Glaxo’s Fourth-Quarter Sales Miss Estimates; Smaller Share Buyback Planned
GlaxoSmithKline Plc, the U.K.’s largest drugmaker, reported fourth-quarter sales that missed analysts’ estimates and announced a smaller share repurchasing program than last year.
Revenue fell 2 percent to 6.98 billion pounds ($11.1 billion), London-based Glaxo said today in a statement. That missed the average estimate of 7.31 billion pounds. Sales of flu-related products, combined with the Avandia diabetes medicine and Valtrex antiviral, declined to 127 million pounds from 317 million pounds, hurting growth in all regions, Glaxo said.
The drugmaker said it will buy back 1 billion pounds to 2 billion pounds in stock this year and will use the proceeds from a sale of consumer brands to boost its dividend. Alexandra Hauber, a JPMorgan Chase & Co. analyst, expected Glaxo to announce a 2.5 billion-pound share repurchase, according to a note to investors on Jan. 31. The company bought 2.2 billion pounds in shares last year, its first repurchase since 2008.
“The market was expecting a larger share buyback and the guidance isn’t very detailed in terms of the growth they’re hoping to deliver,” Navid Malik, an analyst at Cenkos Securities Plc, said in a telephone interview.
The company said its core operating margin will gradually improve this year, and sales will rise at constant exchange rates after dropping 3 percent in 2011. From the current quarter ending in March, Glaxo is switching to a “core earnings” method for reporting operating profit and earnings per share, which will exclude items such as legal charges and other one- time costs.
A cost-cutting program will save an additional 300 million pounds a year at an expense of 350 million pounds, bringing the total amount of savings to 2.8 billion pounds by 2014, Glaxo said. The company intends to use free cash flow for increasing dividends, share repurchases or bolt-on acquisitions.
“We kissed an awful lot of frogs last year, but none of them turned into princes,” Chief Executive Officer Andrew Witty told journalists in London, referring to the drugmaker’s search for purchases.
Glaxo sold 17 over-the-counter brands including digestive helpers Beano and Gaviscon to New York-based Prestige Brands Holdings Inc. in December, and will pay a supplemental divided of 5 pence with the fourth-quarter dividend of 21 pence.
The drugmaker is trying to sell a second batch of over-the- counter products including the Alli diet pill by the end of the first half of the year, Witty said. The company may not sell some brands if the price isn’t right, he said.
Glaxo earned 28.4 pence a share excluding some items, compared with a loss of 7.5 pence a year earlier, the company said. That beat the average analyst estimate of 28.3 pence.
The company is replacing revenue lost from Avandia, Valtrex and pandemic-flu treatments with new products. Sales of Votrient, Promacta and Arzerra together more than doubled to 67 million pounds, while revenue from Hycamtin in the U.S. declined 79 percent to 2 million pounds following generic competition. Three Glaxo medicines were cleared for sale last year, including Benlysta, a therapy for the immune-system disease lupus that was approved by U.S. regulators in March.
Glaxo will seek regulatory approval this year for Relovair asthma medicine, Promacta for hepatitis C, trametinib for melanoma and a flu shot that protects against four strains of the virus. The company also expects to release late-stage results on six drugs and vaccines this year, including the Relovair asthma treatment and the Mosquirix malaria inoculation.
The company today said its rate of return on investment in late-stage drug development is about 12 percent, compared with the 11 percent estimate it provided in February 2010. It is shutting down three of 38 drug Discovery Performance Units in its research division that failed to meet their targets. The teams compete for funds bestowed every three years after a review. Four new units were created, six received greater investment and five had funding reduced, Glaxo said.
Drugs in Development
The compounds in late-stage development include Relovair, which Glaxo is developing as a successor to Advair. Results from a late-stage study on the drug, which didn’t prove superior to Advair, disappointed investors on Jan. 9. Glaxo is investigating reports of fatal pneumonia from the highest doses.
Sales of Relovair, which contains vilanterol and fluticasol, may surpass 1 billion pounds by 2017, according to the average of five analyst estimates compiled by Bloomberg. Advair and Seretide revenue totaled 5.06 billion pounds in 2011.
Glaxo may face at least one generic competitor to Advair in the U.S. as early as 2016 and more than three equivalents in Europe, where it is marketed as Seretide, Andrew Baum, an analyst at Citigroup Inc., said in a note to investors on Feb. 3. Possible competitors include Teva Pharmaceuticals Industries Ltd. and Novartis AG’s Sandoz unit, he said. Advair, Glaxo’s best-selling product, makes up about a fifth of the company’s sales.
The company started repatriating cash held in most euro- area banks early last year as a contingency measure against a banking and liquidity crisis, Witty said. The company now moves “tens of millions of pounds” in cash every day out of banks in Europe into accounts in the U.K., he said.
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