GSK's vaccine operating profit, margin dive on Novartis fold-in

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GlaxoSmithKline CEO Andrew Witty

GlaxoSmithKline ($GSK) will have some questions to answer this week after reporting its first quarterly results with Novartis' ($NVS) former vaccines stable. The company's vaccines unit saw its operating profit plummet and operating margin decline after folding in the Swiss drugmaker's business.

In Q1, vaccines operating profit fell 31% from the same period last year, sinking to £161 million, the London-based drugmaker said Wednesday. The unit's operating margin sank 12.1% percent excluding currency effects, with 5.1 percentage points attributable to the acquisition of Novartis' lineup.

GSK knew the Novartis business would come with some challenges, as the unit struggled for years prior to the company's $7.1 billion deal to buy Novartis' vaccines business, excluding its flu jabs. It posted an $165 million operating loss in 2013.

But on the company's conference call, CEO Andrew Witty said the deal brought in more losses than expected, which the company pinned on a "higher than anticipated cost base."

Still, the company is "confident it can address this as part of the overall integration program," it said, and it's targeting an operating profit margin of at least 30% for the unit by 2020. It also expects sales to keep expanding, growing at a compound annual rate in the mid-to-high single digits between 2016 and 2020.

Success for the unit will prove vital for GSK, as the company has placed a large stake in vaccines with the Novartis transaction--an asset swap that sent its oncology assets to Basel. Much of the burden is due to flailing pharma revenue as the effects of pricing pressure--and, potentially in the near future, U.S. generics--take their toll on aging respiratory behemoth Advair.

- here's the Q1 results (PDF)
- more from Reuters

Special Report: The top 5 vaccine makers by 2013 revenue - GlaxoSmithKline

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