GSK share price rises as it beats expectations - but profits dip

 
James Nickerson
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GSK is reaping the benefits from a deal whereby it swapped an expensive oncology business for high-demand vaccines (Source: Getty)

GSK's shares leaped 3.7 per cent to 1,377p in early afternoon trading after earnings per share beat expectations - despite it taking a hit on Advair.

The figures

The British pharmaceutical giant's core operating profit for the second quarter fell four per cent to £1.35bn.

Net profit fell 77 per cent to £149m compared to the same period last year, while earnings per share hit 17.3p, smashing analyst expectations of 16.7p.

And turnover rose six per cent to £5.89bn in the first full quarter since its deal with Swiss rival Novartis completed.

Why it's interesting

Since GSK's deal with Novartis, where it traded its oncology franchise for the Swiss company's vaccines business, the multinational has become a lower margin company.

Under the deal, the company will sell high-demand vaccines with low margins against high margin, but low demand, cancer drugs. Aforementioned vaccines have been the main driver of its sales, it said.

Still, GSK has missed earnings expectations in three of the four previous quarters, and while the company has been up against stiffer competition for Advair - a respiratory drug and one of its key revenue earners - it said it expects a "significant recovery" in core earnings per share next year.

What GSK said

Sir Andrew Witty, chief executive, said:

Our integration and restructuring plans are on track and we remain confident that we can achieve our targets for this year and return the Group to earnings growth in 2016.

Importantly the growth of our new pharmaceutical products is now more than offsetting sales declines of Advair. We will be showcasing further product innovation at our event for investors in November at which we expect to review new data and prospects for advanced and early-stage development projects in HIV, Oncology, Vaccines, Cardiovascular, Immuno-inflammation and Respiratory diseases

In short

Despite higher competition and lower margins, GSK has beaten forecasts and says it is on track to grow earnings per share.

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