GSK slips despite strong first quarter debut for Emma Walmsley

GlaxoSmithKline's new chief executive Emma Walmsley reported a strong first set of quarterly results, as the drug group grew sales better than forecast, improved profit margins and kept its dividend on track.

Helped by the weak pound, sales reached £7.4bn in the three months to the end of March, up 19% on the first quarter last year, or 5% if currency effects are excluded.

Sales grew at three businesses, rising 17% at pharmaceuticals to £4.2bn (4% at constant exchange rates), 31% at vaccines to £1.2bn (16%) and 16% at consumer healthcare to £2.0bn (2%).

Group operating margins widened 2.3 percentage points to 26.8% reflecting sales growth, particularly in vaccines, plus tight cost control and benefits of restructuring, which all helped lessen the effects of continued price pressure, particularly in respiratory, and investment in the supply chain.

New respiratory drugs more than offsetting the decline in Advair sales, easing the pain felt from the end of the blockbuster's patent, while from the GSK pipeline total new product sales reached £1.4bn, up 72% and on track to deliver £6bn in 2018.

Adjusted earnings per share of 25.0p were up 31% on a reported basis and 9% at CER, with the board declaring a dividend of 19p per share, as expected, to keep on track for the pledged 80p full year total.

Calling it "a positive start for the year", Walmsley said: "Our clear focus is on commercial execution and preparation for near-term launches in respiratory, HIV and vaccines."

Later on a conference call, the CEO, who last month was promoted to replace longtime boss Sir Andrew Witty after his retirement, said she was committed to the group's three-pillar structure and confirmed there were no plans to spin-off the consumer healthcare division.

But investors will have to wait until second-quarter results on 26 July before hearing the results of Walsley's review of "these and other priorities for the business".

She did say said she wanted to renewed focus on the commercialisation of GSK's research and development in order to improve the rate of return.

Recently published studies has demonstrated encouraging data for Nucala for severe asthma, a combination therapy for HIV, for shingles vaccine Shingrix, while former prescription drug Flonase Sensimist for allergy relief was launched as an over-the-counter product in the US, the second such switch in three years.

Reaction and analysis

Shares in GSK, having approached but not breached the 1,700p mark last month, fell 1.5% to 1,575p by mid afternoon on Wednesday.

Analyst Nicholas Hyett at Hargreaves Lansdown said vaccines were the standout performer, with new drugs impressing across the board.

"However, we remain a little in limbo as far as the future of GSK is concerned. Sir Andrew Witty was with the pharmaceuticals giant for 32 years, but his replacement Emma Walmsley is a relative newbie to the world of pharma.

"Does new blood mean a new direction? Ms Walmsley may be seen as the heir to Sir Andrew, but she’s still likely to want to stamp her mark on the group. We will have to wait until the end of July to find out.”