FILE PHOTO: The GlaxoSmithKline building is pictured in Hounslow, west London
By Ben Hirschler
LONDON (Reuters) - GlaxoSmithKline's new chief executive announced plans on Wednesday to narrow the focus of the group's drug research by ditching more than 30 drug projects to improve returns in its core pharmaceuticals business.
Emma Walmsley, who took over in April, said GSK would in future allocate 80 percent of its R&D budget to respiratory and HIV/infectious diseases, along with two other potential areas of oncology and immuno-inflammation.
Thirteen clinical and around 20 pre-clinical programmes will be stopped, partnered or divested, and the group is considering options for its rare diseases unit after a strategic review.
It also plans to stop selling the struggling diabetes drug Tanzeum and end a collaboration with Johnson & Johnson over experimental rheumatoid arthritis drug sirukumab, as well as divesting around 130 old drugs with limited sales.
GSK has lagged behind rivals recently in producing multibillion-dollar blockbusters and has suffered a number of high-profile failures, undermining faith in its R&D skills.
"We've been too broadly spread," Walmsley told reporters, adding that the overhaul would not result in a lower R&D budget because GSK had been investing too little in individual experimental drugs in the past.
Indeed, spending could rise as Walmsley and her team go shopping for promising early-stage experimental drugs to bolster the pipeline in GSK's priority areas.
The announcement came as Britain's biggest drugmaker reported a 12 percent rise in adjusted earnings per share in sterling terms to 27.2 pence on sales up 12 percent at 7.32 billion pounds.
Analysts, on average, had forecast EPS of 26.2 pence and sales of 7.26 billion pounds, according to Thomson Reuters data.
The group reiterated its outlook for 2020, first given in 2015, forecasting sales growth of low-to-mid single digits and adjusted earnings of mid-to-high single digits on a constant currency basis.
For 2017, it now sees EPS growth of 3-5 percent, against 5-7 percent predicted previously, following investment in a "priority review voucher" to accelerate U.S. approval of a new HIV medicine.
Shares in the group fell 1.3 percent by 1400 GMT, with some investors disappointed that Walmsley had not taken the opportunity to increase long-term financial targets.
Given that she announced an extended cost-cutting programme to deliver an additional 1 billion pounds of annual cost savings by 2020, UBS analyst Michael Leuchten said the cautious approach "suggests tougher underlying trends".
Walmsley, who previously headed GSK's consumer health unit after 17 years working for L'Oreal , is known for her focus on benchmarking business performance and had been expected to revamp pharma R&D.
She had previously said she was considering the divestment of older antibiotics and planning to sell two UK nutritional brands.
Overhauling GSK's R&D machine is her biggest task, however, and she wants scientific and commercial teams to work closely together to pick winners.
The changes will take time to deliver results but Walmsley does have a window as GSK is not expecting its next wave of new drugs until after 2020. It also has no further major patent expiries until 2026.
To some extent GSK is following in the footsteps of its smaller British rival AstraZeneca , which has divested a large number of non-core drug projects recently. Significantly, former AstraZeneca executive Luke Miels, who joins in September, will be a key lieutenant for Walmsley during the shake-up.
GSK benefited once again in the quarter from a weak pound, after last year's Brexit vote, as well as strong demand for HIV medicines and the failure, so far, of generic firms to win U.S. approval for copies of its inhaled lung drug Advair.
But HIV competition is set to increase next year and U.S. generics to Advair, which has generated more than $1 billion in annual sales for GSK since 2001, are likely by mid-2018.
The company extended a commitment to pay its current 80 pence per share annual dividend through 2018.
(This version of the story adds dropped first name of CEO in second paragraph)
(Additional reporting by Kate Holton, editing by Louise Heavens and Adrian Croft)