GlaxoSmithKline has announced major restructuring plans aimed at saving £1 billion within three years and a possible initial public offering of ViiV Healthcare after posting another lacklustre set of financials.

Third-quarter sales fell 10% to £5.65 billion, while core operating profit was down 6% to £1.89 billion. Advair (salmeterol and fluticasone) for asthma and chronic obstructive pulmonary disease, fell 13% (at constant exchange rates) to £976  million, while its new COPD drug Breo (fluticasone furoate/vilanterol) contributed just £15 million to GSK's coffers. Anoro (umeclidinium bromide/vilanterol) brought in only £1 million.

Benlysta (belimumab) for lupus had sales of £41 million (+14%), while the sarcoma drug Votrient (pazopanib) reached £107 million, a leap of 27%. Promacta/Revolade (eltrombopag) for immune thrombocytopenia contributed £62 million, up 37%, while the newly-launched
melanoma drugs Tafinlar (dabrafenib) and Mekinist (trametinib) recorded sales of £37 million and £18 million, respectively. Vaccines sales were flat at £922 million

Chief executive Sir Andrew Witty (pictured) said “it’s important to remember that launching new products in 2014/15 is quite different to 1999. Launch take-offs tend to be slower and there is more challenge around price”. This is particularly affecting GSK’s respiratory business and he said “we wouldn't expect to come back to growth” in that area until 2016.

Respiratory 'critical' to GSK’s future

Sir Andrew went on to say that the respiratory business “is critical to the future of GSK.  We've been market leaders for 40 years and with the new portfolio of medicines we have…we're very confident that we can remain market leader.

One unit that is doing well is the HIV/AIDS unit ViiV, in which GSK holds a near-80% stake (the rest being held by Pfizer and Shionogi). Sales were up 18% to £373 million, boosted by the ongoing roll-out of integrase inhibitor Tivicay (dolutegravir) which brought in £78 million.

Sir Andrew said that the firm is now asking the question “could we create more value for our shareholders by exploring a partial IPO of the ViiV business?” He added that it would provide “greater visibility of the intrinsic value we see in its currently marketed
assets and future pipeline and also enhance potential future strategic flexibility”. Analysts value the unit in the region of £15-£17 billion.

The GSK chief added that “we also intend to refocus our global pharmaceuticals business and cost base” following the divestment of its oncology products to Novartis “and the changed dynamics we now face in the US respiratory market”. The restructuring will “rescale commercial operations, global support functions and relevant R&D/manufacturing”, resulting in £1 billion of new annual cost savings over the next 3 years, with around 50% delivered in 2016.

Commenting on the news, John Lyon at Warwick Business School noted that GSK has disappointed over the last few quarters, claiming that “with such a large basket of products and future medicines in clinical trials, good news and hidden asset value are often camouflaged by bad news, which is often acted on by investors quickly by pricing the stock down rather than upgrades reflecting better news flow”.

With regards to ViiV, Prof Lyon said that “by hiving off assets associated with good news stories, such as an asset based in growing therapeutic areas where chronic treatments mean increasing and sustained sales, value is unlocked”.