By Ben Hirschler
LONDON (Reuters) - GlaxoSmithKline (L:GSK) scrapped plans to float its HIV drug business on Wednesday and promised to pay a steady dividend for three years, setting out long-term growth targets after the biggest shake-up in its 15-year history.
It also scaled back plans to return 4 billion pounds of cash flowing from a $20 billion-plus (£13.1 billion) asset swap with Novartis (VX:NOVN) to investors, opting instead to pay a 1 billion special dividend.
Chief Executive Andrew Witty is under pressure to demonstrate that the Novartis deal can revive GSK's fortunes by focussing it on consumer health and vaccines, following a slide in lung drug sales and a damaging corruption scandal in China.
Despite a worse than expected earnings outlook for this year, Witty said GSK was on course to return to growth in the medium term and group sales would rise by a low-to-mid single digit percentage rate annually from 2016 to 2020.
Its pharmaceuticals, vaccines and consumer health businesses should increase annual sales by low single digits, mid-to-high single digits and mid single digits respectively.
Deutsche Bank analyst Richard Parkes said the forecast should boost investor confidence, particularly since GSK said its pharma outlook included the impact of potential generic copies of its lung drug Advair launching in the United States.
Witty said he had ditched plans for a multibillion-pound listing of its HIV unit ViiV Healthcare because of the strong outlook for the business.
And he played down the chances of GSK splitting up into its component parts within the next four to five years, although this could still be an option in the longer term.
LESS RISKY
Britain's biggest drugmaker sold its cancer drugs portfolio to Novartis, while buying Novartis's vaccines and at the same time increasing its consumer health business through a joint venture with the Swiss company.
This reduces GSK's reliance on risky drug development and increases its exposure to more stable consumer and vaccines operations, both of which have long-lasting products but, in the case of consumer health, lower margins.
Some investors question the wisdom of reducing exposure to prescription drug development at a time when rivals in the industry are exploiting the latest science to produce a range of potential new blockbusters, particularly in cancer.
But Witty is betting on diversification and sees its enlarged consumer health division as a powerful player in an expanding market.
"We have a different view to other companies," Witty told reporters, arguing that fiscal pressures meant prescription drug prices in the United States could not keep on rising.
He may not have much time to prove his case. With new Chairman Philip Hampton taking the helm at the drugmaker's annual meeting on Thursday, Witty needs to show his strategy can reverse several years of underperformance.
"Andrew Witty desperately needs this to succeed in order to leave a legacy worth remembering," said Mick Cooper, analyst at Edison Investment Research.
GSK also announced a fall in first-quarter earnings, hit by declining sales and prices for Advair.
Quarterly sales were 5.62 billion pounds, unchanged from a year earlier in sterling terms, while core earnings per share (EPS) fell 18 percent to 17.3 pence.
Analysts, on average, had forecast sales of 5.62 billion pounds and core EPS, which excludes certain items, of 17.4 pence, according to Thomson Reuters.
GSK shares were 1.3 percent higher by 1505 London time.