Glaxo set for big push into emerging markets

GlaxoSmithKline's new chief executive signalled his intent to launch an expansion drive into the emerging markets yesterday as he revealed his strategic objectives for the first time and announced a "transformational" partnership with a South African drugs company.

Andrew Witty, who took over from Jean-Pierre Garnier at the end of May, also admitted that the pharmaceuticals industry faced a "challenging" future as companies are set to lose billions from expired patents and the costs of research and development continue to soar. He issued a rallying cry that the industry should "seize the initiative".

Glaxo has signed a licensing and supply agreement with Aspen, a South African pharmaceuticals group, and its joint venture partner Strides Arcolab – a deal it described as "a transformational agreement to significantly extend its pharmaceutical portfolio in emerging markets".

The group added: "This signals a significant new strategy from GlaxoSmithKline to accelerate sales growth in emerging markets." Emerging markets are forecast to grow by three times the rate of the West, and will account for 40 per cent of growth in global pharmaceutical market by 2020, Glaxo added.

One of Mr Witty's first moves as chief executive was to create a new emerging markets division and appoint Abbas Hussain as president last month.

The group added it had already prioritised investments in the regions and had bulked up its regulatory expertise as a result. Speaking on the day of his first quarterly results presentation, Mr Witty said the announcement demonstrated the company's focus "where growth in both population and economic prosperity is leading to increased demand for branded pharmaceuticals".

Mr Witty also laid out his strategic priorities for Glaxo's business to investors yesterday. He plans to simplify the group's operating structure, diversify the business and put more emphasis on "products of value".

He 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 payers searching for ever more cost-effective healthcare and escalating patient demand for new and better medicines."

One analyst said companies would lose $200bn (£100bn) from patent expiry over the next five years and only half of that would be replaced by drugs coming through the current clinical pipeline. Mr Witty said the future of healthcare was "challenging" but held "significant opportunity".

The group is set to target growing areas including vaccines and consumer healthcare products as well as new growth areas such as biopharmaceuticals. "These businesses offer significant growth opportunities to GlaxoSmithKline through new products and geographic expansion," Mr Witty said.

James Millett, an analyst at Cazenove, said: "The strategic review from the new chief executive should give some comfort to GlaxoSmithKline investors." However, he added that there was a "lack of well-defined targets being disclosed".

Glaxo yesterday beat analyst expectations as it announced that turnover in the second quarter was up 4 per cent to £5.8bn driven by stronger performance in the vaccines division.