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Same-Day Analysis
GSK Returns to Sales Growth in 2009 as Strategic R&D Changes are Announced
Published: 2/5/2010
IHS Global Insight Perspective | |
Significance | GlaxoSmithKline (GSK) closed its books in 2009 with 3% year-on-year (y/y) sales growth and a positive net profit swing of 20.3% y/y. Generic erosion in the United States has been offset by new product sales, growth in the emerging markets, and the boost from A/H1N1 influenza (swine flu). GSK will close the door on its neuroscience drug discovery programmes in search of treatments for rare diseases. |
Implications | GSK's respiratory franchise significantly contributed to revenues in 2009, and as expected, the vaccines franchise continues to flourish. Important growth was experienced in the oncology and cardiovascular franchises. The company has once again expanded its cost-saving programme in search of efficiency savings that will drive profits. GSK considers rare diseases to be a more lucrative area of investment, and has already made strategic collaborations that will beef up its capabilities in the area. |
Outlook | Even though further generic threats lie ahead, GSK's diversified portfolio should enable it to better respond to the coming challenges. Meanwhile, continued regulatory success for new products will provide new sources of revenue for the company. These planned R&D cuts are likely to results in job losses at the company. |
Despite the challenges stemming from generic erosion in the U.S. market, U.K. pharmaceutical giant GlaxoSmithKline (GSK) was able to return to sales growth in 2009 after two consecutive years of revenue slump, thanks to the A/H1N1 influenza (swine flu) boost, and its diverse sources of revenue in terms of its performance in emerging markets and the consumer healthcare market. Total turnover was up 16.5% year-on-year (y/y) on a reported basis, and 3% y/y at constant exchange rates (CER), to £28.4 billion (US$44.6 billion). Pharmaceutical revenues were up 2% y/y at CER and 16.4% on a reported basis to £23.7 billion, while its consumer healthcare business increased 7% y/y at CER and 17.2% on a reported basis, to almost £4.0 billion. Genericisation in the U.S. market continued to put downward pressure on revenues in the region, which shrank by 13% at CER. Meanwhile, sales in the European market were up 9% y/y at CER, but the key areas of growth were Japan and the Emerging markets, which were up 22% and 20% respectively at CER.
On the expenses side, the cost of sales increased 15% on a reported basis, to £7.4 billion, due to the loss of higher-margin products to generic competition; however, savings from the cost restructuring programme helped to offset some of this impact. Selling, general, and administrative (SG&A) costs were up 22% y/y on a reported basis, and despite gains from the restructuring programme, the impact of legal charges of £591 million, the Stiefel acquisition, and A/H1N1 vaccine donations contributed to growth. On the research and development (R&D) front, costs were down by 7% y/y on a reported basis.
GSK's Operational Excellence programme is being extended and will now aim to deliver an additional £500 million of savings by 2012. The programme led to savings of £1 billion in 2009, and the company still expects annual savings as a result of the programme to reach £1.7 billion by 2011. Prior to releasing its full-year results, various media sources had reported that up to 3,000 jobs will be axed in the United States and Europe, and the company's announcement of planned restructuring in research and development (R&D) provides justification that job cuts are indeed ahead; however, an exact figure is not yet available (see United Kingdom: 1 February 2010: GSK to Cut More than 3,000 Jobs and Increase Focus on Emerging Markets).
GSK Selected Results for Q4 and Full-Year 2009 | ||||
Q4 2009 (£ mil.) | % Change* | Full-Year 2009 (£ mil.) | % Change* | |
Total Turnover | 8,094.0 | 17.1 | 28,368.0 | 16.5 |
Pharmaceuticals | 6,916.0 | 19.0 | 23,714.0 | 16.4 |
Consumer Healthcare | 1,178.0 | 6.0 | 4,654.0 | 17.2 |
Other Revenues | 553.0 | 316.0 | 1,135.0 | 110.0 |
Cost of Sales | 2,119.0 | 8.5 | 7,380.0 | 15.0 |
SG&A Expenses | 2,954.0 | 28.7 | 9,592.0 | 25.3 |
R&D Spending | 1,127.0 | -7.0 | 4,106.0 | 11.5 |
R&D as % of Sales | 13.5% | 4.0 pp lower | 14.5% | 0.6 pp lower |
Operating Income** | 2,124.0 | 30.7 | 7,290.0 | 10.5 |
Operating Margin (%)*** | 26.2 | 5.2 pp higher | 25.7 | 1.4 pp lower |
Net Profit | 1,668.0 | 64.0 | 5,669.0 | 20.3 |
Source: GSK | ||||
In terms of its pharmaceutical portfolio, even though its respiratory franchise continues to be the most lucrative sector of the business, with sales up 5% y/y at CER to almost £7 billion, the key drivers of growth were vaccines and anti-virals, both due to pandemic A/H1N1 flu sales. The anti-virals business soared 12% y/y to £4.1 billion, mainly as a result of sales of Relenza (zanamivir), which amounted to £740 million. Vaccine sales were up 30% y/y at CER to £3.7 billion, with pandemic A/H1N1 flu vaccines clocking sales of £883 million. The cardiovascular and urogenital franchise also helped to stir positive sales turnover with an 8% y/y increase at CER, while steady gains were made in oncology and emesis, with a 10% y/y increase at CER. Looking at the performance of some individual drugs, Seretide/Advair (salmeterol/fluticasone propionate) maintained its position as GSK key earner, with sales of almost £5.0 billion, up 5% y/y at CER; sales of prostate cancer drug Avodart (dutasteride) were up by 16% y/y at CER, to £530 million; and sales of cardiovascular drug Lovaza (omega-3-acid ethyl esters) were up 31% y/y, to £450 million.
The central nervous system franchise continued to feel the pinch from generic competition in 2009, with sales down by 44% y/y at CER. This plunge was driven by epilepsy and bipolar disorder drug Lamictal (lamotrigine), which saw its sales decrease by 53% y/y to £500 million; Parkinson's disease drug Requip (ropinirole), down 30% y/y; Imigran/Imitrex (sumatriptan), down 65% y/y; and antidepressant Wellbutrin (bupropion), down 67% y/y. The metabolic franchise also continued to take the hit from the genericisation of Avandia (rosiglitazone) products, with sales down 16% y/y.
Q4 and FY 2009 Sales of GSK Pharmaceutical Products | ||||
Brand | Q4 2009 (£ mil.) | % Change at CER | Full-Year 2009 (£ mil.) | % Change at CER |
Respiratory | 1,914 | 7 | 6,977 | 5 |
Seretide/Advair (fluticasone + salmeterol) | 1,366 | 7 | 4,977 | 5 |
Flixotide/Flovent (fluticasone) | 222 | 3 | 775 | 5 |
Ventolin (salbutamol) | 139 | 28 | 477 | 26 |
Flixonase/Flonase (fluticasone propionate) | 61 | -14 | 236 | -19 |
Serevent (salmeterol) | 35 | -14 | 171 | -20 |
Avamys/Veramyst (fluticasone furoate) | 33 | 36 | 142 | 72 |
Zyrtec (cetirizine) | 22 | 67 | 75 | 58 |
Anti-virals | 1,033 | 9 | 4,150 | 12 |
HIV | 412 | -3 | 1,605 | -7 |
Valtrex (valacyclovir) | 222 | -34 | 1,294 | -8 |
Relenza (zanamivir) | 256 | >100 | 720 | >100 |
Epzicom/Kivexa (abacavir + lamivudine) | 149 | 11 | 546 | 8 |
Combivir (zidovudine + lamivudine) | 109 | -5 | 425 | -13 |
Trizivir (abacavir + lamivudine + zidovudine) | 49 | -19 | 201 | -17 |
Zeffix (lamivudine) | 55 | N/A | 217 | -1 |
Agenerase/Lexiva (fosamprenavir calcium) | 44 | -9 | 178 | -4 |
Epivir (lamivudine) | 30 | -17 | 129 | -19 |
Ziagen (abacavir) | 27 | -7 | 105 | -13 |
Central Nervous System | 504 | -27 | 1,870 | -44 |
Lamictal (lamotrigine) | 132 | -27 | 500 | -53 |
Seroxat/Paxil (paroxetine) | 139 | -16 | 523 | -15 |
Imigran/Imitrex (sumatriptan) | 81 | 50 | 266 | -65 |
Wellbutrin, Wellbutrin XL (bupropion) | 22 | 64 | 132 | -67 |
Requip (ropinirole) | 65 | 3 | 209 | -30 |
Treximet (sumatriptan and naproxen sodium) | 14 | 15 | 55 | 88 |
Cardiovascular and Urogenital | 615 | 10 | 2,298 | 8 |
Avodart (dutasteride) | 143 | 16 | 530 | 16 |
Lovaza (omega-3-acid ethyl esters) | 129 | 29 | 450 | 31 |
Arixtra (fondaparinux sodium) | 74 | 31 | 254 | 29 |
Fraxiparine (nadroprarin) | 60 | 2 | 229 | -7 |
Coreg, Coreg CR (carvedilol) | 31 | 46 | 172 | -29 |
Vesicare (solifenacin) | 29 | 26 | 104 | 24 |
Levitra (vardenafil) | 17 | 6 | 75 | 7 |
Volibris (ambrisentan) |
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