GLAXOSMITHKLINE must change to survive the growing threat of generic competition for its leading products, its chief executive warned yesterday.
Andrew Witty, who took over as head of the world's second-largest drugs company in May, wants to create a more diversified global business to reduce GSK's dependence on a small number of drugs.
Laying out his strategy formally for the first time,
Witty said his three priorities were diversification, smarter value-based drug research and simplified operating systems.
He said money saved from the simpler group structure would be reinvested or returned to GSK's shareholders.
GSK, Europe's biggest drugs maker, signalled that its short-term focus would be on investment, after the timeline for its remaining £6.5 billion share buyback programme was extended beyond July 2009.
Witty made emerging markets a top priority – a pledge backed up by a deal announced yesterday with South Africa's Aspen Pharmacare Holdings that paves the way for the sale of branded generic medicines in emerging markets.
Commentators said Witty's blueprint represented a shift in direction for a company that, like many of its peers, has focused in the past on developing major prescription drugs.
In future, GSK will put equal emphasis on other areas, such as consumer products – ranging from headache tablets to toothpaste to nutritional drinks – as well as vaccines and non-traditional biotech medicines.
Witty added: "That broader front will allow us to reduce some of the volatility we've seen in the performance of the company over the last few years and therefore start to diminish some of the risk which is perceived by shareholders in the business".
GSK has a reputation for cutting costs, but Witty said more could be done, for example by eliminating duplicate financial accounting systems and reducing the number of packs its pharmaceutical factories produce.
Witty said he was looking for bolt-on acquisitions across all areas of GSK's business but was sceptical about big deals.
GSK yesterday reported second-quarter pre-tax profits of £1.84bn, as strong sales of vaccines and most consumer products offset tough trading in pharmaceuticals.
Deutsche Bank analysts said GSK had benefited from good sales of its pre-pandemic flu vaccine, which is being stockpiled by governments in the event of a human pandemic.
Second-quarter sales rose by 4 per cent to £5.87bn. Earnings per share rose faster, to 27.2p, helped by cost cutting and disposal gains.
Jeremy Batstone-Carr, an analyst at Charles Stanley, said: "There's nothing in these results to encourage analysts to upgrade and therefore investors have taken an opportunity to lock in profits after a reasonably good three-month performance".
Shares in GSK closed down 3.5p at 1,220.5p, a fall of 0.3 per cent.
The full article contains 462 words and appears in The Scotsman newspaper.
