevitably, in the short run, we will have volatility," said
Mr. Witty, as Glaxo tries to boost sales of its new asthma
treatments Breo and Anoro, the latter launched in the U.S. last
week, to make up for falling Advair sales. Uptake of Breo in the
U.S. has so far been disappointing.
In the U.S, pharmacy-benefit manager Express Scripts Holding
Co.--which negotiates drug prices on behalf of employers and health
insurers--took the Glaxo asthma inhalers Advair Diskus, Flovent
Diskus and Breo Ellipta off its "preferred drug" list as of Jan. 1,
meaning patients prescribed them must pay full retail prices for
the drugs. Express Scripts recommends rival treatments are
prescribed instead, including Symbicort from AstraZeneca and Dulera
from Merck & Co.
Glaxo's profit attributable to shareholders fell 30% to GBP668
million in the first quarter, from GBP961 million in the same
quarter of the previous year. Its core earnings per share--a
measure that excludes legal costs, asset impairments, profits on
asset disposals and restructuring costs--fell to 21.0 pence from
26.9 pence in the same quarter of the previous year, in line with
analysts' expectations.
Mr. Witty said Glaxo was continuing to evaluate the options for
its "established-products portfolio"--a collection of its older
drugs facing generic competition, responsible for 14.5% of its
total sales.
Glaxo last year announced the sale of a portfolio of thrombosis
drugs for GBP700 million. Mr. Witty said it was "highly likely
we'll do more transactions," although he said these would be more
likely for its portfolio of drugs in the U.S. and Europe rather
than its established drugs in emerging markets.
The deals signed with Novartis last week, worth more than $20
billion in total, will see Glaxo sell its high-margin cancer-drug
business to its Swiss rival and bulk up its own businesses in
consumer health and vaccines, both lower-margin businesses but with
more reliable cash flows.
Glaxo reiterated its guidance for a 4%-to-8% increase in core
earnings per share at constant exchange rates this year. Its shares
fell 2% in London trading Wednesday.
Write to Hester Plumridge at Hester.Plumridge@wsj.com
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