How come GlaxoSmithKline just plunged 6%?

There are signs that Emma Walmsley's tenure as chief executive at GlaxoSmithKline has the pharma giant moving in the right direction. However, reaction to third-quarter results suggests something's not right, and a 6% slump in the share price to a 16-month low has wiped £4 billion off Glaxo's market cap.

The former boss of GSK's consumer healthcare arm, once head of L'Oreal's consumer products business in China, took over in April from Andrew Witty, whose closing months as CEO were spent responding to pressure from shareholders including Neil Woodford about a break-up of the business.

It's still early days in her leadership role at GSK, but today's numbers did show a 4% rise in sales to £7.8 billion and a much better operating margin of 23.9% are certainly welcome developments. Earnings for this year are still on track to grow by between 3% and 5%, the company added.

GSK has successfully increased its focus on areas such as HIV and respiratory medicines, helping pharmaceuticals sales to rise 3% overall in the quarter. However, broker UBS said Q3 sales of respiratory products in particular were still short of consensus, caused in part by pricing pressures. Sales of the new portfolio and of older drugs Ventolin and Flixotide were weaker.

In consumer healthcare, which includes the brands Sensodyne, Theraflu and Panadol, sales rose 5% to £2 billion, but competition in the US allergy market and a broader slowdown elsewhere stopped it being more. At least group sales have been supported by the failure of rivals to get US approval for copies of GSK's top-selling lung inhaler Advair.

As the company steps up its quest for more blockbuster drugs to replace those now subject to generic competition, its commitment to R&D rose 24% on a year earlier to £3.2 billion in the first nine months of the year.

Glaxo is close to launching three new products, including shingles vaccine Shingrix and its once-daily inhaler for lung disease, both of which have secured regulatory approval.

Having committed to pay 80p a share in dividends per year until 2018, the company will also announce a new dividend policy next year. Deutsche Bank thinks the dividend is secure, but believes "likely pressures on ViiV growth [HIV business] and a need to invest behind the pipeline limit scope for upside to this".

EdenTree Investment Management's Ketan Patel said the company's ability to manage its debt burden will have a significant impact on the payout.

Net debt increased to £14.2 billion at the end of September, with the £3 billion cost of dividend payments more than offsetting improved free cash flow of £1.6 billion and disposal proceeds of £356 million.

Patel pointed out that GSK has underperformed over the past 12 months versus the FTSE 100 and its UK rival AstraZeneca. He said: "Its shares are the cheapest in the global large cap pharma space - while it also offers the highest yield, in excess of 5%."

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