GSK half-year results: What Witty wanted to say
Amid the clamour over GlaxoSmithKline’s mounting crisis in China, the group has issued an upbeat set of half year results. Denise Roland reports.Sir Andrew refused to accept personal responsibility for the mounting scandal in China. He highlighted his “unrelenting focus” on getting controls right and “building a culture and values that protects us” from corruption. Photo: PA
8:10PM BST 24 Jul 2013
Sir Andrew Witty may have been looking forward to unveiling GlaxoSmithKline’s first half results until just a few weeks ago.
There were many successes to report: better than expected sales, a robust pipeline of new drugs, and progress with lucrative asset disposals.
Instead, in a press conference following the results announcement, he faced ferocious interrogation over the company’s mounting crisis in China.
Sir Andrew fielded twenty questions in total. Nineteen of them centred on China.
The responses varied in delivery, but they drummed home the same carefully choreographed message. On five occasions Sir Andrew said he was “disappointed” by the scandal.
He stressed no fewer than 16 times that the four Chinese sales executives on whom the allegations centre worked “outside” the company’s control systems.
The message was clear: GSK’s top brass had no idea corruption was occurring and any guilt lies firmly with the sales executives who orchestrated the alleged fraud.
Glaxo is ensnared in one of the biggest criminal investigations into bribery ever conducted in China. The government’s powerful Public Security Bureau is investigating Rmb3bn (£320m) in potential bribes paid to individuals at every level of the Chinese medical system.
The allegations centre on four Chinese sales executives who have been under arrest for some weeks. One appeared to admit the charges on state television, while Chinese police claim the other three have made confessions off-screen. The quad is accused of using a complex network of “travel agents”, middlemen who arrange medical conferences and events, to funnel payments to doctors and other officials in exchange for higher prices and market share.
Sir Andrew may have refused to accept personal responsibility for the scandal, but he did make an important admission. If it emerges the four Chinese executives did manage to circumvent Glaxo’s controls, then this will “clearly raise some questions”.
And, as revealed in the Daily Telegraph on Saturday, GSK’s own probe into the matter has already uncovered evidence that appears to support some of the charges.
But had events not erupted in China, the press conference would have been a very different affair.
Sir Andrew would have produced a long list of signs that Glaxo’s growth strategy, which he set out as he took up the helm of the company five years ago, is starting to deliver.
Second quarter revenues grew 2pc year-on-year to hit £6.618bn. While the top line beat analysts’ expectations, it is the palpable prospect of future winnings that keeps investors betting on GSK.
GSK, Sir Andrew might have said, has well and truly cleared the dreaded patent cliff – the looming expiry of a drug company’s exclusive rights to produce its branded medicines.
The six “sizeable” drugs on which Glaxo has pinned its near-term growth hopes have made important strides this year. Breo, GSK’s new treatment for respiratory disease COPD, and skin cancer drugs Tafinlar and Mekinist, all won regulatory approval in the US in recent weeks. GSK expects the remaining three to get the green light by the end of the year.
Thirteen more products are in late stage clinical trials, with results expected in the next 18 months. Such a pipeline, Sir Andrew might have said, is unprecedented for Glaxo and a substantial achievement for any pharmaceutical company.
Glaxo is also a much more diversified business than it was five years ago. It has broadened its portfolio to include vaccines and consumer healthcare products such as toothpaste and over-the-counter medicines.
These areas are important for shielding Glaxo from the risks associated with drug research, but they are also key to GSK’s expansion into emerging markets, another major plank of the company’s growth plans.
Sir Andrew may also have drawn attention to two imminent asset sales which could net the company nearly £2bn. He said the sale of the company’s iconic Lucozade and Ribena brands, thought to be worth as much as £1bn, will complete by the end of the year. Glaxo has also been offered £700m for two drugs for reducing blood clots and the associated manufacturing plant.
And while the press conference may not have gone as Sir Andrew had hoped, the markets have given GSK the benefit of the doubt. The share price has remained resilient even as the crisis in China escalated in the past two weeks.
Investors may be concerned about the allegations in China, which GSK has described as “serious” and “shameful”, but they are considering the bigger picture, too. Although China is one of Glaxo’s fastest growing markets, it only accounts for around 3.5pc of total global turnover. GSK has also been keen to stress that the scandal will not see it retreat from this promising market.
Sir Andrew joined that chorus today, too. Of all the noises he made on China today, that, at least, was music to investors’ ears.