GlaxoSmithKline PLC (LON:GSK) said its main priority was to churn out more drugs from its pipeline in the coming years, as fourth-quarter profits came in short of market expectations.

The FTSE 100 drugmaker expects “at least six” potential new drugs to be approved in 2020 across its focus areas of oncology, HIV, respiratory and elsewhere, with investment in pharmaceutical research and development being further increased to keep the pipeline flowing.

GSK has also kicked off the process of preparing for the spin-off of its Consumer Healthcare business in two years’ time into a joint venture with Pfizer.

Chief executive Emma Walmsley said: “In 2020, our first priority remains innovation, to progress our pipeline and support new product launches. Recent data readouts underpin our decision to further increase investment in R&D and these new products.”

Boosted by more than doubling in sales of its Shingrix drug and strong growth in respiratory treatments and vaccines, total revenue for 2019 rose 10% to £33.8bn, with the fourth quarter contributing £8.9bn, a rise of 9%.

Sales of established drugs were down 8% at constant exchange rates, with a big impact from the loss of patent exclusivity on its Advair/Seretide blockbuster.

Profits underwhelm

Underlying operating profits fell 11% to £1.9bn, however, with adjusted earnings per share up 4% to 123.9p, or just 1% if currency swings are ignored.

EPS was down 21% in the fourth quarter to 24.8p, which was short of the analyst consensus of 25.8p.

A 23p quarterly dividend made it a total of 80p for the year.

Walmsley’s guidance for 2020 is for adjusted EPS to decline 1-4% at constant exchange rates, with the dividend staying flat – though Glaxo said the guidance excludes any potential impact from further sales of businesses or drugs “and any potential impact on our business from the coronavirus outbreak”. 

Walmsley is targeting £0.7bn of annual cost savings by 2022 to produce “meaningful improvements” from 2022, and the £1.6bn anticipated cash cost of this programme largely expected to be covered by the proceeds from divestments.

GSK also said it anticipated one-off costs from the separation of the consumer arm of roughly £600-700mln.

Shares in the company fell 3% to 1,756p after the results were released on Wednesday at noon.

Analyst Nicholas Hyett at Hargreaves Lansdown said the launch of generic rivals to Advair was always going to cause GSK problems: “Once a patent expires rivals pile in, forcing the incumbent to cut prices even as volumes tumble and the result is always painful. That’s an inevitable part of the pharmaceuticals business though; a poisoned chalice at the end of every blockbuster rainbow.”

What he said was more disappointing was the “lacklustre” performance of the consumer business.

“Following the Pfizer acquisition the Consumer business will one day go its own way, but at the moment it’s struggling to eke out growth. Sensodyne is clearly the division’s crown jewel but the long tail of smaller brands has serially underperformed.

“Time will tell if the combined group does a better job of making it into bathroom cabinets, but modest guidance for 2020 does not bode well.”

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