GlaxoSmithKline slashed its growth forecasts and stopped a billion-pound plus share buyback yesterday as its chief executive, Sir Andrew Witty, said he remained “concerned” about allegations that it bribed doctors in China to prescribe its drugs.
A strong pound and falling sales of its key lung drugs in the US also hit the pharmaceutical giant’s results.
GSK shares dived on the news, falling as much as 6.9 per cent before ending down 73.5p, or nearly 5 per cent, at 1,481.5p – their lowest point since the China scandal broke just over a year ago.
Chinese officials have charged a private investigator, Peter Humphrey, who worked for GSK, and his wife, with illegally trading personal information, while sex tapes have come to light of its former China head Mark Reilly and his Chinese girlfriend.
Under-pressure Sir Andrew yesterday revealed another set of quarterly results with little sign of the promised recovery in sales’ growth. Revenues for the latest three months dropped 16 per cent to £5.56bn while core operating profits were down 25 per cent at £1.4bn.
Sales of GSK’s drugs and vaccines in the US fell by 10 per cent, mostly due to increased competition from generic drugs. Sales of its blockbuster asthma treatment Advair fell 12 per cent in the second quarter, having fallen by 15 per cent in the first.
The ongoing investigations in China also hit sales badly there, with revenues down by 20 per cent. Sir Andrew said that GSK took the allegations seriously and investigated every claim of wrongdoing, taking action if they had substance. “We have zero tolerance for unethical behaviour,” he said. “The vast majority of our employees operate ethically and we are continuing to cooperate with the Chinese investigations.”
Thirty staff have been sacked in China amid allegations that doctors were bribed to use GSK’s products.
Sir Andrew said GSK remained “committed to China” and expected sales growth there to “begin to recover” in the current third quarter. He also highlighted global new product launches but admitted that they were costing more to get to market and to sell.
GSK said it now expects no growth in earnings per share in 2014 against its previous indications of 4 to 8 per cent growth. It added that it would not now give any guidance on earnings prospects beyond the current year.
Mark Clark, an analyst at Deutsche Bank, said the City would have to cut earnings forecasts for the group by more than 5 per cent, and GSK’s poor performance could put its dividend policy under pressure.
Sir Andrew added: “Our good progress on newly launched products is being offset by pricing and contracting pressure in the US.
“As we highlighted last quarter, this has resulted in a ‘step change’ reduction in Advair market share and pricing, and it is now clear that these pressures are likely to continue.”