GSK aims to save £1bn over next three years in new restructuring plan
Also announces a possible IPO of its HIV business ViiV Healthcare
GSK has announced a major restructuring plan that aims to save around £1bn over the next three years and a possible initial public offering (IPO) of its HIV business ViiV Healthcare.
Chief Executive Sir Andrew Witty said the restructuring will 'rescale commercial operations, global support functions and R&D/manufacturing across the UK company's pharmaceuticals business'.
Around 50% of the cost savings will be delivered in 2016 and will help offset declining sales of Advair for asthma and chronic obstructive pulmonary disease, which fell 13% (at constant exchange rates) to £976m in the third quarter. Going forward, GSK expects US sales of the product to continue to decline.
Total group sales fell 3% at constant exchange rates) to £5.65bn in the third quarter, while core operating profit was down 6% to £1.89bn.
GSK created ViiV Healthcare five years ago to focus on developing treatments for HIV. Witty said this has been a 'highly innovative and successful venture with our equity partners Pfizer and Shionogi and it is now 'the right time to explore the potential for an IPO of a minority shareholding in this business'. Turnover grew 12% to £1.04bn in Q3 in this business.
The restructuring will rescale commercial operations, global support functions and R&D/manufacturing across the UK company's pharmaceuticals business
'This will provide greater visibility of the intrinsic value we see in its currently marketed assets and future pipeline and also enhance potential future strategic flexibility,' he said.
Witty added that GSK's other key priority in the third quarter has been to work towards completion of its proposed three-part transaction with Novartis, and he expects closure to take place in the first half of 2015.
'This is a clear catalyst to fundamentally re-shape GSK, providing new balance and options for the Group to increase value for shareholders across its three core businesses of Pharmaceuticals, Vaccines and Consumer Healthcare,' he said.
'To ensure we capture this opportunity we are putting in place a new executive management structure to drive performance and focus across all three core businesses. These changes come into immediate effect today.'
He said the transaction with Novartis would increase overall revenues by £1.3bn to £26.9bn on a 2013 pro forma basis. GSK is targeting total annual savings from the transaction of £1bn by 2020, with approximately 50% delivered by 2018.
'A pivotal element of this transaction is the opportunity to substantially strengthen two of our core businesses: Vaccines and Consumer Healthcare. Upon completion, around 40% of revenues will be generated from products in these areas,' he said.
Witty added that GSK 'intends to refocus its global pharmaceuticals business and cost base' following the divestment of its oncology products to Novartis and the changed dynamics the company now faces in the US respiratory market.
Alongside its focus on Advair, the key priority in respiratory is to deliver and generate sales of its new products. Breo for COPD now has 72% Medicare Part D coverage in the US, while Anoro has around 50% as of late October. In addition, GSK will launch Incruse and Arnuity and expects to file mepolizumab, its anti-IL5 treatment for severe asthma, before the end of the year.
The transition in our respiratory business is significant and clearly challenging
'The transition in our respiratory business is significant and clearly challenging,' said Witty. 'However, we remain confident we can maintain long-term leadership in this area and based on our current estimates, we expect that total global respiratory sales (residual and new products) will return to growth in 2016.'
In addition to respiratory, GSK's late stage (phase II/III) pipeline has several other promising assets including sirukumab for immune-inflammatory diseases, cabotegravir for HIV, losmapimod for ACS, a prolyl hydroxylase inhibitor (‘863) for anaemia and ‘273 for ADA-SCID which also has potential use in other gene therapy indications.
Witty added that the company's desire to 'divest certain North American and European pharmaceutical products within our Established Products Portfolio also continues'. GSK will look at its options on this in the coming months and, subject to achieving appropriate shareholder value, could reach agreements by the end of the year.
