LONDON (Alliance News) – GlaxoSmithKline PLC on Wednesday said it has lowered its full year guidance range for adjusted earnings at constant currency following a fall in the second quarter of the year, as it outlined “new priorities” for the company between now and 2020.
GSK shares were down 0.1% on Wednesday at 1,585.00 pence following the midday announcement.
The pharmaceutical giant said it now expects to grow annual adjusted earnings per share at constant currency by 3% to 5% over the full year 2017, lowering its target from the original aim to grow earnings by 5% to 7%.
That move came as GSK reported adjusted EPS of 27.2 pence for the second quarter to the end of June, up 12% from the previous year at actual exchange rates following the depreciation of sterling, but down 2% at constant currency.
The adjustment to guidance reflects the impact of priority review vouchers, which allow pharmaceutical firms in the US to expedite the review of any one of its new drug products.
Including all exceptional items, GSK booked a reported loss per share in the second quarter of 3.7 pence, reflecting charges resulting from increases in the valuation of Consumer and HIV businesses and new portfolio choices.
In terms of quarterly sales, Pharmaceutical revenue rose 12% to GBP4.40 billion and was up 3% at constant currency, Vaccine sales rose 16% to GBP1.10 billion and rose 5% at constant currency and Consumer Healthcare sales rose 10% to GBP1.90 billion, but were flat at constant currency.
The dividend for the quarter was 19.0 pence, and GSK remains on course to pay a dividend of 80.0 pence for the full year, it said.
Looking at the results for the first six months of the year, revenue rose 15% to GBP14.70 billion, up 4% at constant currency. Pretax profit multiplied to GBP1.37 billion from just GBP242.0 million a year before on the back of the revenue rise, a 13% lift in gross profit, and other operating expenses being cut in half.
Profit per share for the half more than doubled to 17.7 pence, and adjusted EPS was up 20% at 52.1 pence, rising 3% at constant currency.
“Today we are updating our full year earnings guidance to reflect the investments we have made to accelerate the review of our new two drug regimen in HIV. We are also providing an update to investors on the longer-term outlook for the group and our priorities to improve innovation, performance and trust in GSK,” said Chief Executive Emma Walmsley.
Walmsley became chief executive at the start of April, having previously been the CEO of GSK Consumer Healthcare.
GSK said the recent performance of its three main units has demonstrated the benefits of the transaction with Novartis in 2015 as well as the impact of more effective introductions of new products, notably new Respiratory and HIV medicines and vaccines to prevent meningitis.
Margins and cashflow has been improving across the divisions due to improvement in performance and cost savings over the last 18 months. However, GSK has adjusted its priorities as it looks at the longer-term future.
“Whilst this recent delivery is encouraging, the company highlighted that there are several key issues it needs to address, over the next three years, to make sure the group delivers long-term competitive performance,” GSK said.
“All three businesses need to perform, but the priority for GSK is to improve in Pharmaceuticals. Delivering full value from recent and imminent product launches, together with cost base improvements, is required to help mitigate the impact of pricing pressures to its current portfolio. Strengthening the Pharmaceuticals pipeline is a key objective for the group,” said the company.
Beyond Pharmaceuticals, GSK aims to realise further benefits from its newly scaled Consumer Healthcare and Vaccines businesses. The group is aiming to increase investment flexibility with a series of measures to improve cash generation and clearer capital allocation priorities.
“Going forward, GSK intends to focus on three long-term priorities: Innovation, Performance and Trust,” said the company. “Innovation is important for all three businesses but the proup’s top priority is to improve in Pharmaceuticals.”
A key near-term focus is to maximise value from new products and three other material new launch opportunities: Shingrix, a potential new vaccine for shingles; Closed Triple, a new 3-in-1 respiratory medicine; and new two drug regimens in HIV.
In its Pharmaceuticals pipeline, GSK has developed a priority list of assets to invest behind. The group also has set a target to deploy over time 80% of its Pharmaceuticals R&D capital to priority assets in two current therapy areas: Respiratory and HIV/infectious diseases; and in two potential areas: Oncology and Immuno-inflammation.
“As part of its efforts to prioritise and allocate resources in R&D, GSK is terminating development programmes that are unlikely to generate sufficient returns,” said the company.
“GSK has so far made decisions to terminate, partner or divest more than 30 pre-clinical and clinical programmes. he group has also undertaken a strategic review of its Rare Diseases unit and is now considering options for future ownership of these assets,” the company added.
GSK also set out its intentions for future uses of capital. Firstly, free cash flow will be used to invest in the business and support in particular the Pharmaceuticals pipeline, realisation of the Consumer Healthcare put option, if exercised, and expansion of capacity in the Vaccines business.
The second priority for cashflow will be to deliver returns to shareholders.
GSK reiterated its outlook for sales and earnings performance to 2020, first announced back in 2015.
The group also announced its policy for future distributions from 2018 onwards and its expectations for the 2018 dividend.
“The board intends to maintain the dividend for 2018 at the current level of 80p per share, subject to any material change in the external environment or performance expectations. Over time, as free cash flow strengthens, it intends to build free cash flow cover of the annual dividend to a target range of 1.25x to 1.50x, before returning the dividend to growth,” said the company.
By Joshua Warner; [email protected]; @JoshAlliance
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