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CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
©2014TheStreet,Inc.Al l R ightsReserved Page1of18
GlaxoSmithKline(GSK)EarningsReport:Q12016ConferenceCallTranscriptThefollowingGlaxoSmithKlineconferencecalltookplaceonApril27,2016,09:00AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
AndrewWitty;GlaxoSmithKline;CEOSimonDingemans;GlaxoSmithKline;CFO
OtherPart icipants
AndrewBaum;Citigroup;AnalystJamesGordon;JPMorgan;AnalystGrahamParry;BoAMerrillLynch;AnalystRichardParkes;DeutscheBank;AnalystTimAnderson;SanfordC.Bernstein&Co.;AnalystJoWalton;CreditSuisse;AnalystKerryHolford;ExaneBNPParibas;AnalystSteveScala;CowenandCompany;AnalystJeffHolford;JefferiesLLC;AnalystNicolasGuyon;MorganStanley;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodday,ladiesandgentlemen.WelcometoGSK'sAnalystandInvestorcall.
(OperatorInstructions)
AndnowwewouldliketohandthecallovertoSirAndrewWitty,CEO.
AndrewWitty(CEO):
Thankyouverymuch.Goodafternoon.WelcometothisQ1call.
Asyoucanseefromtheresultswe'vejustpublished,we'vehadastrongfirstquarter,demonstratingcontinuedmomentumacrossthegroup.Reportedsalesgrew8%inthequarterandatGBP0.198,coreearningspersharealsogrew8%,bothatconstantcurrency.
Thisprovidesfurtherevidencethatourstrategyhasdelivered,andalthoughearlyintheyear,givesusincreasedconfidenceinourabilitytodeliveragainstbothshortandmedium-termtargets.WenowexpectcoreEPSpercentagegrowthtobe10%to12%for2016atCER.We'vesetadividendofGBP0.19forthisquarterandcontinuetoexpecttopayGBP0.80forthefullyear.
I'mpleasedtosaythatallthreebusinesseshavecontributedwelltoperformancethroughQ1,demonstratingourfocusonexecutingthestrategyandourabilitytoallocatecapitalflexiblytogeneratethebestreturn.GroupsaleswereGBP6.2billion,up6%onaproformabasis.
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
©2014TheStreet,Inc.Al l R ightsReserved Page2of18
Importantly,wesawcontinuedmomentumfromourportfolioofnewpharmaandvaccineproducts,withsalesofGBP821million.HIVproducts,TivicayandTriumeqcontinuetogrowstrongly,withcombinedsalesofGBP516million.Salesofournewrespiratoryportfoliooffset70%ofthedeclinewesawinSeretide/Advair.
It'sworthnotingthatintheUSalone,salesofTivicayandTriumeqequaledthesalesofAdvairandIthinkjustdemonstratesthepaceatwhichthenewproductsarebeginningtonowrotateinandinplaceoftheolder,moreestablishedproducts.Alsojustwanttocalloutoneotherstatisticsthatclearlydemonstratesthisprogress.Salesofnewpharmaproductsnowrepresent20%ofourtotalpharmasales,andthat'supfrom16.5%inQ4.
Inourotherbusinesses,vaccinesgrew14%proforma,benefitingfromgoodgrowthinmeningitisvaccines,whichIthinkclearlydemonstratethevaluethatGSKhasbroughtastheownerofthisportfolio.
Consumerhealthcaregrew4%,againproforma,withcontinuedverystrongperformancefromthesalesofFlonaseOTCinAmerica,butalongsideotherbrandssuchasSensodyneandTheraflu.Improvedsalesmomentumcombinedwithourcontinuedfocusoncostshasledtoanimprovementinthemarginsofallthreebusinesses,andweremainontracktoreachthetargetswesetoutlastyear.
TurningtoR&D,wecontinuetoseegoodprogressinourcoretherapyareasofrespiratory,HIV,immuno-imflammation,oncologyandraredisease.InvaccinesweareontracktofileShingrix,ourcandidatevaccineforshinglesinthesecondhalfofthisyear.Duringthequarter,IwasverypleasedtoseeStrimvelis,ourpotentialproductforultrararediseaseADA-SCIDreceiveapositiveopinioninEurope.Thisisanimportantmilestoneandifultimatelyapprovedwillbethefirstcorrectivegenetherapytreatmentforchildrenwiththisdevastatingdisease.
I'malsopleasedwiththeprogresswe'remakinginouroncologyassetwithFDAbreakthroughtherapydesignationawardedforNY-ESOinsynovialsarcomaandpositivedataforourBETinhibitor.Wenowhave11oncologyassetscurrentlyinPhaseIorII.
Inconclusion,whatwe'veseeninQ1demonstratesthestrategywe'vebeenpursuingiscapableofdeliveringbothsalesandearningsgrowthfromasetofbalancedbusinesses,underpinnedbyaproductiveR&Dorganization.That'simportantasthetradingandpricingenvironmentremainsaschallengingaseveroverthenextcoupleofyears.
Withthat,I'llhandovertoSimontotalkyouthroughthedetailofthefinancials.
SimonDingemans (CFO):
Thankyou,Andrew.
Ourresultsforthefirstquartershowastrongstarttotheyear,andwhileit'sstillearlydaysof2016,we'reencouragedbythebreadthofmomentumwe'reseeingacrossthegroup,evenafterfactoringinthebenefitsofthequarterofsomephasinggains,particularlyinvaccines.
Newproductsinpharmaceuticalsandvaccinescontinuetobuildandcontributed820million--GBP821millioninthequarter,upoverGBP500millionfromQ1lastyear.Thenewmeningitisportfolioisdrivingstronggrowthforvaccines,andconsumercontinuestodeliverinnovation-ledprogress.
Thismorebalancedandconsistentgrowth,togetherwithcontinuedtightcontrolofourongoingcosts,andthesignificantprogresswemadeinthequarterinexecutingonourrestructuringandintegrationplanshelpeddeliverbetteroperatingleverageandimprovedmarginsinallthreebusinesses.
ThequarteralsohighlightshowmuchbetterplacedweareposttheNovartistransactiontodeliveron
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
©2014TheStreet,Inc.Al l R ightsReserved Page3of18
ourfinancialarchitectureanddriveearningspersharegrowthaheadofsales,whilealsoprovidingtheflexibilityweneedtoinvestinthebusinessandcontinuingtosupportthedividendexpectationswe'velaidout.Inevitably,there'sgoingtobesomequarterlyvolatilityasweexecuteonourplans,particularlyinoperatingmargin.
Butaswe'vesaidanumberoftimes,weneedtomaintainflexibilityacrosstheP&Lifwe'retodevelopanddeliveronthefinancialobjectiveswe'veset.Ourearningsreleaseprovidesanextensiveamountofdetailabouttheresultsforthequarter,somycommentswillprimarilyfocusonthemajorpoints,myexpectationsfortheremainderof2016,aswellasanycomparativepointsyoumightwanttotakenoteofinyourmodeling.Asusual,commentswillbefocusedonCERgrowthandcoreresults.
Inthefirstquarter,wesawapositivetailwindof3%onsalesand6%oncoreEPSasaresultofcurrencyswings,particularlytherecentweaknessofSterlingagainstmostofourmajortradingcurrencies.Takingthequarterendratesasconstantfortherestoftheyearwouldindicateatailwindtoearningsinthefullyearofaround8%.Turningtotheheadlineresults,groupsalesup8%onareportedbasis,6%proforma.
Thegroup'scoreEPSgrew8%toGBP0.198despitethetoughcomparisonwithQ1lastyear,whichincludedthehighermarginoncologybusinessinthebasefortwomonths.TotalEPSforthequarterwasGBP0.058,downsignificantlycomparedtoQ1lastyear,which,remember,benefitedfromaGBP9.3billiongainonthedisposaloftheoncologybusiness.
Totalresultsalsoreflecttheacceleratedpaceofrestructuringchargesthatwetoldyouwouldcontinuetobeamajorfactorin2016,beforefallingawayin2017astherestructuringandintegrationprogramsstarttocometoanend.
Theothermajorfactorimpactingtotalresultsarenon-cashtransaction-relatedchargesasweunwindthediscountontheconsumerputsandthecontingentconsiderationwehavedueforViiVandtheNovartisvaccineacquisitionsandaboutGBP200millionoftheGBP460millionthat'sbeenchargedthisquarterisunwind,andyoushouldexpectsimilaramountsgoingforwardeachquarteruntiltheputsbecomedue.Therestreflectsremeasurementoftheliabilitiesasthevalueofthebusinessesconcernedareupdatedeachquarter.
Turningthentoourthreedivisions,pharmaceuticals,whichnowincludesHIVsales;wasup5%to10%proformawithstronggrowthfromnewproducts,morethanoffsettinglowersalesofSeretide/AdvairandAvodart.HIVsalesgrew57%inthequarter,asTriumeqandTivicaycontinuedtogrowstrongly,andIexpecttheHIVportfoliotocontinuetobuildduringthecourseoftheyear,althoughtherateofgrowthshouldbeexpectedtoslowaswemovethroughthe2016,giventhehighercomparisonswe'reupagainst,particularlyaswemoveintothesecondhalf.
Also,rememberthatEpzicomgoesgenericintheUSinQ3,andwemayalsoseesomegenericactivityinEuropeinthesecondhalf.USpharmasalesweredown4%proforma,primarilydrivenbythedeclineinAvodartfollowinggenericcompetitionthatbeganinQ4lastyear.TotalrespiratorysalesintheUSgrew2%asgrowthfromournewproductsmorethanoffseta19%declineforAdvair.WecontinuetoexpectUSAdvairsalestobedownaround20%forthefullyear.
InEurope,pharmasalesweredown6%proforma,mainlyreflectinga24%reductioninSeretideduetothegrowingimpactofgenerics,butmoreimportantly,theongoingtransitiontoournewElliptaproducts.MoreofSeretide'svolumedeclinewenttoRelvarthanthegenerics.WecontinuetoexpectSeretidetodeclinearound20%intheregionthisyear,whilethatmaybealittlehighdependingonthepaceoftransitiontothenewproducts.
Withininternational,salesinemergingmarketsweredown1%proformaoverall,impactedbythecontinuedpressureonourChinabusinessfromhealthcaresectorreforms,includingsignificantprice
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
©2014TheStreet,Inc.Al l R ightsReserved Page4of18
reductionsandthecontinuedreshapingofourbusiness.BeyondChina,otheremergingmarketsalesgrew5%proforma,benefitingfromsomeimprovedsupplyanddespiteadragofaround4%frombusinessesthatwe'veexited.
InJapan,salesdown8%proforma,despitegoodgrowthintherespiratoryportfolio,wherewecontinuetoseestrengthup4%,withthedeclinereallyreflectingthebiannualpricecutsandsomeshort-termsupplydisruptions.Overall,Icontinuetoexpectpharmasalestoreturntogrowthin2016withcontributionsinnewproductsoffsettingthedeclinesinSeretide/Advair,establishedproductsandAvodart.Onvaccinesaparticularlystrongquarter,salesup14%proforma,benefitingfromsomeearlierthanexpectedphasingofinternationaltendersandsomeadditionalpurchasesfromtheCDCintheUS.
AsignificantpartofthisphasingislikelytoreverseinQ2andQ3.IntheUS,inadditiontotheCDCorder,severalproductscontinuetogrowmarketsharestrongly,includingBexserobutalsoBoostrixandPediarix,althoughPediarixalsobenefitedfromacompetitorshortage.
InEurope,vaccineshadaparticularlystrongperformance,up33%proforma,andthebusinesscontinuestodevelopitsportfoliowhileparticularlyinmeningitisinbothprivateandpublicmarkets.Internationalvaccinesgrew3%proforma,helpedbythephasingoftendersforSynflorixwhichgrew53%andstrongmeningitissales.
Thesegrowthcontributionsweresignificantlyoffsetbytheimpactofsomeofthesupplyconstraintswe'vetalkedaboutbeforeandthatwe'reworkingontodealwith.We'recontinuingtoinvestinoursupplychainandparticularlytoimproveoursupplycapacityforBexserogiventherapidgrowthinitsdemand.Thiswilltakesometime,butwe'reoptimisticthatwewillseeimprovedBexserosupplyinthesecondhalf.Andwecontinuetoexpectthatoverall,thevaccinesbusinesswillachievemidsingle-digitproformagrowththisyear.
Consumerhealthcaresalesup26%and4%onaproformabasis,withbusinessdeliveringanotherstrongquarterforFlonaseintheUS,whichbenefitedfromlaunchinganumberofinnovativelineextensions.Competitoractivityinthecategoryincreasedduringthequarter,particularlyprivatelabel,andisexpectedtobetougherinQ2.
OralcaresalesintheUSwerealsostrongwithSensodynedeliveringdouble-digitgrowth,againfollowinganumberofnewproductintroductions.InEurope,VoltarenandOtravinbothdeliveredstronggrowthbenefitingfromtheenhanceddistributionofthecombinedbusiness.Oralcarefacedsomewhattoughercompetition,whichreducedthegrowthrateswesawonSensodyneanddenturecareintheregion.
Ininternational,goodgrowthacrossmostcategoriesandsubregionswaspartlyoffsetbylowersalesofHorlicksinIndia,whichreflectedasignificantslowdowninruralmarketsandsomewholesalerdestocking.Significantinnovationisplannedforthisbrandduringthecourseoftheyear.Overallfor2016,wecontinuetoexpectproformatoplinegrowthintheconsumerbusinesstobeinthemidsingle-digitrange.
Movingtocoreoperatingprofitexcludingcurrency,thereportedcoreoperatingmarginof25%wasup110basispointsinconstantcurrencyterms,andonaproformabasis,up430basispoints.Thesignificantmoveinthegroupmargindemonstratestheimprovedoperatingleveragewebuiltintoallthreebusinessesonthebackofourrestructuringandintegrationprogramsandinparticular,theincreasedflexibilitywenowhaveinthecostbasetoreallocateresourcesandcapitaltowhereweseethemostattractivereturns.
ThishasallowedustostepupinvestmentbehindnewproductlaunchesinHIV,respiratoryvaccinesandconsumer,aswellasadvancingourR&Dpipelineandimprovementstooursupplychain,allofwhichwe'vebeendoingwhilereleasingsignificantrestructuringandintegrationsavingstooffsetmargindrag
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
©2014TheStreet,Inc.Al l R ightsReserved Page5of18
we'reseeingfromthedeclineofourolderproducts.
RestructuringandintegrationhadastrongstarttotheyearwithincrementalsavingscomparedtothefirstquarterlastyearofnearlyGBP400million,andwesawgoodexecutioninallthreebusinesses.Thelevelofincrementalsavingsgoingforwardwillbeupagainsttoughercomparators,butwe'restillontracktodeliverincrementalsavingsfortheyearasawholeofGBP800millionintotal,inlinewithourobjectivestoacceleratetheoverallprogram.
Thesesavingsareinevitablygoingtobeunevenlyphasedthroughtheyear,equallytheneedforinvestmentsinthebusinessisalsolikelytovaryquartertoquarter,andthisisreallywhat'sdrivingourexpectationofsomequarterlyvolatilityinmargins,asweexecuteonourplans.MovingdowntheP&L,it'salsoworthflaggingthattheroyaltyincomeforQ1includedapositivecatch-upfromlastyear.FullyearroyaltiesareexpectedtobearoundGBP250toGBP300millionpounds.
OnthebottomhalfoftheP&Lcorefinancingcostsbroadlyflat.Icontinuetoexpectamodestincreasefortheyearasawhole,andthecoreeffectivetaxratewas21%versus20%inQ1lastyear.Here,westillexpectacorerateof20%to21%fortheyearasawholeasaresultofthemixofprofitsbeingmoreweightedtotheUS.
OurcashflowexcludinglegalsettlementsofGBP73millionandadjustingforthetaxpaymentsontheNovartistransaction,restructuringchargesandthecostoftheBMSacquisition,allofwhichwerefundedinthequarterfromretaineddisposalproceeds,theunderlyingfreecashflowwasGBP456million,anincreaseofoverGBP100million.Thisimprovementreflectshigheroperatingprofitsprimarilyacrossallofthebusinesses,withsomecurrencybenefit,whichmorethanoffsettheincreasewesawinthequarterbehindseasonalworkingcapitalandworkingcapitalbackingfornewlaunches.
Weexpectthistoreverseduringthebalanceoftheyear.NetdebtattheendofthequarterwasGBP12.5billioncomparedtoGBP10.7billionattheyearend.AfterfactoringinadragofaboutGBP0.5billionintranslation,thiswasinlinewithourexpectations,asweacceleratetheinvestmentstocompletetherestructuringandintegrationprograms.
AswepayoutthefourthquarterdividendandthespecialdistributionfromNovartisthismonth,netdebtwillagainincreaseinQ2,butisstillexpectedtobebelowpre-Novartislevelsandthenshouldstarttobenefitfromimprovedcashflows,asthetransactionandnewproductlaunchescontributemoremeaningfullyandtheintegrationandrestructuringprogramsbegintocometoanend.Wecontinuetoexpectasignificantstep-downinrestructuringspendaswegointo2017.
Soinsummary,Q1hasbeenanencouragingstarttotheyear,andwe'repleasedwiththemomentumacrossthebusiness.Restructuringandintegrationisprogressingwell,andthestrongstarttotheyearhasprovideduswiththeabilitytogiveamorespecificoutlookfortherestoftheyear,eventhoughwe'relikelytostillseesomevolatilityaswemovethroughit.
Overall,wenowexpectcoreEPSgrowthin2016of10%to12%onaCERbasis.Andwiththat,I'llhandittoAndrew.
AndrewWitty(CEO):
Great.Thanks,Simon.Operator,maybewecouldopenupforQ&A,please.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
©2014TheStreet,Inc.Al l R ightsReserved Page6of18
AndrewBaumfromCiti.
AndrewBaum(Analyst-Citigroup):
Thankyou.Acoupleofquestions.TheinflectionrateintheUSthatIncruseBreoisfairlyclear.Whatislessclearisthedynamicsunderlyingthatmarket.Perhapsyoucouldsharewithusinformationabouthowmuchiseachbrandswitchesandwhetherthereareanyparticularchangesinthemarketingmessagethathavecontributedtotheimprovedperformance.
Andthensecond,onChina,wherethepaceofdeclineseemstobeaccelerating,notstabilizing,howlongdoyouthinkitwillbebeforeGSKcanstabilizethatbusinessandturnitaround?CouldyousharewithustheabsolutelevelofsaleswithinChinanow?Andwhatwouldittakeforyoutoreconsiderwhetheratleastpartofyourbookportfolioespeciallytherespiratoryfranchisewillbebettermonetizedinathirdparty'shands?Andthenfinally,maybejustafewwordsontheclinicalholdontheIonisamyloidcardioTTRprogram,whetherit'ssafety-relatedandwhichorgan,ifso.
AndrewWitty(CEO):
Thanksverymuch,Andrew.SointermsofIncruseBreo,thedriversofchangethereordirectionarefirstlybetteraccessintermsofcoverage,particularlyforIncruseaswewentthroughtheyear,Breoalsotosomedegree.TheasthmaindicationforBreo,veryimportant.Thehead-to-headdataofIncruseversusSpiriva,very,veryimportant.AndthenDTCtosomedegreeonBreo.
Thosehavebeenthekindofelementswhichhavereallymovedthingsalong.Andwe'reseeingcontinuedstrongmomentumhere.Ithinkoverthelast12months,Breohaspickedup6pointsofTRXshare,Anoro10points,andIncruse6points.
Soverygoodsolidprogression.Ifyoulookatweeklyprescriptionvolume,we'redoingabout250,000scriptsaweekofAdvair.Actually,theElliptaportfolio,soBreoplusIncruseplusAnoroisdoingabout80,000plus,sogettingclosetoathirdoftheequivalentofthevolumeofAdvair.Sothatlookswell,Nucala'slaunchedwell.
USrespiratoryportfoliocontinuingtolookgood.YoucontinuetoseesomefurtherpricepressureontheAdvairbusiness,particularlyinthefirstquarter,assomeofthecontractsrollforward.Asyouknow,wesometimessigntwo-yearcontracts,withsomeofthatpriceeffectiveplayingforward.Weaverygoodcontractingpositionfor2016.
Infact,we'vegotsomecontractsthatruninto2017,andwe'rerightnowsigningfurthercontractsfor2017.Ithinkrightnowafteradifficult2014,we'reintoamuchmorestableenvironmentwithagoodprogression.IntermsofChina,actually,theaccelerationofwhatyou'reseeinginChina,asSimonsaid,ispartlytodowithpricecutsthatwe'vetaken.
Butit'salottodowithsomedisposalsofproductsandbusinesses,whichwedecidedwerenon-coreandhavebeenbackedout.IfullyexpectChinatocomebacktogrowthinthesecondhalfledbytherespiratorybusiness.Soaswemovethroughthisyear,Ithinkwe'llseetheunderlyingimprovements.We'veseengoodimprovementonanunderlyingbasis,butit'shardforyoutoseebecausewe'vedonesomedisposalsandyou'vegotsomepriceeffect.
Asyou'llalsoknow,theentiremarkethassloweddowndramaticallyandrapidlymovingtowardtheno-growthmarketplace,atleastatthemoment.Andsoactuallywhenyoulookattheperformanceofourunderlyingbusiness,youcanseetherecoveryactuallyisn'ttoobadcomparedtowhat'sgoingoninthemacroenvironment.Intermsoftheclinicalhold,asyouknow,thereisasafetyobservationinadifferenttrial,anon-GSKtrialandIthinkthroughthepurposesofcaution,everybodyregulatesandeverybody
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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elsewantstotakeitonestepatatime.
Sonothingnewtoaddthere,butit'snot--there'snotanobservationthatwe'veseeninGSK.It'sbeensomethingwhichcamefromaseparatetrialoutsideoftheCompany.Thanksforthequestion.Goodtohearfromyou,Andrew.I'mgladyourphoneisworkingokay.Nextquestion?
Operator :
Thankyou.NextquestioncomesfromthelineofJamesGordonfromJPMorgan.Pleasegoahead.
JamesGordon (Analyst-JPMorgan):
Hello.Thanksfortakingmyquestions.Onebiggerpicturequestionandacoupleofdetailones.Thebiggerpictureonewasjust,Andrew,inlightofyourdecisiontostartplanningforyourretirement,couldyoumakeacommentaboutwhatyoustillhopetoachievebeforeyouretirefromGSKandwhatyouthinkthekeychallengeswouldbeforGSK'snextCEO?
Ialsohadonerespiratoryquestion,whichwasjustthepaceoftheAdvairvolumedecline,whichisreferredtointherelease,was2%.ButwhenwelookatBloombergorIMSweseemorelikean8%volumedecline.Isthatvolumedifferentthanprescriptiondeclineinsomeway?Thefinalquestionwasonconsumer,verystrongmarginsthisquarter,justover17%.Isthatsomethingthatyoucanbuildonaswemovethroughtheyear,oristheresomethingquiteexceptionalthere,andsoweshouldbecarefulaboutextrapolatingfromthere?
AndrewWitty(CEO):
Thanksverymuch,James.Soonthe17%margin,Idon'tthinkwe'llsee17%everyquarteroftheyear,butit'sclearthat17%is,ifyouwill,anewhighwatermarkonourjourneyto20%-plus.You'llseeabitofvolatilityasyougothroughtheyear.Whatyouseealittlebitthisquarter,quitealotofFlonasesalesinthequarter,quitealotoftheFlonaseA&Pwillbeinthenextquarter.Littlethingslikethatandthemarginmightmovethingsaboutabit.Halfapercentagepointofthe17%-isFX.
ObviouslyweneedtoseewhathappenswithFXaswegoforward.Butwe'reclearlystartingtomoveintoanewlevel,right?Sowe'reclearlymovingup.Rememberwhenweputthisbusinesstogetherlastyear,itwas11%.Webegantomakeprogresslastyearintothekindof12%,13%territoryfortheyear.
Ithinkwe'veclearlymadeastep-up.Why?Becausewe'vegotmoreconcentrationonthepowerbrands,andwe'reseeingthebenefitsoftheintegrationreallystarttoflowthrough.80%ofthesiteclosuresaredone.90%ofthepeopledecisionsaredone.
Soallofthatkindofbenefit,thecostbenefitisflowingthroughintothebusiness.Willitbounceupanddownalittlebit?Yes.Areweonagoodcurvetowardsthe20%plus?Absolutely.
Mightwegettherealittlebitearlierthanweanticipated?It'spossible.So,so,youknow,onthatone.Asfarasrespiratoryisconcerned,ifyoulookattheUSrespiratorybusiness,whatyouseeisthatoverallactually,AdvairTRXshare--whenyoulookatAdvairplusBreoTRXsharewe'rebroadlyholdingflatyear-on-year.
Soifyoulookattheoverallshareandthemarketisgrowingaround4.8%forICS/LABAmarketplace,Breohaspickedup,asIsaidearlieronthecall,significantamountofshare.Advairhaslostalittlebitofshare.Net-net,we'remoreorless--weareactuallyholdingourshare.IfyoulookatNBRX,whatyouseethere,isactuallywe'reincreasingourshareofNBRX.
Thatwouldimplytoyouaswegoforward,allelseequal,weshouldstarttoseeourTRXsharesstartto
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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moveintoamorepositivedimension.Youalwaysgetabitofvolatilityaroundourreportedvolumesandthescriptvolumesdependingonthingslikescriptsizes,thosesortsofthings,there'salwaysabitofadynamicinthere.Butifyoulookattheshares,thenyou'llseethat,thatgivesyouquiteagoodpictureofwhat'sreallygoingonthere.It'simportantIthinktolookatAdvairplusBreo,notjustoneortheother.
Clearlythetwoplayinexactlythesameportfolio.Intermsofmy--firstofall,I'mveryfocusedonexecutingthisyear.We'velaidoutaclearsetofambitions.We'vejusttippedupalittlebitourguidancefortheyear,sowewanttomakesurethatwedeliverastrongperformanceforthebusinessthisyear.Howdowedothat?
Reallycompletingthesuccessfulintegrationoftheconsumervaccinebusinesses.Remember,it'sonlyjustayearsinceweclosedthattransaction,sothere'sstill--it'simportantwegetallofthatdone.Veryimportanttomethatwecontinuethemomentumofournewproductstohave20%ofourpharmabusinessnowcomingfromnewproductsisverykey.Iwanttokeepthosenewproductsmovingforward.
AndobviouslyreloadfromR&D,withasignificantnumberofR&Dprogressionsexpectedthisyear.Infact,in2016-17,wehavesomethinglike30PhaseIIstartsandanother20PhaseIIIstartsscheduled.Sothere'sanawfullotofthatthatneedstobemovedforward.AndIthinkwecanreally,wecanreallylaythefoundationsforthatin2016.
Intermsofwhatmysuccessorhastodowith,probablythat'suptowhateversheorhechoosestofocusonandpartlysetbytheworld.Asweknow,theworldisfocusedonpricing.Theworldisfocusedonmoreregulatorypressureandthevolatilityofglobaleconomics.I'msurethat'sgoingtobewhatdrivestheexternalagenda.
Itwillbeuptothemindividuallytosettheirownpriorities.Nextquestion?
Operator :
GrahamParryfromBankofAmerica.Pleasegoahead.
GrahamParry(Analyst-BoAMerrillLynch):
Thanksfortakingmyquestions.Sofirstly,onNucalajustanyfeedbackyouhaveonthelaunchexperiencesofarandanyareasofpushbackyou'regettingandanyreimbursementhurdles?Secondly,onthevaccinesmargins,howsustainablewouldtheybetoyourremainingquarters?Andcouldyouquantifythephasingbenefitsonsales,butalsoonthemargin,ifpossible?Andthenthirdly,nowwe'vegotsomegenericAdvairPDUFAdatesin2017.
AsyouthinkabouttheworldwithgenericAdvairpotentially,towhatextentdoyouthinkthatcouldimpactonBreoandespeciallythepotentialformandatoryswitchingbypayers,andhowimportantdoyouthinktheSalfordlungstudymidyearwillbeinpotentiallybeingabletopreventthis?Thankyou.
AndrewWitty(CEO):
Thanksverymuch,Graham.Ithinkonthelastpoint,I'mnotsuretheSalfordstudyisgoingtobesupercriticaltothepointyouraise.Ithinkitcanbringtolife--Ihope--it'saveryunusualstudy.It'sauniquestudy.Itcanactuallybringtolifetherealworldbenefitsofcompliance,butIdon'tthinkit'sgoingtohaveahugeimpactintheUS.
It'snotIthinklikelytobe--it'scertainlynotgoingtobepromotableinthetimeframeoftheUSpotentialgenericsiftheycomeatthefrontendofthatwindow.Sothat's--soIdon'tthinkthat'ssoimportant.Ithinkwhat'skeyiswearebuildingupsignificantmarketpositiononBreo.We'regettinggreatfeedbackfromcustomersandactuallyit'sclearthepayerswanttohaveBreoonthelist.
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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Weneedtokeepthatmomentumgoingthroughthisyear.Andthenthequestion'sgoingtobewhetherornotthegenericcomes,howmuchofthegenericcomes,howswitchableitisorisn't,andwhatvolumetheyhave.AndIthinkallofthatremainsextremelyupintheair.Andthedifferencebetween3,4,5,6,12-monthdelays,orwhetherornotthereisfullornotfullvolume,whetherornotit'sperceivedtobetrulyswitchable,allofthosethingscanhaveenormousimplications.
I'llremindyouthatabout300million,400millionoftheUSnumberisMDI,notdrypowder,andthereforenotinthetargetzoneforswitchability,andalsowithin--weknowthatwithinthediscusAdvairbusiness,wehaveanawfullotofpeoplewhoitwilltakealotofpersuadingforthemtoswitchproducts.Andalsotruetosaythepriceshavecomedownalotoverthelastthreeyears.Therealityiswe'vealreadyabsorbedabigchunkofthegenericizationeffectthroughpricereduction.
Theupsideofthatiswestartedtomoveourproductsintoapricerangewhicharepotentiallymaybenotgoingtobesuchastraightforwardgenericizationproposition.SoIremain--obviouslyit'struethatthereisawindowthatpotentiallyopenssometimeayearfromnowmaybe,ifeverythinggoesaccordingtoplan.Ithinkthatwindowhasgreatuncertaintystillinit.Ithinkwehaveanumberofdefensestobeabletomaintainourportfolio,whichwe'reobviouslyverymuchfocusedon.
Andontopofthat,wehaveasubstantialamountofproductnotintherespiratoryarea,whichallowsustobeconfidentaroundouroverallgrowthprofile.SowhenyoulookatouroverallcontributionofnewproductsversustheoveralldeclineofSeretide/Advair,it'savery,verypositivepictureandobviouslythat'sonewewanttocontinue.Asfarasthevaccinemarginisconcerned,wemadeitclearthatwe'reaimingforavaccinemarginnorthof30%.
WehadthatbeforetheNovartistransaction.ObviouslytheNovartisbusinesshadaverymuchlowerlossmakingpositionactually.We'reworkingthroughthat.Ifullyexpectustobeabove30%.Again,youwillseequarter-to-quartervolatility,justdependingonthekindoftenderflowandthosesortsofthings.
Butthismargin,justliketheconsumerone,issignalingtoyouwherewe'reheadedandourgoalistobethereasmanyquartersaspossible,butwe'renotyetinapositionwherewe'regoingtosaytoyoueveryquarter.Andthat'smoreorlesswherewestandonthat.AndNucalahasstartedverywell.Itstartedwellineverycountrythatwe'velaunched.
We'veseenverygoodpickupinGermany,forexample,verygoodpatientexposurealreadyquickerthanwewouldhaveexpected.US,similarly,we'veseensignificantnumber,moreorlessallthephysiciansweneedtogettohavenowbeenseen.We'veseengoodinitialthroughput,about3500patientenrollmentthroughourcorporatehub,whichisamechanismtogetpeopletounderstandtheirinsuranceposition.We'reseeinggoodtranslationnowofthatpopulationintopatientsonprescriptionandfeedbacksofargood.
Iwouldsayatthisearlystage,launchisgoingbetterthanplanned,andwe'reverypositiveaboutthat.Obviously,alongwaytogo,butwefeelgood.Andwefeelgoodabouttheprofileofthedrugversustheupandcomingcompetition.
WethinkthedosageandthespecificclaimswehavestandusinverygoodStead,andobviouslythesix-monthheadstartdoesn'thurteither.So--andfromareimbursementpointofviewwe'renotseeinganymajorissuesthereatall.Nextquestion?
Operator :
RichardParkesfromDeutscheBank.Pleasegoahead.
RichardParkes (Analyst-DeutscheBank):
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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Hi.Thanksfortakingmyquestions.Firstly,onthemeningitisportfolio,Ithinkyouhadguidedtosomenear-termcapacityconstraints.Butthatdoesn'tseemtohaveaffectedprettystrongperformanceinthefirstquarter.Couldyoujustguideushowlimitingthatisgoingtobeinthenearterm,andwhetherthefirstquarterperformanceissustainableonthequarter-on-quarterbasisfortherestoftheyear?
Andsecondly,onjustasyouprogresswithplanstothemanagement'ssuccessionnextyear,I'mjustwonderinghowmuchofafocusthereisoninternalversusexternalcandidatesandarethereanyparticularcharacteristicsthattheboardismaybelookingforintermsofsomeonetotaketheCompanyforward?Andthenthirdquestionwasonthecostsavings.IthinkyousaidyoudeliveredGBP400millioninthefirstquarter.
That'smakingtheGBP800millionthatyou'retargetingforthefullyearstartingtolookconservative.I'mjustwonderingwhetheranyofthesavingsintermsofmanufacturingefficienciesthatwereplannedfor2017couldbebroughtforward.Thanks.
AndrewWitty(CEO):
Okay.I'llletSimontakethatlastquestioninacoupleofminutes.Asfarasmanagementsuccessionisconcerned,astheboardhavesaid,theyarelookingbothinsideandoutside.Asyouwouldexpect,theydidthatwhenIwasappointed.Theyaregoingthroughthatprocessagain.
Obviously,theyaregoingtobelookingforsomebodywhopunchesalotofticketsintermsofidealcandidates.Oneofthoseticketsisunderstandingoftheenvironment,thevariousbusinesseswe'rein,and,ofcourse,theCompanyitself.Outsidecandidateswillscorestronglyinsomeareas.Insidecandidateswillscorestronglyinotherareas.
I'mverypleasedthatwehavesomevery,verygoodandqualifiedinternalcandidates,andI'mabsolutelysuretherearealsogoodcandidatesontheoutside.Sotheboardisgoingtotaketherightamountoftimetodothatinaverythoughtfulway.Ithinkwhat'sverycleariswe'reveryalignedasaboardaroundwhatthestrategyoftheCompanyis.
Thatmakesitvery--that'soneverykeydimensionofthisequationbecausewhenyouknowwhatthestrategyoftheCompanyisfortheforeseeablefuture,thenyoucanessentiallylookforsomebodytoexecutethatstrategyandtobuildonit.That'stheprocesstheyaregoingthrough.Intermsofmeningitiscapacity,wehadsometightnessattheendoflastyear.
Wewillcontinuetoseetightnessonandoff.Therewillbeoccasionalquarterswhereyouseecapacitytight.Itisa--we'restilldealingwiththecapitalbasethatweinheritedfromNovartis.We'regoingthroughtheprocessofexpandingthat.Aswegothroughthisyear,ourvolumesstarttostepupquitequickly.
Wehavegotverysubstantialglobaldemandforthisvaccine,andI'mabsolutelysurewe'regoingtoselleverysingledosewecanmake.Butthepaceatwhichwecanexpandcomesin--it'saslightlylumpyprocess,soaswegothroughtheyear,we'llseethoselumpsplaythrough.Bytheendoftheyear,weshouldbeinabetterpositionnow.
ButIhavetosayevenasyouprojectforwardtotheendoftheyear,whilewemightverywellbemanufacturingthesupplyinthreeorfourtimesmorevolumethanwehadlastyear,myguessisthatthedemandisstillgoingtobeoutstrippingthat.Goingtobeanareawhereweneedtocontinuetoinvesttobuildupourcapitalbasefromwhatwetookover.Simon,doyouwanttocommentonwhetheryou'relowballingthefullyearinrestructuringsavings.
SimonDingemans (CFO):
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
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Thanks,Andrew.AsIcommentedinmyremarks,thefirstquarterwasalwayslikelytobethebiggeststep-upintermsofincrementaldemand,giventhelowbasethatwewerecomingfromthistimelastyearwhenwehadonlyjustacquiredthebusinesses.Aswegoforward,theincrementisupagainsttoughercomparators,sowestillfeelverygoodabouttheGBP800million.
We'vealwayssaidwe'retryingtoacceleratetheprogram,soonequarteratatime,butagoodstarttotheyear.Ifyoulookatwherethosesavingshavecomefrom,mostofthemhavefallenintheSG&AorR&Dlines.Andwe'vealwayssaidweexpectmanufacturingtotakealotlonger.
Weareworkingashardaswecantotryandbringsomeofthatforwardandmaintainthemomentum.Butit'sabitearlytocommentmorespecificallyonthatbecausethereareexternalparties,regulatorsandotherpartiesinvolvedinanychangeyoumaketothesupplychains,particularlyvaccines,butacrosstheCompany.Sofar,sogood,butverygoodmomentuminallthreebusinesses.
AndrewWitty(CEO):
Okay.Nextquestion?
Operator :
TimAndersonfromBernstein.Pleasegoahead.
T imAnderson (Analyst-SanfordC.Bernstein&Co.):
Thankyou.Coupleofquestions.OntheDolutegravirfranchise,consensushassalesacrossTivicayandTriumeqreachingaboutGBP4.5billionby2020.I'mwonderingifyoucangiveussomeideawhetheryouthinkthat'sadoablenumberortoohighortoolow,justsomedirectionalcommentarywouldbehelpful.Andthenalonger-termmodelingquestionunrelatedtothequarter,you'vetalkedabouttaxratecreepinthepastovertime.Canyouatallquantifythisforus?Arewelooking,forexample,atafewpercentagepointsincreaseoverafive-yearperiod,orwhatexactly?
AndrewWitty(CEO):
Thanks,Tim.I'llaskSimontocommentontaxinasecond.Imean,I'mnotgoingtogiveyouaspecific,anendorsementofaspecificnumber,butobviouslyitsoldGBP560millioninthequarter,we'reclearlyannualizingarunratenorthofGBP2billionalready.It'sgoingtobeavery--providedwecancontinuethiskindofmomentum,we'veseennorealchangeinthegrowthprofilesincecompetitionhasintensifiedattheturnoftheyear.
That'svery,veryencouraging.Wecontinuetofeelverygoodaboutthecompetitivenessofthismoleculeanditscombinations.Weobviouslyhavemoreintheworks.So,yes.Ithinkwefeellikethisisgoingtobeaverysubstantialproduct.
AsI'vejustmentionedontheintroductorycomments,it'salreadyneckandneckwithAdvairasourbiggestUSproduct,andit'sonlybeentwo,twoandahalfyearsinthemarketplace.SoIthinkwe'resetwellforthis.We'vegottoexecuteitwell.We'vegottokeepbeingveryvigilant.
We'reupagainstaverytough,aggressivecompetitor.Weneedtomakesurethatwedon'thaveanycomplacency.AndasIthinkabouttheoverallportfolio,becauseIdothink,Tim,overthenextfewyears,theviewhastobroadenabitfrompurelyDolutegravirtotheDolutegavir/CabotegravirandthentheBMSprograms.
AndIthinkwe'vegivenourselvesseveralanglestoreallydrivethisbusinessforward,continuingdeliveringwhatwehavenowinthemarketplace,furthercombinationshereobviously,potentiallythe
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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long-actingstrategythroughCabotegravircombination,potentiallymovingtodualregimen,veryimportantopportunity,andthenplayingintheBMSportfoliobothinmonotherapyandpotentiallyultimatelyincombinations.
SoIthinkfromanoverallportfoliopointofview,wefeelvery,veryoptimisticabouttheHIVbusinessandclearlytheDolutegravircomponentslookliketheyaregoingtobeverysubstantialproductsandcouldcertainlybeoneofthelargestproductswe'veeverhadintheCompany.Simon,doyouwanttotalkabouttax?
SimonDingemans (CFO):
Yes,thanksTim,Ithinkasyouputit,it'ssomethingontheorderofafewpercentagepointsoverthenextthreeorfourorfiveyears.Therateatwhichitmovesispartlydrivenbyourownmixofbusinessandtheother,asweflaggedbeforeistheconstantlychangingregulatoryenvironmentwe'redealingwith,withmanygovernmentsincludingtheUSchangingtheirownparticulartaxcodes,andwe'rehavingtoreacttothat.Sodependingonhowthatevolves,Ithinkthat'sareasonablesetofassumptionsforyoutobuildin.
AndrewWitty(CEO):
Operator :
JoWaltonfromCreditSuisse.Pleasegoahead.
JoWalton (Analyst-CreditSuisse):
Thankyou.Threequestions,please.Iwasintriguedatyourcommentsthatyouarelookingatsomecontractsoutto2017forAdvairintheUS.Iwonderifyoucouldtellushowthatmightworkasyou'vealsoalludedtothefactthattherecouldbegenericsaround.WhilstonthesubjectofAdvairandgenerics,IwonderifyoucouldtellusalittlebitmoreaboutwhatthepracticalimpactofgenericsintheUKhasbeen.HaveyouhadtocutpricesintheUK?
Haveyoulostvolume?HowhavegenericsbeenacceptedintheUKmarket?Mysecondquestionisjustasimpleone.ThecorporateandotherexpenseswasGBP150millioninthequarter.ItwasonlyGBP170millionoddforthewholeoflastyear.Soisthereanythingunusualinthat?
Orcanyougiveussomehelponwhatthatmightbefortherestoftheyear?Andmyfinalquestionisabroaderone.Youarelookingat10%to12%localcurrencygrowththisyear.Andwithinthat,you'vegotaverybigslugofincrementalcostsavingscomingthrough.
Iwonderifyoucouldgiveussomesortofsenseastowhatyouthinktheunderlyingratherthancost-cutting-drivengrowthratewillbe,becausethat'sprobablytheguidethatweneedtolooktoaswegointostartmodeling2017.
AndrewWitty(CEO):
Thanks,Jo.I'mnotgoingtogiveyouanyinsightintothe2017contractshape,Ithinkforobviousreasons.Sorrytofrustrateyouaboutthat.IntermsofUKgenerics,basicallyimpactonprice,butvolumerelatively,relativelybenign.
IfyoulookatthewholeofEurope,allofEuropeSeretidegenericshasabouta4%marketshare,andRelvarBreohasa5%marketshare,justtoputthatallintocontextforyou.WhenyouthinkabouttheoverallEuropeanitisinclusiveoftheUK.Thenthat'smoreorlesswhat'shappening.Sofromavolumeperspective,thegenericsareprettylowfrankly.
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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Butithasapriceeffectbecausethenegotiatorsclearlyusethegenericasanangletotryandpressurizeprice,andthat'sessentiallythedynamicthat'splayingout.Intermsofthecorporateexpensesandtheeffectofthecostreductions,maybeSimon,doyouwanttocommentonthat?
SimonDingemans (CFO):
Yes,we'reabithigherthantrendinthequarter.ProbablyaboutGBP50milliontoGBP70millionhigher.SoifyouweretakingsortofGBP70millionorGBP80millionasaquarterlyrunrate,that'sprobablymorenormalized.It'salittlebitpartofthequarterlyvolatilitypointwewerejustflagginginourearlierremarks.
AndrewWitty(CEO):
SimonDingemans (CFO):
I'mnotsure,Jo,that'skindofameaningfulbreakoutreally.Thecostreductionsareakeypartofdevelopingasustainablecostbasegoingforward.Sowereyouaftersome--wereyoutryingtoidentifysomeelementofthatinparticular,orwasitultimatelyit'swhethertheyaresustainableornot,whichwebelievetheyare.
AndrewWitty(CEO):
AndIthinkthekeydriverreallyonanongoingbasisisthetoplinesalesgrowth.ThebiggestdriverofleverageintheCompanylikeoursistopline,andIthinkthemostimportantthingaboutthisquarterandwhatwesaw,ifit'sbeenthereallthewaythroughlastyear,theunderlyingproformasalesgrowthratehasbeenpickingupacrossallthedifferentbusinesses,andyouseethatreallyshinethroughinthisquarter.That'sgoingtobebyfarandawaythebiggestdriverofearningsgrowthoftheCompany.Andobviouslyonanongoingbasis,continuedpressureoncostremainsakickertothat.Withoutthetoplinesalesgrowth--
SimonDingemans (CFO):
Imean,aparticularexamplemightbetheSG&A.Weweredown1.7percentagepointsinreportedtermsasapercentofsales.Andyetwearebackingallofthesedifferentlaunchesandnewproductsandthepromotionsacrosseachofthebusinesses,whichplaystotheflexibilitywe'vetalkedaboutforawhilenow,wherewe'removingsalesforcearound,we'removingA&Paround,we'removinglogisticscostsaround,buyingthenewerproductsratherthantheolderproducts.That'swhyIthinkthere'ssustainabilityofthecostbaseratherthanthedifferentelementsofitthat'simportant.
AndrewWitty(CEO):
Okay.Nextquestion.
Operator :
KerryHofordfromExaneBNPParibas.Pleasegoahead.
KerryHolf ord (Analyst-ExaneBNPParibas):
Thankyou.Yes--threequestions,please.Firstlyonthefull-yearguidance,Iwonderifyoucouldgiveusthekeydriveroftheupgradehasbeen,givenit'ssoearlyintheyear.IwonderwhatwithinthebusinesshaschangedorindeedsurprisedyouinsuchashortperiodoftimefromthatupgradeatQ1.
Secondly,onvaccines,goingbacktoGraham'searlierquestion,couldyoupleasequantifytheimpactsofthetendersininternationalregionsandtheCDCordersandgiveussomeguidancetotheimpactonmarginsinQ1?Andthenfinally,onthetriplecombo,couldyoualsojustrunusthroughtherationale
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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behindthedecisiontostartaPhaseIIstudyinasthma.I'mnotawarethatLAMAsarewidelyusedinasthma.Imaybewrong.Butcouldyoujustrunusthroughthereasonsforyourdecisiontostartthatstudy?Thankyou.
AndrewWitty(CEO):
Sure.Imean,intermsofguidance,Imean,basicallywe'veseentoplineabitaheadofwhereweexpectedatthebeginningoftheyear,andwe'veseenanaccelerationofsavings.Imean,essentiallythosetwothings.AndIthinkifyoulook,ifyoulook--youprobablyhaven'thadachancetolookatitcompletelyyet.
ButifyoulookattheproformaoperatingprofitnumberswithintheP&Lsthatyou'reabletosee,Ithinkthatgivesyouasenseofwhere--becauseit'squiteimportant.You'vegottoremember,asSimonrightlysaid,thisfirstquarterhasthedragoftheoncologyhighmarginbusinessinit.Whenyoubackthatoutandyoulookattheproformanumbers,youcanseewhyIthinkitmakesabitofsenseforustojustindicatetoyouwethinkwe'retrackingabitbetterthanweanticipatedoriginally.Now,Idon'twanttogetcarriedawayeither.
It'searlydays.It'sthefirstquarter.We'rejustsignalingittoyouit'salittlebitbetterthanthe10%we'doriginallyanticipated.Obviously,aswegothroughtheyear,aswegetfirmerview,we'llcontinuetocommunicatewithyouaboutit.Butit'sreallydrivenbythatinsightoftheproformanumbers,whichofcourseyoucansee.
I'mnotgoingtogointothebreakoutofthedetailofthetendersandtheCDCorderotherthantosaytheoveralleffectisrelativelymarginal.You'retalkingafewtensofmillions.You'renottalkinggiganticnumbers.ButitisdefinitelyabitofanaccelerationfromQ2toQ1.
Asfarastriplecomboisconcerned,actuallyanticholinergics,ifyougobacktotheolddays,Atroventwaswidelyusedinasthma.It'sbeensupersededabitovertheyears,butthereremainsatleastatheoreticalbaseforit.Itstillisasignificantamountofuseinasthma,sothatreallyexplainsit,andthat'sthat.Nextquestion?
Operator :
SteveScalafromCowen.Pleasegoahead.
SteveScala(Analyst-CowenandCompany):
(technicaldifficulty)andnotethatthebusinesshasalotofmomentum.YousuggestedAdvairisstabilizing.YoucontinuetohaveskepticismaroundAdvairgenerics.Theoncologydragisbehindyou.
You'venowexceededearningsestimatesforahandfulofquarters.Whyshouldn'twebemoreoptimisticthan10%to12%earningsgrowththisyearandlookforsomethingsimilarin2017?That'sthefirstquestion.Second,howdoesthefailureofAstraZeneca'sbenralizumabchangeyourthinkingaroundNucalaandCOPD,ifyouarestillconfident,thenwhy?
Andistheconfidencemolecule-specificorstudydesignorsomethingelse?Andthenlastly,howareyouthinkingaboutyourdevelopmentofox40versusthecompetition,howareyouprioritizingtumortypes,andwhydidyoudecidetocombineitwithaPD1asopposedtoaPDL1?Thankyou.
AndrewWitty(CEO):
Okay.Soifwelookat,ifwelookatthemomentumofthebusiness,again,youcanseeforyourselves.Youlookatthatproformaoperatingprofitnumber,youcanseethatthereissomerealstrengthinthe
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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underlyingbusiness.Now,again,asSimonsaidacoupleoftimes,you'regoingtoseealotof--notalot.You'regoingtoseevolatilityquarter-to-quarter.
It'sabitearlyIthinkforustobetoodefinitiveaboutwherethatlies.Partofsignalingtheincreaseinexpectationsforthisyear,Steve,isreallytoacknowledgethat.Wethinkit'sabitearlytogettoocarriedaway,butit'simportanttosignaltoyouandothersthatwedofeelmoreoptimisticabouttheyearthanwesaworiginally.That'sanimportantthingtokeepaneyeon.
Iwouldaskyoutojustkindofindulgeusorbewithusdynamicallyonthis,becauseitisearly,anditwouldbewrongtogettoocarriedaway,isthefirstone.Aswelookatnextyear,while--there'snodoubtthatifyoudidn'thaveagenericAdvairinnextyearatall,thenobviouslynextyear'searningsaregoingtobealotbetterthanifyoudohavegenericinnextyear,justtobe--statetheobvious.Andit'sjusttooearlyforustoknowonewayortheother.
Thereare--youcanmakeacasetosaytherewillbeagenericAdvair.Youcanmakeacasetosaytherewon'tbeone.Andyoucanmakeacasetosaytherewillbesomethinginthemiddle,akindofpartialgenericization.That'sjustaquestionoftimebeforethosefactsbecometrue.nowtherealityfromavalueoftheCompanypointofviewitdoesn'treally--inawaywhethernotthegenericscomethreemonthsearly,sixmonthslater,iftheyaregoingtocome,itdoesn'treallymatter.
WhatreallymattersiswhatistheongoingsurvivalofAdvairpostthegenericsorwhat'sthequantumofAdvairprescriptionsbeyondthegeneric,andwe'reworkinghardtotryandmaximizethatnumber?Andalso,howstrongisthenon-Advairrespiratorybusiness,whichofcourseiswhatwe'reverymuchfocusedonrightnow?Thosethingsarereallythedriversofthevalueofthelong-termvalueoftheCompany.Intheyearyougetgenericifthereisgoingtobeageneric,ofcoursethere'sgoingtobeadenttoearnings.
Therealitythoughisit'sgoingtobealotlessin2017thanyouwouldhavethoughttherewouldhavebeenthreeorfouryearsagobecausewe'veprobablytakenhalfoftheeffectalreadythroughprice.Wecan'ttakethepricecuttwice.Soyou'veseenthatverysignificanteffect.Ithurtsusalotin2014.
Itheldusbackabitin2015.Buttherealityisit'sbehindus.IthinkfortheGSKnow,we'renotsofixatedandpreoccupiedwithwhatmayormaynothappenwiththegeneric,becauseofallofthatdynamic.AsfarastheNucalacompetitor--AZcompetitorobviouslyadifferentmechanism.
Aisle13,wethinkthere'sadifferencethere.I'mnotgoingtosaythatwe'resatherebankingontheCOPDdataeitherthough,Steve.We'renotsatherethinkingthisisahomerun,absolutelynoquestionaboutit.Wethinkit'sworththeexploration.Andthat'sexactlywhatwe'redoing.
ButIdon'twantyouoranybodyelsetosithereandthink,wellGSKthinksthat'sanabsolutelyhomeruntrial.It'snotinthatsituation.Wethinkit'swellworthwhileexploring.Wethinkthereisarationaleforit,butwealsoacceptit'sahigh-risktrial.
SoIwouldjustputthatintothatcontext.Butspecificallybetweenthereisclearlyamechanisticdifference.SointermsoftheOX40,thereasonwewentwiththePD1,we'vehadverygoodanimaldata,whichallowedustogomorequickly.Asyouknow,ourOX40ishumanized.We'vedonesomegoodwork.
WefeltconfidentaboutgoingintoPD1.You'llprobablyalsoknowwehaveothercombinationsindevelopment.PhaseIhasalreadystartedineightdifferenttumors.We're--thisisclearlygoingtobeanareawherewe'regoingtobeloadingupawidevarietyofpotentialcombinationstrategies.Andweseeitasoneofthebackbonescomingforward.
Asyouknow,wehaveothersincludingICOS.Nextquestion?
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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Operator :
JeffHolfordfromJefferies.
Jef f Holf ord (Analyst-JefferiesLLC):
Hi.JeffHolfordhere.Thankyoufortakingmyquestions.Therearemanyviewsfromdifferentstakeholdersoutthereonwhatcouldandshouldbedonewiththeconsumerbusinessinthefuture.I'mwonderingifyou'rewillingtoprovidemoredetailsonwhatyouthoughtthelevelsofdis-synergyareintermsofoperatingprofitmarginsthatyouthinkwouldoccurifconsumerwereseparatedtohelpthemarketevaluatethatbetterasthisisconsideredgoingforwards.Thankyou.
AndrewWitty(CEO):
Thanks,Jeff.Sowe'velookedatthisprettyextensivelyonewayoranother.I'llmakeafewgeneralquestions.Firstofall,asyoucansee,Ithinkwe'redeliveringgoodintegrationbenefits,deliveringgoodprioritizationfocusintothisbusiness,andthat'swhywe'redrivingthismarginup.It'sworth--there'sallthistalkaboutwhatthemarginshouldorshouldn'tbeinconsumer.
Tomyknowledge,theremaybeone,possiblytwocompaniesthathaveasustainedmarginabove17%.Andtomyknowledge,theremaybeonewhichhasasustainedmarginabove20%.Soifwe'reinthatterritory,we'reinaveryrarefiedatmosphereofwhereconsumerhealthcarecompanyprofitabilityis.
Whenyoulookatthesustainedmidsingle-digitsalesgrowthwedeliver,again,youseeaverysubstantial,successfulbusiness.AndyoujustlookattheoverallscaleofthisCompany,we'rerightthereinittermsofoneortwo,intermsoftheoverallscaleoftheCompany.Sowe'redoingokayatthat,right?We'redeliveringdecentnumbers,andwe'removingforwardveryquicklyintoavery,verypeer-competitivepositionintermsoftheeconomicsofthisbusiness.
Andthat'sgoingtodriveup--itisdrivingupsignificantprofitabilityandsignificantcashflow,firstthingtosay.Secondthingtosay,tomyknowledge,thereisnopureplayconsumerhealthcarecompanyofscaleintheworld.Everysingleconsumerhealthcarecompanythatexistsispartofadiversifiedgroup.
It'seitherpartofthepharmaceuticalcompany,orit'spartofsomeothercompanythatsellsthingslikehouseholdcleaninggoodsorrazorsorwhatever.Butit'spartofadiversifiedgroup.Third,themajorityofgrowthofhighmarginproductsofthesecompaniescomesfromswitchproducts.90%oftheswitchproductshavetakenplaceinthelast10yearshavegonefromtheparenttothechildconsumercompanies.
Veryraretoseeswitchesgooutsideoffamily.Whentheydo,theygofrompharmatoaconsumercompanyownedbyapharmacompany,probablybecausethepharmacompaniesaredoingadifferentdealontheside,likeanRXcollaborationorsomethinglikethat.Sowhenyoulookatthefundamentalsofthebusiness,actuallythepositionwehaveIthinkworksintheindustry.
Ithinkitsupportsthelong-termswitchdynamics,whichwouldbeagiganticdis-synergyifyoulockedyourselfoutofswitches.It'sinterestingtonotethatthecompanieswhicharenotownedbypharmahavehadnoswitchesinthelast10years.Sothatisarealdis-synergy.
Whenwe'vegonethroughtheanalysisofseparatingoutthecompanies,thereisclearlyadis-synergyprobablyoftheorderoftwo,maybemorepointsofmarginfortheconsumerbusiness.Andthere'sprobablyalsodis-synergyfortheparentpharmabusinessalso.
Soyouendupwithtwocompanieswithdis-synergy.That'snotuncommon,whenyoulookatbreakupsofothercompaniesinothersectorsandalsointhissector,youalmostalwaysseeadis-synergy.Interesting
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
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enough,thosedis-synergiesareusuallycompensatedoverthenextthreeyearsbyareductioninA&Pspend,notbyaneconomyofthethingthat'sdrivingthedis-synergy.
Becauseifthedis-synergyisbeingdriven,forexample,bythefactyouneedanewtaxdepartment,well,youcan'tjustgetridofthenewtaxdepartment.Sotocompensateforthatextracost,thesecompaniesstripoutcostsfromtheirA&Pbudget.Doesn'tfeelliketherightthingtodoeither.Sofromourperspective,weseethisasindustriallyfoundlogic,providedwe'recompetitive,right?
AndthereasonwedidthedealwithNovartiswastogiveusthescaleandtheopportunitytocompeteandstructuretobecompetitive.AndIthinkQ1,andinfactallthewaythroughlastyearifyoulookthroughtheproformanumbers,whatyou'reseeingisacontinuedprogression.IfyoulookatthesuccessofFlonaseOTC,nobodyisswitchingproductsbetterthanGSK.
Andforallofthosereasons,that'swhytheboardremainsunanimousaroundthestructureoftheCompanyfortheforeseeablefuture.Nextquestion?
Operator :
NicholasGuyonfromMorganStanley.Pleasegoahead.
NicolasGuyon (Analyst-MorganStanley):
Hi,there.Goodafternoon,andthanksfortakingmyquestions.Ihavethreeactually.ThefirstoneisontheOTCbuttalkingaboutM&Athistimeandnotbreakup.Doyouidentifyanygapstofillinyourportfoliointermsofbrandofgeographies?
Andifso,wouldyoubeinterestedinsomePCsortheentirePfizerOTCportfolioshouldtheydecidetodivestit?SecondinarowdespiteagoodquarterforBreo,westillseenoparticularinflectionforAnoro.YouregularlymentionedchallengeswithopeningupthedualbronchodilatorclassandpositioningAnorobetweenSpirivaandtheopentriple?ThatwouldbeyourentranceintheLABA/LAMAfield.Youdo--youaresupposedtohavephaseIIIresultsforyourtriplecombolateronthisyear.HowcommittedareyoutoAnoro?Andtowhatextentwouldyouconsiderde-prioritizingit?Thirdquestion,onViiV,appreciateit'searlydaysandyoubrieflytouchedonincreasedcompetition,butjustcurioustohearyourthoughtsaboutanypotentialimpactofnewlylaunchedGileadOTCproductonbothTivicayandTriumeq.Manythanks.
AndrewWitty(CEO):
Thanksverymuch,Nicolas.Asfarasthelastquestionisconcerned,no,we'renotseeingmuchimpactatall.We'reseeingthesametrajectoriesaswesawpreviously.AndthevastmajorityoftheGenvoyabusinessforexampleiscomingfromwithinthefamily.Clearly,averydynamicentrantintothemarket,butit'snotaffectingtheDolutegravirbusiness,firstthingtosay.
Anoro,no,weremaincommittedtoAnoro,butitisharderbuild.There'snoquestion,whenyoulookinallthemarkets,evenwhereyou'vegotmultipledualbronchodilatorsinthemarketalready,we'renotseeingaverydramaticchange.Position'stakingalongtimeforphysicianstochangehabit.
ThegoodnewsforGSK,we'regotapositionnotjustinthatmarketplace,we'vegotpositioninthemonoanticholinergic.We'vegottheBreoposition.Ofcoursewe'vegottheNucalaposition.So--andthenwewillhavethetriplehopefullyrelativelysoon.Thatgivesusavery,verystrongopportunitytokeepondevelopingthesemarkets.Butclearly,wewanttoseeAnorocontinuetodevelop.
Weremainverycommittedtoitassuch.AsfarasOTCM&Aisconcerned,mightweoccasionallybuytheoddbrand?Maybe.ButIthinkatthescalewe'venowcreated,ifwe'regoingtodoM&A,itneeds
CompanyName:GlaxoSmithKlinePLCCompanyTicker:GSKSector:HealthCareIndustry:Drugs
EventDescription:Q12016EarningsCallMarketCapasofEventDate:114.49BPriceasofEventDate:43.37
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tobeseriousM&Aandnotlittlebolt-onthings.
Andobviouslythosethingsonlycomearoundeverynowandagain,andyouneedtohaveastructurewhichishelpfultocreatesolutionsthatwork.Andactually,IthinkthebusinesswebuiltwithNovartisnotonlygivesusscale,itgivesusaveryuniqueplatformtopotentiallystrikedifferentsortsoftransactions.Butwe'remoreinterestedinbiggerthingsthansmallerthings,butwecompletelyrecognizethosethingscomearoundveryrarely.
Andwe'repleasedthatwewereabletopulloneofflastyearandwe'llhavetowaitandseeifanotheronecomesalong.Withthat,Ithinkwe'reoutofquestions.Thankssoverymuchforallofyourattention.Obviously,ifyou'vegotanyfollow-up,pleasedon'thesitatetocontacttheIRteamatGSK.Thankyouverymuch.
Operator :
Thankyou,ladiesandgentlemen,thatconcludesyourconferencefortoday.Youmaynowdisconnect.
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