GlaxoSmithKline Plc's CEO Discusses Q4 2011 Results - Earnings Call Transcript

GlaxoSmithKline plc (GSK)

Q4 2011 Earnings Call

February 07, 2012 9:00 am ET

Executives

Compare to:
Previous Statements by GSK
» GlaxoSmithKline plc's CEO Discusses Q3 2011 Results - Earnings Call Transcript
» GlaxoSmithKline plc's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» GlaxoSmithKline plc's CEO Discusses Q1 2011 Results - Earnings Call Transcript

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

Deidre Connelly -

Moncef Slaoui - Chairman of Research & Development, Executive Director, Member of Corporate Administration & Transactions Committee and Member of Finance Committee

Darrell Baker -

Patrick Vallance - Senior Vice President of Medicines Discovery & Development

Analysts

Andrew S. Baum - Morgan Stanley, Research Division

Mark Beards - Goldman Sachs Group Inc., Research Division

Graham Parry - BofA Merrill Lynch, Research Division

Florent Cespedes - Exane BNP Paribas, Research Division

James D. Gordon - JP Morgan Chase & Co, Research Division

Jo Walton - Crédit Suisse AG, Research Division

Mark Purcell - Barclays Capital, Research Division

Sam Fazeli

Presentation

Andrew Witty

Okay. Good afternoon, everybody, and welcome to the GSK results. Thanks so much for all coming in. Hopefully, there are just about enough seats at the back there. Before I start, let me just introduce to you some of my colleagues from GSK who are here in the room, who may well get asked to answer questions, and if not, they'll be here for you to prey on at your leisure after we finish, in the coffee break afterwards.

So we've got Moncef Slaoui, down here at the front, who's Chairman of R&D and also now looks after our whole Vaccine business; Simon Dingemans, who you will be hearing from shortly; David Redfern, who's the Head of our Corporate Strategy Group; Darrell Baker, who's running all of our respiratory development programs in R&D; and Patrick Vallance, who we've just appointed as Head of our Pharma R&D organization. Very good to -- oh, I'm sorry, and Deidre. Deidre, stand up, so everybody can see you. Deidre Connelly, who's head of our U.S. business.

So what we want to do today is, I'll give you a little bit of an overview of 1 or 2 key themes that I think is important about the company and, of course, Simon will take you through some of the details of last year in particular, and how we see the business shaping up from a financial structural perspective. Basically, in terms of what I hope you've seen in the press release, and I apologize there’s an awful lot in that press release, but that's a good thing. There's a lot going on in this group, and there's a lot of good momentum building up in the different parts of the organization. What I hope you take away from the press release today, a couple of things: one is that you're really starting to see the company emerge from the period of the patent cliff and the loss of Avandia. Since the end of 2006, we’ve burned off $10 billion of sales, mostly in America, and we’ve replaced that through the investments we've made across the board in our various growth businesses whether that be EMs, the Vaccines, the Consumer business, all of those different businesses have obviously been built up over this period. And I'll talk to you a little bit more detail about that. That's allowed us to deliver that 4% underlying growth last year and more importantly, it's allowed us to generate continued strong healthy growth in cash, combine that with the focus on working capital that we've been deploying over the last couple of years. You can see where we're able to generate the opportunity to pay out, last year alone, GBP 5.6 billion in returns to shareholders, in a mixture of share buyback and also dividend.

We announced today, continued strong dividend growth. As you know, our priorities remain absolutely unchanged. We want to deliver a growing dividend. We want to buy back shares unless the acquisition of bolt-on businesses beats the return rate of the share buyback. You saw us do that absolutely, resolutely last year. I think what you've seen here in these results is certainly a continued commitment to that strategy going forward. And also through the supplemental dividend of the extra 5p through the disposal of the U.S. OTC business. What we're trying to do there is remain balanced around the different interests of our shareholders. Not all shareholders are in favor of share buybacks, and some favor share buybacks way over dividends. But what's important is that we try and, we think, make sure that we repatriate the maximum amount of cash possible, in a way which works for as many shareholders as possible. And therefore, this special dividend that we've announced today, I think, signals to those people who are very pro-dividend, we hear that, and we want to make sure that they are able to partake in the benefit just as much as those who prioritize or see the share buyback as more important.

So the third, final thing I would say is R&D. In this press release, you will see reference to 3 new products approved and launched last year, in the U.S. in particular. That brings to a total of 16, the products that we've had approved in the U.S. over the last 4 years, more than any other company in the business. What you'll also see in this press release is we already, at this point of the year, have 4 products ready to file, and of the 15 new products that we told you we would get data on this time last year, 1 has already been filed, 4 are ready to file and we've got 6 more, which will finish before the end of this year. Meaning that we have obviously the potential, if all goes well and it may not, but if all goes well, it gives us the potential to file for 10 new products during 2011 -- sorry, 2012.

So what you see there is a business which is focused on -- has gone through its restructuring to fit itself for a growth opportunity going forward. We’ve burned off much of our patent cliff. We're focused on generating returns and we're focused on delivering an R&D pipeline for long-term value creation. That was really the strategy I laid out 4 years ago. Grow a diversified global business, make sure we deliver more products of value and make sure we try and simplify our organization and essentially take cost out of the business and streamline the way the business operates, so that we can drive more to the bottom line.

If we look then at what's really been going on over that period, it's just a snapshot of the changing shape of the business. And you can see here very quickly, just how different we look today than where we were 4 years ago. A dramatic shift in our geographic exposure, much more exposed to where we believe the macro growth drivers are of the world, particularly in the Emerging Markets. A dramatic shift in our exposure to payers, much more exposed to cash pay, not just domination of third-party pay in the traditional pharma sector; a big shift in the shape of our molecule exposure, so less exposure to individual patents, particularly on small molecules, driven by our Consumer business, the Dermatology acquisition and of course our Vaccine business. All of those businesses really represent, for us at GSK, tremendous opportunity to build reliable sales growth going forward. And as you know, we expect during 2012 to be able to move from a period of talking to you about underlying sales growth over the last year or so into a period where we're able to talk to you about reported sales growth, which we're excited about and hopefully so will our shareholders be.

Delivering more products of value. The R&D organization at GSK under, particularly, Moncef's leadership over the last 4 years and now with Patrick's leadership as well, has really transformed the capability of the business. If you just look at a couple of the metrics on this slide. We have more than twice the number of patients in active clinical trials at GSK today than we had 4 years ago. Over 200,000 people, in fact, in 2007, we had 95,000 people in trials. That's underpinning the 30 programs or so that we have in full development. And that's what's driving our confidence that we believe that we have a pipeline unrivaled in the industry, made up of a broad portfolio of medicines and vaccines. Some small, some likely to be small- to medium-size opportunities, but some clearly evolving to be potentially very significant opportunities.

The strategy of the group has never been to develop one single product to carry the organization forward. The strategy of the group has been to change the economics of R&D, so that we could deliver a number of products year in, year out over time, building a much broader portfolio which the new commercial models that we've been developing would be able to cost effectively commercialize. That's the model we've been prosecuting, and I think you can see from the R&D progress that that's very much on track.

If we look at the Discovery Performance Units, which I know is very much, something people are very interested in at GSK, it's one of the major changes we made to try and, if you will, bring back to life the real creativity of Discovery, this gives you a little snapshot of what's happened over the period since we began, and particularly the output from the review that took place last year that Moncef and Patrick led. And actually, these are just the kind of surface answers, if you will. Of course, we closed some DPUs, we created some new DPUs and we reshaped some DPUs. I know everybody's focused and fixated on that. It's not the story. The story is, we completely transformed the culture of Discovery inside GSK.

Read the rest of this transcript for free on seekingalpha.com