›Glaxo CEO Wants Broader Group, Cautious on Outlook
Wed Jul 23, 2008 7:30am EDT By Ben Hirschler
LONDON (Reuters) - GlaxoSmithKline Plc's (GSK) new chief executive plans to make the world's second largest drugmaker a broader business and give it a simplified structure, which will reduce its running costs.
Laying out his strategy formally for the first time on Wednesday, Andrew Witty declared his three priorities were diversification, smarter value-based drug research and a simplification of operating systems.
Money saved from the simpler group structure will be reinvested or returned to shareholders.
Witty unveiled his plans alongside a better-than-expected 13 percent rise in second-quarter earnings, as strong sales of vaccines and consumer products offset tough trading in pharmaceuticals.
But Europe's biggest drugmaker kept its full-year forecast for a mid-single-digit percentage decline in underlying EPS, dashing hopes it might raise its guidance.
At 1120 GMT, Glaxo shares were down 3.1 percent at 1,186 pence.
Second-quarter sales rose 4 percent to 5.87 billion pounds ($11.7 billion). Earnings per share (EPS) rose faster, to 27.2 pence, helped by cost cutting and disposal gains. Analysts polled by Reuters Estimates had forecast EPS of 25p.
Glaxo also said it would extend the timeline for completion of its remaining 6.5 billion-pound share buyback program beyond July 2009 to allow investment in strategic priorities[i.e. more acquisitions].
Witty made emerging markets a top priority -- a pledge backed up by a pioneering deal with South Africa's Aspen Pharmacare Holdings that paves the way for the sale of cheap branded generic medicines in emerging markets [#msg-30901607].
Witty's blueprint represents a shift in direction for a company that, like many of its peers, has focused in the past on developing blockbuster prescription drugs.
In future, Glaxo will be put equal emphasis on other areas, such as consumer products -- ranging from headache tablets to toothpaste to nutritional drinks -- as well as vaccines and non-traditional biotech medicines.
"That broader front will allow us to reduce some of the volatility we've seen in the performance of the company over the last few years and therefore start to diminish some of the risk which is perceived by shareholders in the business," he said.
Witty told reporters he was also open to expanding into new areas, if it could be shown that these would drive growth. But he ruled out buying a generic drug business in the United States or Western Europe.
The diversification strategy aligns Glaxo more closely with companies like Novartis AG and Johnson & Johnson, which have long trumpeted the breadth of their healthcare portfolios.
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The rethink has become necessary because of the grim outlook for conventional, or small molecule, pharmaceuticals, where a barrage of looming patent expiries promises to slash prices in many therapeutic areas forever.
That changing landscape means Glaxo needs to focus on areas where there is both an unmet medical need and the scientific potential for developing new products, Witty said.
Glaxo's eight areas of focus for future drug research will be inflammation, oncology, metabolic pathways, ophthalmology, respiratory, neuroscience, anti-infectives and biopharmaceuticals.
Glaxo already has a reputation for cutting costs, but Witty said more could be done, for example by eliminating duplicate financial accounting systems and reducing the number of packs its pharmaceutical factories produce.
Witty said he was actively looking for bolt-on acquisitions across all areas of Glaxo's business but he was skeptical about big deals, given the pipeline problems facing any large company Glaxo might look to acquire.‹
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