Consumer Business Reliable And Right At Home At GlaxoSmithKline

CEO Walmsley's familiarity with Glaxo's consumer health business was clear in her response to analysts' questions about the firm's future as a three-unit operation. The business marketing brands including Flonase and Excedrin is a more reliable revenue driver than the pharma business, she said.

GlaxoSmithKline PLC CEO Emma Walmsley says the firm's consumer products business, which she headed until her recent appointment to Glaxo's helm, is a steady revenue source for the firm as well as being one-third of its operating structure.

Walmsley didn't reference her previous post during Glaxo's 2017 first-quarter earnings briefing on April 26, her first as CEO, but her familiarity with the business that markets OTC brands including Flonase allergy treatment and Excedrin pain relief was clear in her response to multiple questions from analysts about the firm's future as a three-part operation.

The firm's OTC drug and consumer health products business is not leaving as it, along with GSK's vaccines unit, are more reliable revenue drivers than the pharma business, she said.

"We … do see both logic and benefit in being three-business health care company, not least because of some of the uncertainty and volatility that we see in the high-return pharma business. We like to have more certainty in terms of reliable cash flows both from vaccines and consumer," she said.

CEO Emma Walmsley confirms the importance of Glaxo's consumer business in her first earnings briefing at the firm's helm.

The consumer unit's value isn't realized entirely separately from the pharma business, though. Walmsley noted Glaxo's pipeline for moving Rx drugs to OTC or nonprescription sales.

"We believe in some of the synergies, both from an operating point of view and a life cycle management point of view, when we look at switches," she said.

Switch Launched During Q2

Glaxo's first-quarter consumer business results included sales of its second Rx-to-OTC switch launched in the US in three years, Flonase Sensimist Allergy Relief (fluticasone furoate/27.5mcg spray). (Also see "GSK Aims Flonase Sensimist To Counter Generic Nasal Allergy Competition" - Pink Sheet, 8 Feb, 2017.) The firm also extended distribution of the original OTC Flonase (fluticasone propionate/0.05mg) intranasal corticosteroid in Canada and Europe during the quarter.

However, the loss of consumer product revenues in Nigeria, where GSK exited in September; a slump in India due to cash shortages caused by the country's demonetization of its ₹500 ($7.70) and ₹1,000 ($15) bills; and a slow allergy season during the January-March period offset the gains to hold growth at 16% based on adjusted currency exchange rates to £2.04bn ($2.6bn), or 2% on constant exchange rates, the firm reported.

Excluding the impact of divesting the Nigeria business, consumer product sales grew at 17% AER, 3% CER, it said.

Oral care products were a key consumer business sales driver, helped by the US launch during the quarter of parodontax brand stannous fluoride toothpaste labeled to help stop bleeding gums and continued strong performance by the Sensodyne line as sales grew 21% AER, 6% CER, to £628m ($810.4m). (Also see "Glaxo’s Parodontax Brings Bleeding Gums Claim To US Toothpaste Battle" - Pink Sheet, 17 Mar, 2017.)

Sales for the wellness division of the business grew 16% AER, 2% CER, to £1.07bn ($1.4bn) on strong performances by pain relief brands, notably Excedrin (acetaminophen, aspirin, caffeine) and Fenbid (ibuprofen). The division's OTC respiratory product sales grew 15% AER, 1% CER, on a stronger flu season behind double-digit growth from the Theraflu (acetaminophen, pheniramine, phenylephrine) oral products and Otrivin (xylometazoline) nasal spray.

However, gains from those brands largely were offset by a later start to the US allergy season and increased private label competition for Flonase. The brand's sales increased 11% AER, though down 3% CER, despite positive initial launch take-up of Flonase Sensimist, Glaxo said.

In the nutritional products sector, foreign exchange trimmed 8% from sales growth reported at 3% AER to £182m ($235m).

"We … do see both logic and benefit in being three-business health care company, not least because of some of the uncertainty and volatility that we see in the high-return pharma business." – Glaxo CEO Emma Walmsley

Skin care product sales grew 16% AER, 4% CER to £163m ($210.4m) as international region sales jumped 26% AER, 10% CER, on Fenistil (dimetindene) topicals growing 19% AER, 10% CER, with good momentum particularly in the Middle East. Strong international sales of Lamisil Once offset the impact of competition in the US and Europe as the line extension for the Lamisil (terbinafine) athlete's foot treatment grew 28% AER, 6% CER. However, Physiogel moisturizing products sales were hit by competitor activity in key markets, Glaxo said.

Cautious Outlook, But Leading

Chief Financial Officer Simon Dingemans said during the briefing that India's cash shortage began to wane during the latter weeks of the quarter, and sales of Glaxo's Horlick's nutritional beverages should pick up there during the rest of 2017.

"I think as we move through the course of the year, we are expecting improvements in the Indian position. … We should see that pick up performance," Dingemans said, but he added that, "macro conditions" in emerging markets "remain tough" and warrant "a note of caution in terms of how far much further forward" the business will move.

Costs from leaving Nigeria also will affect the unit's results through the second quarter, the CFO said. "So, we should see in the second half of the year a bit better performance than we've seen so far, but it does remain challenging," he said.

On the whole, though, Walmsley, who succeeded Andrew Witty as Glaxo's CEO on April 1, sees nothing but opportunity for Glaxo's consumer health business, which also markets Novartis AG's OTCs and nutritionals in a joint venture GSK majority owns and operates. (Also see "From Witty To Walmsley – The Priorities For GSK's New CEO" - Scrip, 4 Apr, 2017.)

The JV, GlaxoSmithKline Consumer Healthcare LP, is in the catbird seat for considering adding brands from competitors, or acquiring entire businesses that may become available, she said.

"We've structured the JV to allow for potential further consolidation in the industry, which we'd like to be part of to a degree," the CEO said.

"As the leader in the consumer health care sector, we actually keep an eye on what's out there," Walmsley said, adding that Novartis would be part of any decisions for the JV, too.

In a same-day research note, Credit Suisse European Pharma Team analysts said Walmsley "gave a confident performance" during the briefing, including making clear Glaxo's commitment to a three-business structure.

From the editors of the Tan Sheet.