The Declining Revenues of GlaxoSmithKline’s Pharmaceutical Segment
Understanding GlaxoSmithKline's Valuation in 2016
GSK’s Pharmaceutical segment
GlaxoSmithKline’s (GSK) Pharmaceutical segment has declined substantially in 2015 due to the divestment of its oncology business to Novartis (NVS) in March 2015. The Pharmaceutical segment reported revenues of $14.17 billion in 2015, compared to about $15.5 billion in 2014. Excluding the impact of the divestment of oncology business, revenues declined by 1% following lower sales of Seretide and Advair, partially offset by increased sales of HIV products Triumeq and Tivicay, and new pharmaceutical products.
Overall, the pharmaceutical segment’s contribution to total revenues declined from 67.3% in 2014 to ~59.2% in 2015. Let’s now look at the sub-segments in the Pharmaceutical segment.
GlaxoSmithKline’s Pharmaceuticals segment is classified into the following two franchises:
HIV products, which is classified under ViiV healthcare.
global pharmaceuticals, which deals with respiratory, cardiovascular, metabolic, and urology, immuno-inflammation, and established products
HIV products
HIV products are marketed under ViiV healthcare, a company with GSK as a major shareholder, while Pfizer (PFE) and Shionogi are other shareholders. The company completed the acquisition of Bristol-Myers Squibb’s R&D HIV assets on February 22, 2016, to strengthen its position in HIV products. HIV products reported growth of 54% at constant exchange rates to 2.3 billion pounds, or about $3.2 billion, in 2015 over 2014. This growth was driven by the new products Tivicay and Triumeq, partially offset by declining sales of Epzicom/Kivexa. Further details of key products and recent acquisition are discussed in following articles.
Tivicay competes with Gilead Sciences’ (GILD) Stribild while Triumeq competes with Gilead’s and Bristol-Myers Squibb’s (BMY) jointly developed Atripla.
Global pharmaceuticals
Global pharmaceuticals deals with respiratory, cardiovascular, metabolic and urology, immuno-inflammation, and established products. Below are a few key numbers:
For the respiratory franchise, the drugs Seretide and Advair are losing their market share to the generic competition. Overall, the respiratory franchise reported a revenue decline of 7% at constant exchange rates during 2015.
For the cardiovascular, metabolic, and urology franchise, the drugs Duodart and Jalyn have shown strong performances, while Avodart, one of the key products of GSK, is exposed to generic competition since October 2015. The franchise sales declined by 9% at constant exchange rates during 2015.
For the immuno-inflammation franchise, Benlysta is driving growth. Benlysta’s sales improved by ~24% while the franchise sales improved by 16% during 2015.
Various products in the established products franchise are losing their market share to generic competition, reporting a revenue fall of 15% at constant exchange rates during 2015, due to lower sales across global markets.
Other pharmaceuticals franchise include few key products like Augmentin, Relenza, Dermatology products, and rare disease products. The revenues for this franchise declined by 4% at constant exchange rates during 2015, following lower sales for Augmentin, dermatology, and rare disease products, partially offset by the strong performance of Relenza.
In order to divest risk, investors can consider ETFs like PowerShares International Dividend Achievers ETF (PID), which has 2.3% of its total assets in GlaxoSmithKline.
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