By Ben Hirschler
LONDON (Reuters) - GlaxoSmithKline (L:GSK) said on Wednesday the chance of it spinning off or selling its consumer health business before 2018 was "extraordinarily low", arguing the group's strategy was delivering, helped by rising sales of new medicines.
Growing demand for recently launched HIV and respiratory drugs helped Britain's biggest drugmaker beat forecasts for fourth-quarter earnings by a small margin, lifting the shares in a sharply lower market.
GSK profits have been pressured by falling sales of ageing lung treatment Advair, as well as last year's $20 billion asset swap with Novartis (VX:NOVN), which raised exposure to consumer health at the expense of higher-margin pharmaceuticals.
In the long term, Chief Executive Andrew Witty believes the shift will create a sustainable and less volatile business, but some investors believe he could unlock value by divesting the non-prescription consumer healthcare unit.
Witty does not rule out such an eventual break-up but said GSK would not be pushed into any early move, despite speculation the unit could attract interest from the likes of Reckitt Benckiser (L:RB) or Procter & Gamble (N:PG).
"The chances of us doing something in an accelerated time frame are, I think, extraordinarily low," he told reporters.
New HIV drugs Tivicay and Triumeq once again showed strong growth in the quarter and, importantly, there was an encouraging pick-up in demand for new inhaled lung medicines Breo and Anoro.
Both Breo and Anoro had a disappointing start in the key U.S. market as GSK struggled to secure coverage for them in insurance plans, but recently prescriptions have increased.
"New product sales are demonstrating good momentum and we are seeing accelerations in uptake in our new respiratory portfolio," Witty said.
DOUBLE-DIGIT GROWTH
Sales, in sterling terms, rose 2 percent to 6.29 billion pounds in the three months ended Dec. 31, generating core earnings per share (EPS) down 34 percent at 18.1 pence.
Analysts on average had forecast sales of 6.25 billion pounds and core EPS, which excludes certain items, of 17.9p, according to Thomson Reuters.
GSK stuck to its 2016 forecast, first issued last May, for double-digit core EPS growth at constant currencies and reiterated that the dividend, one of the stock's main attractions with a yield of around 6 percent, would be held steady through 2017.
But it predicted greater foreign exchange gains in 2016 than the market had expected, which analysts said was likely to lead to earnings upgrades. Berenberg Bank said this pointed to earnings some 3 percent higher than current consensus.
The changing shape of the group's business makes it particularly important that the core pharmaceuticals operation continues to deliver.
GSK now predicts 11 key new products will deliver sales of 6 billion pounds by 2018, two years earlier than initially expected.
The industry as a whole has seen an improvement in research productivity in recent years, with U.S. new drug approvals in 2015 at a 19-year high, and GSK said its rate of return on R&D investment had been maintained at 13 percent.
But while more drugs may be getting to market, it is often hard to get them quickly adopted and companies also face growing political pressure over the high prices they frequently charge.
Witty said U.S. pricing, as well as difficult economic conditions in Russia, Brazil and the Middle East, represented significant uncertainties but he said India was a bright spot.