GSK Mulling Sale of Drinks Business

GlaxoSmithKline (GSK) is investigating a sale of its drinks businesses, Lucozade and Ribena. “In line with this strategic focus, we have decided to initiate a review evaluating all strategic options for the Lucozade and Ribena drinks brands, which are primarily marketed in established western markets. These brands are iconic and the review will look at the best ways to ensure their continued growth,” Sir Andrew Witty, Chief Executive Officer reported in its results announcement.

8 Feb 2013 --- Once the deal has been finalised, estimates suggest that the brands could sell for around £766 million. GSK announced the review of its businesses alongside figures for the fourth quarter, which showed a 35 per cent decline on the previous year's final quarter.

Total Group turnover for 2012 was broadly in line with last year (down 1% to £26,431 million), with a 2% decline in Pharmaceuticals and Vaccines turnover partly offset by flat reported turnover in Consumer Healthcare. Pharmaceuticals turnover was down 2%, primarily as a result of the increased pressure from austerity measures in Europe. Vaccines turnover declined 2%, reflecting the impact of lower sales of Cervarix in Japan (2012: £132 million; 2011: £344 million) following the completion of the 2011 HPV vaccination catch-up programme. Excluding Cervarix, Vaccines turnover increased 4%. Reported Consumer Healthcare turnover was flat at £5,110 million, but excluding the non-core OTC brands divested in H1 2012, Consumer Healthcare turnover grew 5%.

US Pharmaceuticals and Vaccines turnover declined 2%. Excluding the impact of Avandia, Pharmaceuticals and Vaccines sales were flat. Pharmaceuticals turnover fell 2%, as sales declines for Avandia as well as a number of older products including Arixtra and Valtrex, were partly offset by an encouraging performance from new products, particularly in Oncology which grew 18%, a £65 million sales contribution from Benlysta and improved Respiratory sales, which grew 1%. Turnover also benefited from the net effect of the incremental revenue from the conclusion of the Vesicare co-promotion agreement in Q1 2012. Vaccines sales were flat as the growth in sales of Infanrix/Pediarix and Boostrix was offset by lower flu vaccines sales and adverse comparisons for Hepatitis vaccines and Rotarix, which benefited from significant CDC stockpile purchases in 2011.

Europe Pharmaceuticals and Vaccines turnover declined 7%, primarily driven by the impact of various ongoing government austerity measures including price cuts, parallel trade and generic substitution. This decline resulted from adverse pricing effects of 6% and a 1% volume decline. Pharmaceuticals sales declined 8% and Vaccines sales declined 4%. Despite a slight reduction in the rate of decline in the fourth quarter, the underlying economic environment continued to be challenging.

EMAP Pharmaceuticals and Vaccines turnover increased 10% as strong growth in Latin America (up 11% to £1,257 million), China (up 17% to £759 million) and India (up 10% to £304 million) was partly offset by the effect of mandatory price reductions in a number of markets, including Turkey and Korea.

Pharmaceuticals turnover increased 8%, with improved momentum after a slow first quarter, as strong growth in Respiratory combined with good performances in a number of established brands and the newer Oncology portfolio. The Vaccines business recorded a strong performance but with expected uneven delivery across the quarters, reflecting the phasing of tender sales and a particular concentration towards the end of the year. Japan Pharmaceuticals and Vaccines turnover fell 6% reflecting an adverse comparison with strong Cervarix sales in 2011 despite a material contribution from the third phase of the programme benefiting Q1 2012. The catch-up programme is now complete. Excluding Cervarix, Japan Pharmaceuticals and Vaccines turnover increased 5%. Pharmaceuticals turnover grew 3% with strong growth from the recently launched products, Lamictal, Avodart and Volibris, partly offset by the impact of the mandatory biennial price cuts, which impacted growth by approximately 4 percentage points, and increasing generic competition to Paxil. The Respiratory portfolio grew 6%, driven by a strong performance from Xyzal, offsetting declines in Flixonase and Zyrtec. Adoair (Seretide) grew 6% to £309 million. In Vaccines, Rotarix, which launched in Q4 2011, contributed sales of £44 million.

ViiV Healthcare turnover declined by 10% primarily reflecting generic competition in the US to Combivir and Epivir offsetting growth generated by Epzicom and Selzentry. Consumer Healthcare turnover, excluding the sales of the non-core OTC brands that were divested in H1 2012, increased 5% with relatively consistent performance over the quarters. This reflected continued growth in Oral care, Nutrition and Wellness, partly offset by a small decline in Skin health. On a regional basis, US sales grew 2% and Europe sales were flat, both impacted by continuing economic pressures and the drag from alli. The Rest of World markets, particularly India, the Middle East and China, continued to make a strong contribution and grew 12%. Reported turnover for Consumer Healthcare was flat at £5,110 million.

Total Group turnover for Q4 2012 was flat at £6,802 million. Pharmaceuticals and Vaccines turnover was also flat in the quarter. Pharmaceuticals turnover fell 1% with continued austerity pressures in European markets, generic competition to Paxil in Japan and weaker than expected stocking patterns in the US offsetting strong growth in EMAP. The Vaccines business was up 10% to £864 million in the quarter, reflecting strong performances in EMAP, including delivery of substantial tender volumes, and the US. Vaccines also continued to be impacted by declining Cervarix sales (down 53% to £44 million). Excluding Cervarix, Vaccines sales increased 19%. Reported Consumer Healthcare turnover was flat at £1,249 million, but excluding the non-core OTC brands that were divested in H1 2012, turnover increased 7%.

In the US, Pharmaceuticals and Vaccines turnover declined 2%, with Pharmaceuticals down 5% and Vaccines up 27%. Pharmaceuticals turnover was impacted by the loss of sales of Vesicare following the conclusion of the co-promotion agreement in Q1 2012 and a further decline in Avandia sales. Excluding these items, sales declined 1% with a strong performance from Oncology products, up 21% to £86 million and a £27 million sales contribution from Benlysta, offset by a 6% reduction in Respiratory sales. The reported growth of Respiratory products was negatively impacted in the quarter by both refinements to previous accruals for returns and rebates and wholesaler/retailer stocking patterns, but estimated underlying growth for the key products Advair, Flovent and Ventolin continued to be positive. During the quarter there were some adjustments, (both positive and negative) to previous accruals for returns and rebates that impacted reported growth for several other products. Overall, the net effect of these adjustments combined with some unfavourable stocking patterns was not significant. There was a strong contribution from Vaccines in the US with growth of 27%, primarily reflecting a strong performance from Infanrix/Pediarix (sales more than doubled to £69 million) which also benefited from a competitor supply issue.

Europe Pharmaceuticals and Vaccines continued to suffer from government austerity measures, although the impact was reduced this quarter as the phasing of some of these measures, including price cuts to Seretide and Vaccines products, started to annualise. Price reductions of 5% combined with a flat volume led to a decline in Pharmaceuticals and Vaccines turnover of 5% to £1,311 million. Pharmaceuticals turnover declined 5% to £1,045 million. Vaccines sales were also down 5% to £266 million.

EMAP Pharmaceuticals and Vaccines sales rose 16% with growth generated across a number of markets, primarily Latin America (up 23% to £321 million), the Middle East and Africa (up 12% to £385 million) and China (up 14% to £210 million). Pharmaceuticals grew 11%, primarily reflecting strong growth in Respiratory and CNS products, together with continued momentum in other established brands. Vaccines grew 39%, primarily as a result of the delivery of expected tender shipments for Synflorix and Infanrix/Pediarix, particularly in the Middle East/Africa.

Japan Pharmaceuticals and Vaccines turnover fell 4% in the quarter reflecting an adverse comparison with strong Cervarix sales in Q4 2011 which benefited from the HPV vaccination catch-up programme. Excluding Cervarix, Japan Pharmaceuticals and Vaccines turnover increased 4% in the quarter. The Pharmaceuticals business grew 2% despite the impact of the mandatory biennial price cuts and increased generic competition to Paxil (down 28% to £47 million). The Respiratory portfolio grew 10% to £170 million and there were strong contributions from a number of recently launched products, including Lamictal and Avodart.

ViiV Healthcare turnover declined by 14% primarily due to the continued effect of generic competition in the US to Combivir and Epivir, which more than offset growth of Epzicom and Selzentry. Consumer Healthcare turnover, excluding the sales of the non-core OTC brands that were divested in H1 2012, increased by 7%. This reflected relatively strong growth across all four categories: Oral care, Nutrition, Wellness and Skin health. On a regional basis, ongoing growth was driven by the Rest of World markets (up 13%), particularly India, the Middle East and China. Europe reported a 2% increase in sales in the face of continued economic pressures and the adverse impact of alli. The US increased 6%, with organic growth improved by promotional phasing and retailer stock movements. Reported Consumer Healthcare turnover was flat at £1,249 million.