GSK dumps plans for ViiV sale, posts Q1 earnings drop


GlaxoSmithKline has dumped plans to sell off its majority stake in ViiV Healthcare – a joint venture with Pfizer and Shionogi in which it holds around 80% – after the unit booked sales of $446 million for the first quarter of 2015, up 42% over the year-ago period.

“Having reviewed this very positive outlook, GSK has concluded that retaining its full, existing holding in ViiV Healthcare is in the best interests of the Group and GSK will not now be initiating an IPO of a minority stake”, the firm said.

The news came as the drugs giant posted a 1% rise in sales (at CER) to £5.6 billion, as growth from its Vaccines (+10%) and Consumer Healthcare (+24%) segments helped offsetting a decline in Pharmaceuticals (-7%).

Global Pharmaceuticals turnover dropped 12% on a reported basis to £3.1 billion, dragged down by a 9% drop in respiratory sales because of pricing pressures and generic competition, a 20% fall in sales of its established products, and the divestment of cancer drugs to Novartis under the firms’ recently completed mega deal.

Core operating profit slid 14% (CER) to $1.3 billion, while earnings per share fell 16% to 17.3p, declining primarily as a result of mix pressures on the Pharmaceuticals margin and the dilutive impact of the transaction, though this was partially offset by on-going cost reductions and a lower tax rate (20%), the firm said.

New chairman – Looking forward, Ketan Patel, senior investment analyst at Ecclesiastical Investment Management, said investors and shareholders will now be focused on the arrival of new Chairman Sir Philip Hampton, “who has a track record of turn-around situations, given his previous stints with RBS and Sainsbury”, noting that “he joins a company facing strong headwinds on several fronts, including delivering on pipeline, executing strategy (divestments and partnerships) and the sustainability of the dividend”.

On the performance side, GSK said it expects 2015 core EPS to decline at a percentage rate in the high teens on a CER basis, but that it should see “a significant recovery” in 2016, with core EPS growth reaching double-digits “as the adverse impacts seen in 2015 diminish and the sales and the synergy benefits of the transaction contribute more meaningfully”.

Annual Group revenues are forecast to grow at a CAGR of low-to-mid single digits on a CER basis over 2016-2020, as new pharma and vaccine products generate sales of at least £6 billion per annum by 2020. Core EPS is expected to grow at a CAGR of mid-to-high single digits over the five-year period. 

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