GSK outlook brightens as Brexit brings currency windfall

[July 27, 2016]  By Ben Hirschler

LONDON (Reuters) - Demand for new medicines helped GlaxoSmithKline grow earnings in the second quarter and the drugmaker is set for big gains in the rest of 2016 thanks to a weak pound, after Britain's vote to leave the European Union.

GSK, whose outgoing chief executive Andrew Witty had backed Britain staying in the EU, will benefit from the fact that many of its costs are in sterling while it earns nearly all its money overseas.

It earlier announced 275 million pounds ($361 million) of new investments at three drug manufacturing sites in Britain.

Quarterly sales, in sterling terms, rose 11 percent to 6.53 billion pounds ($8.55 billion) in the three months to June, generating core earnings per share (EPS) up 42 percent at 24.5 pence, GSK said on Wednesday.

Analysts, on average, had forecast sales of 6.34 billion pounds and core EPS, which excludes certain items, of 21.0p, according to Thomson Reuters.

GSK edged up its forecast for full-year core EPS growth at constant currencies to 11 to 12 percent from 10 to 12 percent seen previously.

In sterling, however, earnings are likely to grow far more. The company said that if exchange rates were to hold at the end-June rates, there would be a positive impact of 19 percent on core EPS.

That currency effect also protects the dividend, which GSK has pledged to keep at 80 pence a share this year and next.

Witty has been under pressure since 2013 as profits have flagged and some investors have questioned his strategy, but he is confident he can hand over the company in a strong recovery phase when he retires next March.

New respiratory and HIV medicines are offsetting falling sales of ageing lung treatment Advair, while profitability is also improving in consumer healthcare, which makes products ranging from headache pills to toothpaste.

The consumer division is currently run as a joint venture with Novartis and there has been speculation GSK might buy out its minority partner before 2018, although the Swiss firm's CEO said last week he was in no rush to sell.

GSK has declined to join a mergers and acquisitions spree that has seen many other large pharmaceutical companies snap up smaller rivals in recent years.

But it moved to boost its drug pipeline by announcing on Wednesday it has agreed to pay Johnson & Johnson up to 175 million pounds for rights to an experimental biotech treatment for severe asthma.

(Editing by Adrian Croft)

[© 2016 Thomson Reuters. All rights reserved.]

Copyright 2016 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.