GSK delivers Q3 EPS of 28.5p before major restructuring*
and dividend of 15p up 7%
- Return to sales growth with Q3 turnover +3% CER; +15% sterling
- Continued improvement expected in Q4
Summary
Portfolio diversification and investment in key areas drives return to sales growth: Emerging Markets (+25%); Japan (+19%) and Consumer Healthcare (+8%)
Further growth expected in Q4 2009 including significant sales of influenza products
US sales -12% primarily due to continued adverse impact of generic competition
Significant progress made to expand new vaccines portfolio:
Cervarix approved in USA and Japan; Pandemrix approved in Europe. Menhibrix filed in the USA in August; Major new contract secured in Brazil for Synflorix
Pipeline momentum sustained with 30 assets in late-stage development:
US approvals of Votrient and Arzerra; US/EU filings of Avodart for prostate cancer risk reduction and progress made in darapladib and Horizon development programmes
Cumulative net cash inflow from operating activities up 10%; Q3 dividend 15p, up 7%
EPS before major restructuring 28.5p -3% CER, up 13% in sterling terms.

GSK’s strategic priorities
GSK has focused its business around the delivery of three strategic priorities, which aim to increase growth, reduce risk and improve GSK‘s long-term financial performance:
Grow a diversified global business
Deliver more products of value
Simplify GSK’s operating model
Chief Executive Officer’s review
The dynamics of GSK’s business are changing. We are seeing direct evidence of success in our strategy to grow and diversify the business away from a dependency on ―white pill/western markets‖. Less than 30% of this quarter‘s sales were generated from these products and markets compared to 38% in the second quarter of 2008.
This quarter‘s total sales were up 3%, marking a return to growth and reflecting the reallocation of resources to key investment areas: sales in Emerging Markets were up 25%; in Japan up 19% and in Consumer Healthcare up 8%.
GSK‘s Consumer Healthcare performance is especially impressive given it was set against a backdrop of estimated global market growth of only 1.5%. GSK‘s OTC, Oral Healthcare and Nutritional Healthcare businesses grew 9%, 10% and 4%, respectively, in the quarter. We are continuing to look for further investment opportunities, and last month for example signed a new agreement with a leading distributor to launch Lucozade across China.
Sales in Emerging Markets now represent 14% of pharmaceutical turnover compared to 12% this time last year. Growth in these markets is being driven both organically, notably through Seretide, Augmentin and vaccines, and through newly acquired products, which contributed over £35 million this quarter.
Further progress in building our long-term presence in these markets was demonstrated with two major new partnerships this quarter. In Brazil, we signed a 10-year agreement with the Fiocruz Foundation to supply Synflorix; whilst in China, we reached an agreement with the Walvax Biotech Company to develop paediatric vaccines.
In Japan, new product momentum continues. Earlier this month Cervarix was approved and we submitted a regulatory application for Promacta. Both of these are ‗firsts‘ in their class and this is indicative of the innovation on which we are building this business. We have now received regulatory clearance for 4 major new products this year – Allermist, Avolve (Avodart), Cervarix and Tykerb.
Vaccines sales were lower this quarter, in part due to phasing of shipments. As this business continues to grow, I expect that the volatility associated with the timing of large tenders and bulk shipments will be a recurring factor in GSK‘s reporting. Year to date sales were up 8% to nearly £2.2 billion and represented 11% of Group turnover.
As I said earlier this year, the US marketplace is changing and there are many dynamics at play, including the progress of healthcare reform and increased pricing pressure, to which we are actively responding.
We have made significant changes to adapt our US business and continue to manage a major transition to our US product portfolio. Overall, the number of products facing generic competition is reducing, although 2010 will remain challenging as the impact of expected generic competition to Valtrex is absorbed. At the same time, we are rapidly increasing the number of new products.
In the last two weeks, we have received US approvals for Cervarix, Votrient and Arzerra. This quarter 2 key FDA filings were also completed: Avodart for prostate cancer risk reduction and Menhibrix, a vaccine to protect against meningococcal disease and Haemophilus influenzae type b (Hib).
It is clear that improvements in performance for our US business will take time; however, I do expect that the changes within our product portfolio and the outputs of our restructuring programme will become increasingly evident.
In Europe, we received approval for Pandemrix, our pandemic H1N1 vaccine. This follows more than 10 years of investment and effort into research of pandemic influenza. To date we have announced orders worldwide for approximately 440 million doses of the vaccine.
The positive impact on sales growth of the acquisitions made over the last 12 months is becoming apparent. This quarter, Stiefel dermatology products contributed more than £100 million of sales.
To improve transparency and understanding of our increasingly diversified business, we have decided to make some changes to our financial reporting next year. From the first quarter of 2010, we will report additional P&L information for all of our major business units.
Our strategic priorities are designed to drive both turnover and profit growth and we must now translate the good progress we have made at the sales level into improved and sustainable earnings growth.
Cost containment is therefore very high on my agenda. Our restructuring programme to deliver £1.7 billion in annual savings is making good progress and cumulative annualised cost savings now amount to £1 billion. This programme is helping to improve productivity and support investment in our strategic priorities.
Return on investment and effective deployment of capital are critical measures in the investment decisions we are making and in the management of our business. This is evident in our allocation of SG&A expenditure. For example, in the third quarter whilst SG&A spend grew 12% in key investment areas, expenditure was actively contracted in US and European pharmaceutical markets by 6%.
To discharge risk in R&D we are consciously assessing resource and allocation of investment. This quarter, darapladib, a potential new treatment for atherosclerosis, passed a key checkpoint in its phase III development programme by meeting interim safety criteria in the STABILITY trial. Development of this asset will therefore continue as planned with another large-scale CV outcome study due to commence shortly. We also started phase III trials for project Horizon in COPD this month.
In the same manner, our decision to terminate development of Rezonic was ultimately dictated by where we could best allocate R&D and launch investment to deliver success.
Sustained cash generation is also an important measure of GSK‘s progress. Cumulative net cash inflow from operating activities was up 10%. This has further supported our progressive dividend policy. The Q3 dividend is 15p, up 7%.
In conclusion, and as I have previously described, our third quarter performance reinforces our expectations of an improved performance for GSK in the second half of 2009. In the fourth quarter, I expect further improvement including significant sales generated from our influenza products.
The delivery of our strategic priorities is required over a multi-year time frame, but I believe that the progress we have made so far provides us with a strong platform to realise our long-term objective of delivering sustainable growth for shareholders.
Andrew Witty
Chief Executive Officer
meer info op
http://www.gsk.com/investors/quarterly_results.htm