) reported third quarter 2012 earnings of 71 cents per American
Depository Share (ADS), well below the Zacks Consensus Estimate
of 89 cents. Earnings fell 21.1% from the year-ago period.
Revenues decreased 8.8% year over year to $10.3 billion. Revenues
came in below the Zacks Consensus Estimate of $10.6 billion.
All growth rates mentioned below are on a year-on-year basis and
The Quarter in Detail
The Pharmaceuticals and Vaccines sales dropped 6% and the
Consumer Healthcare sales fell 2%. Price cuts in the EU affected
the Pharmaceuticals and Vaccines revenues by 7%, while volume
decline accounted for 2% during the quarter.
Except for Emerging Markets and Asia Pacific/EMAP (11%),
Pharmaceuticals and Vaccines sales decreased in all other regions
including Japan (25%), US (6%) and Europe (9%). Worldwide sales
were affected by a number of factors including European austerity
measures and weaker performance in the US due to generic
competition and discontinuation of certain products.
In the Consumer Healthcare division, growth in Oral Care (6%) and
Nutritional (6%) was more than offset by a decline in the Total
Wellness (12%) segment. Skin Health segment remained flat year
over year. Sales decreased in the US (13%) and Europe (9%) and
increased in the Rest of the World (9%).
Meanwhile, the company bought back shares worth £787 million
during the third quarter of 2012. Total share repurchases in 2012
are expected to be between £2 billion and £2.5 billion (of which
£1.9 billion is already repurchased). The company declared an
interim dividend of about 58 cents per ADS.
The company remains on track to deliver £2.8 billion (of which
£2.5 billion is already realized) in annual savings under its
restructuring program by 2014.
Glaxo completed the acquisition of Human Genome Sciences on
August 3, 2012. With this acquisition, Glaxo gained full control
over lupus drug Benlysta, which contributed £19 million to sales.
Glaxo has identified potential cost savings of up to $250
The deal is expected to be accretive 2014 onwards. The 2012
core earnings will be slightly impacted, while the impact on 2013
core earnings is expected to be neutral.
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Recently, the specialist HIV company, ViiV Healthcare and
Shionogi & Co. revised their agreement effective from October
31, 2012. ViiV Healthcare was originally established by Glaxo and
As per the amended agreement ViiV Healthcare acquired exclusive
worldwide rights to all Shionogi-ViiV Healthcare LLC joint
venture assets which include dolutegravir, a phase III candidate.
The deal expected to negatively impact earnings by £0.01 in both
2013 and 2014.
We note that, Glaxo, Pfizer and Shionogi own 76.5%, 13.5% and 10%
of ViiV Healthcare respectively.
Glaxo reiterated its guidance and expects revenues to remain flat
year over year (at CER). Going forward, Glaxo expects a positive
revenue growth in the fourth quarter of 2012. Foreign exchange
translations are expected to impact earnings by 2% in 2012.
Additionally, core operating margin is expected to remain flat as
compared with the year-ago figure.
The company is seeking approval for several candidates including
Breo (chronic obstructive pulmonary disease/COPD), dabrafenib
(oncology) and trametinib (oncology). The company is planning to
seek regulatory approval for several other candidates including
albiglutide (type II diabetes), LAMA/LABA (COPD) and dolutegravir
(HIV) later this year.
The company is expected to provide a detailed update on the
pipeline in an investor event scheduled for December 3, 2012.
We currently have a Neutral recommendation on Glaxo. The stock
carries a Zacks #3 Rank (Hold rating) in the short run.
Several products in Glaxo's portfolio including Valtrex, Arixtra,
Evoclin, Lamictal, Imitrex, Requip, Combivir and Epivir are
facing declining sales due to intense generic competition. We
expect the company's top line and gross margins to remain under
pressure in the coming quarters. The EU pricing pressure will
continue to affect sales.
Glaxo is aiming to maximize the potential return from its
pipeline. The company is looking towards deals and acquisitions
to drive growth. The company is focusing on increasing the rights
on its partnered products and promising pipeline candidates, so
that it stands to benefit more from their success.
Glaxo's acquisition of Cellzome and Human Genome Sciences,
increasing investment in
) and amended agreement between ViiV Healthcare and Shionogi
indicate its efforts to expand the pipeline.
Apart from this, Glaxo continues to make progress with its
cost-cutting initiative, which should help reduce the impact of
increasing generic competition over the next few years and help