Witty defends diversified GSK

GlaxoSmithKline (GSK) chief executive Sir Andrew Witty has defended the company’s strategy, saying a diversified model will help it achieve growth up to 2020 and beyond.

The company has been under growing pressure from investors to increase returns, with some shareholders calling for a major strategic change of direction, such as a large-scale merger or a break-up of the company.

Just a few days ago high profile investor Neil Woodford said GSK’s business was too complicated, resembling “four FTSE 100 companies bolted together”.

GSK is made up of its R&D-led pharma division, including HIV joint venture ViiV, a (newly enlarged) vaccines business, and a consumer health division.

Speaking at the JP Morgan Healthcare Conference in San Francisco, Sir Andrew said all divisions would contribute to growth over the next five years.

Interviewed by Bloomberg afterwards, Witty said he wouldn’t rule out spinning out any divisions in the future, but said that wouldn’t be happening in the next few years.

He said the company would achieve double-digit earnings per share growth in constant currencies in 2016, with mid-to-single digit CAGR growth in the period up to 2020.

Investors have been sceptical about these growth targets, and won’t have heard anything new in Witty’s presentation to win them over, however.

The main driver for growth will be the pharma division, which accounts for 60% of revenues, with the firm expecting to file up to 20 assets up to 2020.

The firm finalised a major, three-part deal with Novartis last year, which included GSK swapping its cancer portfolio for Novartis’ vaccines division, and creating a consumer health joint venture which is number one in terms of scale.

GSK has already cut jobs in the merged division, a move which will help boost its profitability, which is traditionally much lower than prescription medicines.

Witty said the division would see its margin double to 20% over the next few years, and now had a management team in place drawn from GSK and Novartis.

Of greatest importance is the future of the firm’s respiratory medicine portfolio, where GSK’s big earner Advair is facing increasing competition.

Witty said new products would more than compensate for Advair’s decline, with new products across therapy areas on track to generate £6 billion in annual sales by 2020.

However he acknowledged that its new COPD/asthma drugs Breo and Anoro/Incruse had got off to a slow start after their launch in 2015, but added that the drugs were now winning 1 in 4 of new prescriptions.

The firm also secured a key contract in the US, gaining an exclusive deal with CVS, one of the biggest pharmacy benefit managers.

Investors are, nevertheless, worried that the arrival of a generic Advair in 2016 could also undermine the growth of Breo and Anoro/Incruse.

GSK saw just one new drug approved in 2015, Nucala, a novel treatment for severe asthma for patients with an eosinophilic phenotype. However, in December, the independent cost-effectiveness organisation ICER said the drug’s $32,500 annual cost was far too high – guidance which undermines GSK’s case when negotiating with US health insurers.

The company is also expanding its HIV joint venture, ViiV, having just acquired some pipeline drugs from Bristol-Myers Squibb. Witty says this will help it build momentum, and challenge Gilead, which is the leader in the HIV field.

In cancer, many investors were left unimpressed with GSK’s sell-off of its oncology brands to Novartis. Witty defended the move, saying it cleared the decks for new, ‘next generation’ cancer treatments, and allowed the firm to be ‘promiscuous’ in terms of doing lots of external development deals alongside in-house R&D.

GSK has a number of interesting novel cancer compounds in development in immuno-oncology and epigenetics, but most of these projects are only just entering clinical trials.

2016 should see an increase in drugs approved compared to last year. Gene therapy Strimvelis, a rare immune deficiency disease ADA SCID, is being reviewed by the EMA, with a decision expected shortly.

Four filings are planned for 2016 – shingles vaccine Shringrix, a subcutaneous version of lupus drug Benlysta, rheumatoid arthritis candidate sirukumab, and a ‘closed ‘ triple combination respiratory treatment, FF/UMEC/VI.

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