GSK reports sales fall in Europe in first half

Aims to make further cost savings of £500m by 2015

Sales in Europe fell in the first half of 2012 for GlaxoSmithKline as European countries moved to cut their drug bills in the face of rising debt.

European revenue fell 6% at a constant exchange rate to £3.72bn in the first half. Sales of pharmaceuticals and vaccines in Europe fell by 7% in the period.

GSK also reported a fall in revenue in the US of 1% to £4.15bn, exacerbated by a mature portfolio, generic competition and the discontinuation of some products. US pharmaceuticals and vaccines turnover increased by 1%, with growth in respiratory, oncology and CNS products.

Operating profit fell by 2% at a constant exchange rate in the first half to £4.07bn.

Sir Andrew Witty, GSK’s chief executive, said the outlook for Europe ‘has materially worsened’ and the firm’s performance ‘reflects the challenging macro-economic environment in which we are operating and the continued transition of our product portfolio’.

Witty said that the ability of pharmaceutical companies to succeed in this environment and in the future would be determined by how successful they are in accessing growth markets and delivering new products on a sustainable basis.

GSK is making progress on both of these fronts by creating ‘a more geographically balanced business with improving operational and financial efficiency’. At the same time, he said the firm has developed a substantial late-stage pipeline, which is a significant growth opportunity.

GSK could potentially launch eight new drugs and vaccines in the next two years across broad therapeutic areas including COPD, Type 2 diabetes and HIV.

The pharmaceutical firm is also restructuring its regional commercial organisation and combining its European and Emerging Markets business units under the leadership of Abbas Hussain.

‘This will increase our capability to flex resources to support delivery of the pipeline and continued investment in Emerging Markets. These changes will improve GSK’s ability to realise new growth opportunities and remain competitive in the current global pricing environment,’ said Witty.

The firm’s businesses in Japan and Consumer Healthcare are also expected to contribute to growth in the future. GSK also intends to take further actions to cut costs and says new manufacturing process improvements will generate annual cost savings of approximately £500m by the end of 2015.

The firm also aims to change its business mix to drive margin improvement and its recent agreement to buy Human Genome Sciences for US$3bn in cash and sell its non-core over-the-counter brands from its Consumer Healthcare division are examples of this.

Earlier this month, GSK received a record US$3bn fine from the US Government to settle a broad range of long-standing legal cases.

‘The mistakes that were made were clearly unacceptable,’ said Witty.

Over the last four years, GSK has therefore changed its procedures for compliance, marketing and selling.

‘We will continue to do all we can to live up to the standards rightly expected of us by regulators, patients, shareholders and wider society,’ Witty added.

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