GlaxoSmithKline PLC (GSK)

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GlaxoSmithKline (GSK)

Q4 2018 Results Conference Call

February 06, 2019 09:00 AM ET

Company Participants

Sarah Elton-Farr - Head of Investor Relations

Emma Walmsley - Chief Executive Officer

Simon Dingemans - Chief Financial Officer

Hal Barron - Chief Scientific Officer and President of R&D

David Redfern - Chief Strategy Officer

Conference Call Participants

Richard Parkes - Deutsche Bank

Tim Anderson - Wolfe

Emmanuel Papadakis - Barclays

Graham Parry - Bank of America

Keyur Parekh - Goldman Sachs

James Gordon - J.P. Morgan

Mark Purcell - Morgan Stanley

Kerry Holford - Exane BNP Paribas

Steve McGarry - HSBC



[Call Started Abruptly] Analyst Call on the GSK Fourth Quarter 2018 Results. During the presentation your lines will remain on listen only [Operator Instructions].

I will now hand you over to Sarah Elton-Farr, Head of Investor Relations, who will introduce today's session.

Sarah Elton-Farr

Thank you. Good morning and good afternoon. Thank you for joining us for our full year 2018 results, which were issued earlier today. You should have received our press release and can view the presentation on GSK's Web site. For those not able to view the webcast, slides that accompany today's call are located on the Investors section of the GSK Web site. Before we begin, please refer to Slide 2 of our presentation for our cautionary statements.

Our speakers today are Chief Executive Officer, Emma Walmsley; Simon Dingemans, Chief Financial Officer; and Dr. Hal Barron, Chief Scientific Officer and President of R&D. We have a broader team available for Q&A.

We request that you ask only a maximum of two questions so that everyone has a chance to participate. Our presentation will last for approximately 45 minutes, slightly longer than usual to get Hal time to update you on our R&D progress.

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

Emma Walmsley

Thank you, Seth. Before we take you through our 2018 achievements, as this is the last quarter that Simon is going to representing GSK, I would really like to take the opportunity to reiterate my sincere thanks and appreciation to him for all he has done for the company over the last eight years. Our CFO designate, Iain Mackay, is also on the call today just in listening mode at this time. And he will be enrolled in April, so you will hear more from him on our Q1 call in May. I'm absolutely delighted to welcome him to our team.

In 2018, we have made good progress across the group with improvements in sales, the group operating margin, earnings per share and cash flow. Group sales growth of 5% in CER terms reflected an increase in sales in all three of our global businesses, with the particularly performance in vaccines. The pharma business continues to shift its portfolio shape with excellent new launch growth and although consumer had a slower quarter, we remain confident and excited about the outlook for this business.

Group operating margins this year were up 50 basis points on a CER basis. On a total basis, earnings per share more than doubled to 73.7 pence and adjusted earnings per share were up 12% CER. Our free cash flow position continues to improve, and we are particularly pleased with the underlying improvement in our cash flow. For the year, free cash flow was almost £5.7 billion, up 63% in actual terms versus last year. Today, we declared a dividend in respect of the fourth quarter of £0.23, resulting in a total dividend for 2018 of £0.80.

When I became CEO of GSK in 2017, I laid out my three long-term priorities for the company: innovation, performance and trust, all to be powered by necessary change in culture. In 2018, we made significant progress on accelerating these priorities, have improved our operating performance and reshaped the group's portfolio, including development of the pipeline. We put in place new leadership who are already driving shift in our culture. We put a clear focus on launch execution, and have had considerable success, notably with Shingrix but also with Trelegy and Respiratory in the first of our two drug regimens in HIV.

Our clear priority is to improve pharma performance and pipeline, Luke Miels, President of Commercial Pharma has been restructuring to focus our commercial operations alongside a reduced manufacturing footprint. And last July, Hal, our Chief Scientific Officer, laid out our new R&D approach with a focus on science related to the immune system the use of genetics and advanced technologies, and he will update you more on our good progress since then later.

We have also made significant progress in reshaping the portfolio. Our first focus was R&D program prioritization, and here we've terminated or divested around 80 programs since 2017, including seven within the last few months to invest more behind the potential medicines we see bringing greater value to patients and stronger growth to GSK. Of particular note is the expansion in oncology from aged drugs in the clinic in July last year to now 16 with three pivotal study readouts by year end. We stepped up business development, be it in our partnership with 23andMe, the recently closed transaction with TESARO or the global alliance we announced just yesterday with Merck KGaA, Darmstadt, Germany.

We have made non-core divestments such as the announced divestment of Horlicks to Unilever. We have successfully bought out the Novartis stake in consumer healthcare. And at the end of the year, we made our most transformational announcement to date with a plan to create a new joint venture with Pfizer.

Looking out briefly at the new product launches, we have seen a very strong start to Shingrix in 2018 with sales of £784 million in its first full year. We have now administered more than 9 million doses globally since launch. And as we said last quarter, we are working hard to build capacity and meet long-term global demand and we have made good progress on this.

Moving to Respiratory. Trelegy has achieved sales of £156 million in its first full year. Labels in both the U.S. and Europe have been updated with data from the landmark IMPACT study, showing benefits over Zejula therapies and the international rollout continues. We expect the recently approved generic Advair to have minimal impact on this highly differentiated product, the first approved once daily single inhaler triple therapy for COPD. And we look forward to the patent study for Trelegy in asthma, which is expected to report in the spring.

We continue to see strong performance also from our injectable asthma therapy Nucala despite the introduction of two new biologics during 2018. With additional investments, new patient growth in the U.S. has improved and in other key markets where competition is also launched, including Germany and Japan, Nucala continues to lead both the total market and the new patients. In 2019, we do expect the competition to intensify and near term growth will be lower. But we believe the market opportunity is still significant with less than 25% of suitable patients receiving therapy today, and we are excited about the opportunity to provide the convenience of home administration and have filed for U.S. and EU approval of an autoinjector.

Read the rest of this transcript on seekingalpha.com