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GlaxoSmithKline PLC (GSK)

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GlaxoSmithKline Plc (GSK)

Q1 2018 Earnings Call

April 25, 2018 9:00 am ET

Executives

Sarah Elton-Farr - GlaxoSmithKline Plc

Emma Walmsley - GlaxoSmithKline Plc

Luke Miels - GlaxoSmithKline Plc

David Redfern - GlaxoSmithKline Plc

Simon Dingemans - GlaxoSmithKline Plc

Hal V. Barron - GlaxoSmithKline Plc

Analysts

Graham Parry - Bank of America Merrill Lynch

Keyur Parekh - Goldman Sachs International

Emmanuel Papadakis - Barclays Capital Securities Ltd.

James D. Gordon - JPMorgan Securities Plc

Andrew S. Baum - Citigroup Global Markets Ltd.

Michael Leuchten - UBS Ltd.

Jo Walton - Credit Suisse Securities (Europe) Ltd.

Richard Parkes - Deutsche Bank AG

Laura Sutcliffe - Joh. Berenberg, Gossler & Co. KG (United Kingdom)

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the GSK Q1 2018 Results Analyst Call. My name's Ziogi and I'll be your conference operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session.

I will now hand the call over to Sarah Elton-Farr, GSK Investor Relations. Please go ahead.

Sarah Elton-Farr - GlaxoSmithKline Plc

Thank you. Good morning and good afternoon, everyone. Thank you for joining us to discuss our Q1 2018 results, which were issued earlier today. You should have received our press release and can view the presentation on GSK's website. For those not able to view the webcast, slides that accompany today's call are located on the Investor section of the GSK website.

Before we begin, please refer to slide 2 of our presentation for our cautionary statements. Our speakers today are Chief Executive Officer, Emma Walmsley; Luke Miels, President of Global Pharmaceuticals; David Redfern, Chief Strategy Officer and Chairman of Viiv; and Simon Dingemans, Chief Financial Officer.

Following our presentation, we will open the call to questions and answers. We request that you ask only a maximum of two questions so that everyone has a chance to participate. Joining us for Q&A are Dr. Hal Barron, Chief Scientific Officer and President of R&D; David Redfern – oops, sorry, already said David – Brian McNamara, CEO of our Consumer Healthcare Business; and Luc Debruyne, President of Global Vaccines.

And with that, I will hand the call over to Emma.

Emma Walmsley - GlaxoSmithKline Plc

Thanks very much, Sarah, and good morning, good afternoon to everybody.

As we've said previously, a strategic strength for GSK is our balanced business profile, beyond Pharma, for sustainable growth, returns, and cash flows. And I'm pleased to say that in our first quarter 2018 we've continued to deliver growth across the business on a CER basis with a strong focus on commercial execution. This performance represents encouraging progress and is in line with our expectations for the year.

We delivered group sales growth of 4% in CER terms in the first quarter. In Pharma, our new Respiratory portfolio grew at 42%, including the first full quarter's contribution from Trelegy. So our new products are generating strong growth, and we're increasing our share in the important U.S. market.

In HIV, we continue to deliver double digit growth, driven by continued increases in market share for Tivicay and Triumeq, as well as the first full quarter of sales of Juluca, the first of our new two drug regimens in HIV.

Vaccines was up 13% with a strong and fast start from Shingrix.

In Consumer Healthcare, we delivered 2% growth, in line with our expectations.

This group sales performance, combined with continued cost discipline, helped deliver a further improvement of 130 basis points in the group adjusted operating margin at constant exchange rate. And this has driven adjusted EPS growth of 11% and free cash flow of £324 million, impacted by the payment of a milestone to Novartis.

In July last year, I laid out my long term priorities for the whole company: Innovation, performance, and trust. These priorities are designed to support changes and the new focus we need to reach our goals and to position us for stronger growth in the 2020s and beyond.

In 2018, we are particularly focused on three things, all underpinned by the start of a necessary shift in culture. First is excellence in commercial execution. Our new launches continue to perform well. And we've seen encouraging starts for Trelegy, Juluca, and Shingrix. Luke and then David will give you more of an update on these in just a moment, as well as our growth in new Respiratory products and HIV.

The second very important priority this year is strengthening R&D. Dr. Hal Barron joined us at the beginning of the year and is set to give a first update on our R&D direction and priorities at Q2. In the meantime, we continue our portfolio review, which together with changes we're making throughout the company, is going to allow us to invest more resources behind what we see as the assets with the highest potential for GSK, such as our multiple myeloma therapy, BCMA.

Our third major focus in 2018 is cost, cash, and capital discipline. We're allocating resources to those areas where we see the best returns. We're investing behind our new product launches with a focus on priority markets. Funding is coming through savings made with changes to our supply chain and by restructuring our commercial ops to take cost out of the back office and invest it in customer-facing activities.

When it comes to capital allocation, we made significant progress this quarter with the announcement of the buyout of the Novartis stake in Consumer Healthcare joint venture. This will allow GSK shareholders to capture the full value of a business we believe is well-positioned to deliver future sales growth and continued operating margin improvement.

This transaction is expected to be accretive to earnings, and it strengthens cash flows. Most importantly, it removes a long term uncertainty for the group's capital planning, allowing us to better plan future capital allocation, in particular, to strengthen our Pharma R&D pipeline, which is our number one priority.

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