GlaxoSmithKline plc (GSK)

Q3 2011 Earnings Call

October 26, 2011 8:30 am ET


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Andrew Witty - Chief Executive Officer, Executive Director, Member of Corporate Administration & Transactions Committee and Member of Finance Committee

Simon Dingemans - Chief Financial Officer, Executive Director, Member of Corporate Administration & Transactions Committee and Member of Finance Committee


Steve Scala - Cowen and Company, LLC, Research Division

Mark Beards - Goldman Sachs Group Inc., Research Division

Brian Bourdot - Barclays Capital, Research Division

Gbola Amusa - UBS Investment Bank, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division

Kerry Holford - Crédit Suisse AG, Research Division

Graham Parry - BofA Merrill Lynch, Research Division

Alexandra Hauber - JP Morgan Chase & Co, Research Division

Florent Cespedes - Exane BNP Paribas, Research Division


Andrew Witty

Thank you very much, and thank you all for joining the call. I'm actually in Tokyo, and Simon Dingemans is in London. So we're relying on the technology, and if there is a time lag between the Q&A and my answers, trust me, it's not because we've moved Brentford to the other side of the world. I think it's particularly apt that I'm hosting today's call from Japan, given that our Japanese business has significantly contributed to this quarter's growth. Notably through the great uptake of Cervarix as part of the national HPV vaccination program, which started here earlier this year. Cervarix is 1 of more than 60 new products indication that GSK has launched in Japan since 2000, and we have the potential for up to a further 40 such launches over the next 5 years.

The success in Japan underscores the importance of developing different drivers of growth for the group, with different risk profiles across the various geographies. In the quarter, all 3 of our key businesses, Pharmaceuticals, Vaccines and Consumer Health, grew sales. And if we look at it from a geographic perspective, 38% of the group reported turnover is now outside of the U.S. and Europe. And that 38% is now growing at 17%. All of this has meant that despite a difficult trading environment in the West, we've been able to deliver group underlying sales growth of 6% and 3% on a reported basis. We have now delivered average quarterly underlying growth of around 4.5% for the group over the past 7 quarters. The headwinds of Avandia, Valtrex and Pandemic products, which has held us back for several quarters have now diminished significantly. Although there is likely to be some quarterly variability, we remain confident that underlying sales growth will translate into reported sales growth in 2012.

Given the economic pressures faced by governments, the environment for our business in the U.S. and Europe remains challenging. That said, the impact of healthcare reform price cuts in these regions during the quarter was in line with our expectations, and we continue to expect a full year impact of around GBP 325 million from these measures.

Beyond sales, operating profit before major restructuring was up 3% to GBP 2.2 billion for the quarter, and our guidance for the full year operating margin, excluding legal and other income, remains unchanged at around 29.5%. With our improving sales performance and continued sustained pressure on GSK's cost base, we have the opportunity to build operational leverage. In 2012, result in improvement to the margin will be gradual, as I've said before, and will become more meaningful in 2013 and 2014. As we set out to the second quarter, alongside this objective of building operational leverage, we are also focused on how we can deliver stronger earnings per share growth through financial efficiencies such as improvements to our funding mix and measures to reduce the group's overall tax rate.

We continue to increase the returns we give to our shareholders. Today, we have announced another 6% increase to the dividend to 0.17p per share, and we have increased our expectation for our 2011 share buyback program by GBP 300 million to GBP 2.3 billion pounds. Year-to-date, we have spent GBP 1.8 billion on share repurchases and in total have returned GBP 4.4 billion to our shareholders.

Turning to R&D we have received another 3 Phase III readouts since last quarter reflecting further progress of what is a diverse and innovative late stage pipeline of new medicines and vaccines. Of the 15 assets with data expected by the end of 2012, 6 have now reported data. Of these 6, data have been filed for Votrient in sarcoma, data is in-house and being reviewed for Promacta and IPX066. And programs are ongoing for Relovair and our malaria vaccine RTS,S. More than 30 additional Phase III readouts are expected by the end of next year, including news flow on assets in key therapy areas such as respiratory, diabetes, oncology, HIV and rare diseases. And we have the potential depending on the data flow to be able to file for 10 new products during 2012.

So overall, this has been another very positive quarter for GSK, and I'm very happy that we continue to deliver on the track that we set out 3.5 years ago as the various changes in our investment strategy have continued to yield the results we anticipated, and deliver a more diversified source of growth for the group going forward. The strategy is on track, and I'm now going to hand over to Simon, who will talk you through the financial aspects of our performance.

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