Full-year results (6 Feb) from pharmaceutical giant GlaxoSmithKline (GSK) failed to excite the market as it met earnings expectations. The acid test for the £71 billion cap is staying on top of the game through responding to shifting market conditions, expanding into new markets or devising new products.


The shares closed up 0.5% to £14.49 despite announcing a 13% drop in pre-tax profit for 2012 to £6,692 million. This is because the market had fully expected a dip in earnings.


It has been a tough year for the industry and Britain’s largest pharmaceutical company has not escaped. Expired patents and pricing pressures in Europe have hit GSK and its £38 billion cap rival AstraZeneca (AZN), which reported an 18% drop in profits for 2012. Indeed, GSK’s business has also been hit in the US, where pharmaceutical and vaccine sales were down 2%, and Japan, which saw a 6% drop year-on-year.


While AstraZeneca’s management predict earnings will decline ‘significantly’ this year, GSK’s chief executive Sir Andrew Witty is upbeat, expecting to report a 1% increase in sales and earnings per share (EPS) growth of up to 4% on the 112.7p achieved in 2012. Analysts at Deutsche Bank predict consensus forecasts will have to be nudged back by 3%.


Product development will be a key growth driver in the coming years and the FTSE 100 giant added some 300 new positions to its R&D team last year. GSK ended 2012 with a taster of what’s to come. In December the drugs giant secured approval in the US for flu vaccine Fluarix Quadrivalent and has a further six drugs awaiting approval, while management is targeting 15 product launches in the next three years.


Meanwhile, GSK is to continue restructuring its European business in response to governments’ austerity plans, with £1 billion of annual savings targeted by 2016. GSK is focusing on increasing exposure to emerging markets, where earlier this week the company spent £568 million on increasing its stake in its Indian subsidiary from 43.2% to 72.5%.


Management plans to continue focusing on dividend growth, having returned £6.3 billion to shareholders last year and is targeting share buy-backs of up to £2 billion in 2013, while AstraZeneca suspended its share buy-back programme in October.


Aside from budget cuts in Europe and expiring patents, GSK has also had to deal with several problems of its own making. In July it paid a $3 billion fine for a series of scandals in the US that included withholding safety information.


The company’s PR machine was in full swing prior to its results, announcing yesterday that it is the world’s first major drug company to agree to publish the results of its clinical trials as part of a campaign to increase patient safety.

Issue Date: 06 Feb 2013