LONDON—GlaxoSmithKline PLC on Wednesday reported a sharp drop in
net profit for the second quarter, reflecting the increased
dominance of lower-margin vaccines and over-the-counter medicines
in the company's portfolio following its $20 billion asset swap
with Novartis AG.
The drug maker said net profit slid 77% to £ 149 million ($233
million) compared with the same period last year, despite a 6% rise
in revenue to £ 5.89 billion, in the first full quarter since the
Novartis transaction completed. Core operating profit, Glaxo's
preferred measure, fell 4% to £ 1.35 billion, slightly higher than
analysts' estimates of £ 1.34 billion. Stripping out the effect of
the strong pound, revenue rose 7% and core operating profit
increased by 3%.
Glaxo shares jumped about 3% after the release of the
results.
Glaxo has become a lower-margin company following its $20
billion asset swap with Novartis, in which it traded its highly
profitable oncology franchise for the Swiss company's vaccines
business, which has slimmer margins. The pair also formed a joint
venture, controlled by Glaxo, for their over-the-counter medicines,
which also have lower margins than prescription
pharmaceuticals.
Glaxo did the deal because it believes it will be better off in
the long run with low-margin but high-demand vaccines than with
high-margin but low-demand cancer drugs, especially as powerful
drug buyers put downward pressure on prices.
Write to Denise Roland at Denise.Roland@wsj.com
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