Glaxo profit fall as generics weigh

LONDON Wed Apr 23, 2008 8:36am EDT

A GlaxoSmithKline logo is seen outside one of its buildings in west London, February 6, 2008. REUTERS/Toby Melville

A GlaxoSmithKline logo is seen outside one of its buildings in west London, February 6, 2008.

Credit: Reuters/Toby Melville

LONDON (Reuters) - GlaxoSmithKline Plc (GSK.L) profits fell 5 percent in the first quarter, hit by tumbling sales of diabetes drug Avandia and generic competition to other products, the world's second biggest drugmaker said.

The decline was less than analysts had feared, helped by strong sales of over-the-counter remedies, which offset a decline in pharmaceuticals.

Jean-Pierre Garnier, who retires next month, said on Wednesday it was an "honorable" performance, given a safety scare over Avandia that had prompted many patients and doctors to stop using the medicine.

Operating profit was 2.05 billion pounds ($4.1 billion) on sales up 2 percent at 5.69 billion, equivalent to underlying "business performance" EPS of 25.6 pence. The median forecast from 13 analysts polled by Reuters Estimates had been for 24.5p.

"Despite the generic attrition and the fallout from Avandia, they still managed to maintain the top-line performance, which is testament to the resilience of their broad product portfolio," said ING analyst David Seemungal.

Glaxo shares were up 0.4 percent at 11.06 pounds by 1215 GMT (8:15 a.m. EDT), broadly in line with the European drugs sector .SXDP, which rose 0.5 percent.

Glaxo reiterated its cautious forecast that underlying earnings per share (EPS) would decline by a mid-single-digit percentage in 2008, in constant currencies.

The quarterly results highlight the challenges facing incoming chief executive Andrew Witty.

Other major drug companies have reported mixed results over the past week, reflecting a global slowdown in sales and a squeeze on margins.

Pfizer Inc (PFE.N), the industry leader, shocked investors with worse than expected results although others, like Novartis AG (NOVN.VX), have managed to salvage profits with cost cutting.

PIPELINE HOPES

Glaxo is seeking salvation from its large pipeline of new drugs, which include 157 projects in clinical development.

Some key medicines, however, have been slower to reach the market than initially hoped and the British-based group is now also boosting its portfolio with acquisitions.

The latest came on Tuesday, with a $720 million agreed offer for Sirtris Pharmaceuticals Inc SIRT.O, best known for developing a drug based on the active ingredient in red wine.

Garnier said Glaxo would continue to seek other similar deals from time to time.

The core prescription drug business was hit hard by a 56 percent slump in sales of Avandia, following a U.S. report last May linking the medicine to increased heart attack risk.

Glaxo insists Avandia is as safe as other oral anti-diabetics but Garnier said it was unclear whether Avandia would recover.

Cheap generic competition to heart drug Coreg also hurt profits but strong growth in the vaccines and consumer health business helped buttress the overall performance, vindicating Glaxo's decision to maintain a broad business, in the face of calls for a break-up from some investors.

On the research front, Glaxo reiterated that it aimed to respond to U.S. regulators over outstanding issues concerning cervical cancer vaccine Cervarix -- its biggest new product hope -- in the second quarter. It also said it was progressing experimental heart drug darapladib into final Phase III testing.

Shares in the group have fallen 40 percent since its creation seven years ago, reflecting product setbacks and a general de-rating of the sector. The stock currently trades on less than 11 times next year's forecast earnings.

(Reporting by Ben Hirschler, Editing by Rory Channing/Richard Hubbard)