Issued:
Wednesday,
23rd
July 2008
,
London
UK
GSK sets out new strategic priorities
- Grow a diversified global business
- Deliver more products of value
- Simplify GSK's operating model
In a presentation to investors today, Andrew Witty, CEO
GlaxoSmithKline, set out three new strategic priorities that aim
to
increase growth, reduce risk and
improve GSK's long-term financial
performance.
Outlining the context for the priorities Witty said: "In
the next few years the pharmaceutical industry will face immense challenges as
an unprecedented number of products lose patent protection. This will be set
against a backdrop of payors searching for ever more cost-effective healthcare
and escalating patient demand for new and better medicines."
"Our aspiration to improve the lives of patients and
consumers is intrinsically aligned to the requirements of our shareholders," he
said. At the same time though, he stated that the industry is currently
perceived in financial terms as being one of 'higher risk' and 'lower growth'
and that companies must work harder to demonstrate greater return from
investments in R&D.
"These new strategic priorities will evolve GSK into a
company that has a balanced group of healthcare businesses and a lower overall
risk profile," said Witty. "They also point to a more disciplined allocation of
capital across all our different business areas."
Grow a diversified global
business
"GSK will seek to generate future sales growth through
supplementing strength in the core small-molecule pharmaceuticals business,
with new investments in fast growing areas such as vaccines and consumer
healthcare and new growth areas such as biopharmaceuticals," said Witty. "At
the same time, we are actively seeking to unlock the geographic potential of
our different businesses, particularly in emerging economies."
Commenting on GSK's vaccines and consumer healthcare
businesses, Witty said: "These business
es
offe
r significant growth opportunities
to GSK through new products and geographic
expansion. Moreover, with increasing global trends to preventative healthcare
and self medication, GSK can be a global leader in meeting the converging needs
of customers."
Regarding vaccines, GSK has a substantial opportunity to
expand its business in Emerging Markets and Asia Pacific. Economic improvements
are driving increased use of advanced vaccines and Witty stated that
investments in capacity and regulatory expertise in these countries was an
'immediate priority' for the company.
Witty also highlighted to investors the potential of GSK's
biopharmaceuticals business with over 12 clinical research programmes underway
including 5 assets in late-stage development. He referenced the 'catalysing'
effect of recently acquired Domantis on GSK's biopharmaceuticals pipeline,
noting their pioneering research into next generation antibody therapies which
could potentially be used in far wider applications than has been possible with
conventional monoclonal antibodies.
In assessing the opportunity for GSK to expand sales
growth geographically, Witty said that there was a 'deep seam of opportunity'
inside and outside of GSK's current product portfolio. He outlined elements of
GSK's new strategy to accelerate growth in Emerging Markets, emphasising the
company's new business model and its
transformational agreement with
Aspen
. This collaboration provides GSK with priority access
to
a portfolio of
1200 potential new products, specific to Emerging Market
needs,
and is a clear signal of the company's intent to
broaden its brand portfolio in these markets.
Witty also pointed to GSK's strong launch pipeline
in
Japan
, with more than 25
product opportunities either registered or to be
filed
with regulators over the next two
years.
"Our strong focus on product development in
Japan
means that we will be in the enviable position of
launching products from three eras of drug discovery into the Japanese market
over the next few years," said Witty.
Regarding other activities to maximise the value of GSK's
product portfolio, Witty said that GSK has actively begun to divest non-core
product assets to ensure that commercial efforts are focussed on delivering
sales growth.
In summing up this priority, Witty stated that by
diversifying and globalising GSK's business the company would be less reliant
on a small concentration of products, and will be able to improve sales growth
with significantly reduced overall risk.
Deliver more products of value
"The core of GSK has been and will remain pharmaceutical
R&D," said Witty. "We must be relentless in our efforts to improve R&D
productivity and this is why we have started to implement a new vision for our
R&D organisation which is science-led and focussed on value
creation."
Following an extensive review, GSK is now focussed around
8 research areas: Immuno-Inflammation, Neuroscience, Metabolic Pathways,
Oncology, Respiratory, Infectious Disease, Ophthalmology and
Biopharmaceuticals.
GSK has also established new Drug Performance Units (DPU)
within its Centres of Excellence for Drug Discovery (CEDD). These units, focus
on a given biological pathway such as schizophrenia within the Neuroscience
CEDD, and comprise between 5-80 scientists.
"We believe that drug discovery is best optimised through
research by small, focussed teams. Building on the success of our CEDDs we have
now pushed our organisational design further to increase product flow and
value," said Witty.
He also highlighted the value to GSK of a further 50
discovery programmes in GSK's Centre of Excellence for External Drug Discovery,
and stated that the company is seeking to substantially increase
collabora
tion with external R&D partners.
"Externalising R&D enables GSK to capture scientific
diversity and balance expenditure and risk in drug development. In the future,
we believe that up to 50% of GSK's drug discovery could be sourced from outside
the company," he said.
For the first time, GSK described the efforts of a new
global Drug Discovery Investment Board, which is tasked to ensure that
investment capital is allocated in a disciplined way to competing research
teams. Capital is allocated to individual DPUs based on performance and value
creation metrics set against 3-year business plans. The Board comprises senior
GSK R&D leaders and individuals from outside the company operating in the
venture capital and Biotech/Pharma investment world.
The company is also seeking to explore opportunities to
create shareholder value with the establishment of a new, global Corporate
Venture Fund. This Fund will invest in start-up 'incubator' companies based on
GSK-generated assets and intellectual property; and in early-stage companies
that are using advanced technology outside of GSK to develop innovative
healthcare products.
Together with this increased focus on capital allocation,
GSK has begun to consult with payors at an early stage of clinical development
to ensure that drug targets are consistent with payor needs.
In concluding his comments on this priority Witty said:
"GSK's drug discovery efforts now revolve around the scientist, the patient,
the shareholder and the payor. Input from all these constituents will drive our
decision-making and enable GSK to address the realities of today's environment
for drug discovery."
Simplify GSK's operating model
"To meet the demands of our future environment and support
GSK's first two strategic priorities, it is clear that we must create a new
operating model for GSK and simplify our organisation," said Witty.
Spanning the entire business, GSK has commenced a series
of activities to improve the efficiency of its operations, including further
efforts to improve GSK's selling model and its manufacturing. A project has
also started within the company to generate substantial working capital
savings. Witty noted that the activities are in addition to GSK's ongoing
restructuring programme and said that these initiatives would not be to the
detriment of sales growth.
"We are seeking to release value and improve GSK's
efficiency in a different way. Traditionally, we have focussed on delivering
cost savings through our business functions. Now, we are also adopting a
pan-business approach to cost saving opportunities by making cross-business
processes and structures simpler and more cost-efficient."
Commitment to Shareholder Value
Witty made several points regarding GSK's financial
strategy at the meeting, noting that the company remains committed to a more
efficient balance sheet structure and to increasing returns to shareholders
through its progressive dividend policy.
Further available free cash flow and debt capacity will be
used to invest firstly in the new strategic priorities and secondly in other
cash returns to shareholders.
"We are committed to generating value for our shareholders
and believe this will be best achieved through delivery and investment in our
new strategic priorities," said Witty. "
To ensure we have sufficient flexibility to deliver these
priorities, we plan to vary the pace of our remaining £6.5 billion share
repurchases according to the investment opportunities available. We therefore
now
expect the full £1
2 billion programme will be completed after the
previously
anticipated
end date of July 2009."
He confirmed that the company currently expects to
repurchase around £1 billion of shares in the last five months of the
year. Incremental investment opportunities to support the strategic priorities
are expected to include 'bolt-on' acquisitions, other investments and
collaborations.
"It is our intention to be very disciplined in the
management and allocation of our capital.
All investment opportunities will be assessed against
strict financial criteria and against our long-term objective of increasing
growth, reducing risk and improving financial performance for the company,"
said Witty.
In conclusion, Witty stated that whilst the future
healthcare environment, appeared 'challenging', it will also hold 'significant
opportunity' for those pharmaceutical companies who 'seize the initiative' and
find ways to create products of value.
"It is clear that GSK must change if it is to be
successful in the future," said Witty. "Equally, we must also capitalise on
GSK's inherent strengths. Our new priorities, I believe, capture both these
elements and will deliver long-term, sustainable financial performance to
shareholders and far-reaching benefits to patients and consumers."
GlaxoSmithKline
- one of the world's leading research-based
pharmaceutical and healthcare companies - is committed to improving the quality
of human life by enabling people to do more, feel better and live
longer.
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European Analyst/Investor enquiries:
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US Analyst/ Investor enquiries:
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Cautionary statement regarding
forward-looking statements
Under the safe harbor provisions of the U.S.
Private Securities Litigation Reform Act of 1995, GSK cautions
investors that any forward-looking statements or projections made
by GSK, including those made in this announcement, are subject to
risks and uncertainties that may cause actual results to differ
materially from those projected. Factors that may affect GSK'
s
operations are described under 'Risk Factors'
in the 'Business Review' in the company' s Annual Report on Form
20-F for 2007.
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Registered in
England
&
Wales
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By: VICTORIA WHYTE
------------------
Victoria Whyte
Authorised Signatory for and on
behalf of GlaxoSmithKline plc