Glaxo Expects Earnings to Fall in 2008
By JEANNE WHALEN
February 8, 2008; Page B4
GlaxoSmithKline PLC reported a 10% decline in fourth-quarter net profit and said it expects earnings to fall this year because of lower sales of the diabetes drug Avandia and stiff competition from inexpensive generic drugs.
Chief Executive Jean-Pierre Garnier, who will step down in May, said he couldn't predict when Glaxo's most important new product, the cervical-cancer vaccine Cervarix, would make it to the U.S. market. The Food and Drug Administration has delayed a decision on the vaccine, asking Glaxo for more information. Dr. Garnier said Glaxo, based in Brentford, England, would answer the FDA's questions in the second quarter and expects the agency to convene a committee of outside advisers to vet Cervarix before making a final decision.
Glaxo shares fell 7.6% to £10.78 ($20.94) in London Thursday, marking a three-year low.
Glaxo's troubles mirror those at many big drug companies, which have reported poor earnings and announced layoffs in recent months. Competition from generic drugs, tougher safety standards at the FDA and the difficulty of inventing drugs have contributed to lower earnings. Also, insurers and state health-care systems have become less willing to pay for brand-name drugs that don't demonstrate clear benefits over less-expensive generics.
Glaxo's net profit fell to £1.06 billion ($2.06 billion) from £1.18 billion a year earlier. Sales were about flat at £5.97 billion, compared with £5.96 billion a year earlier.
Sales of Avandia, which in 2006 was the company's second-best selling product, dropped 26% to £1.2 billion last year, after a study in May linked the drug to an increased risk of heart attacks.
Glaxo, the world's second-largest drug company by sales, after Pfizer Inc., forecast that earnings per share would decline by a midsingle-digit percentage this year at constant exchange rates.
Andrew Witty, who will move up to the chief executive post in May from his job as head of Europe, said Dr. Garnier's overhaul of Glaxo's research-and-development labs is bearing fruit but that the company is "never going to be satisfied that we're running R&D as well as we could possibly run it."
Mr. Witty praised the performance of Glaxo's consumer-health-care unit, which sells nonprescription medicines, toothpaste and drinks. The unit's sales increased 11% last year to £3.48 billion. Pharmaceutical sales, meanwhile, fell 4.2% to £19.23 billion. Analysts have speculated that Mr. Witty might try to sell the consumer-health-care unit, but he suggested otherwise, calling it a "phenomenal business."
Glaxo needs to be more diversified in its product mix and in the geography of its sales to help it avoid sudden shocks like the Avandia sales slide, Mr. Witty said.
Glaxo is facing generic competition to several big drugs, including the antidepressant Wellbutrin XL and the heart drug Coreg.
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