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A New "Alli" From Glaxo

Disclaimer: If you're squeamish about gastrointestinal side effects, don't read on.

GlaxoSmithKline has won FDA approval to sell the formerly prescription-only diet drug Xenical over-the-counter. The drug can help people lose, on average, about six pounds. It'll be called "Alli" (pronounced like "ally"). GSK will split the profits with Roche, which owns prescription Xenical. Roche sold $555 million worth of Xenical last year -- far from tipping the scale of billion-dollar blockbuster status.

The reason it didn't grow that large is because the drug, frankly, has some nasty side effects, including excessive flatulence, diarrhea, cramps, uncontrollable oily discharge, etc. Glaxo's CEO J.P. Garnier told me today that in the company's clinical trials, fewer than 10% of patients dropped out because of all that stuff. But doctors say many more people for whom they've prescribed Xenical find the side effects way too embarrassing and intolerable. Sanford Bernstein European pharmaceutical analyst Dr. Gbola Amusa tells me he thinks Alli could have peak sales of $100 million to $300 million, which would be a blockbuster by OTC-drug standards. But, again, keep in mind the company will split the profits with Roche -- and that GSK has $45.5 billion in annual revenue. Bernstein owns at least 1% of GSK shares, which were the biggest gainer in the sector today -- but it wasn't because of the Alli news. This morning the company reported earnings and forecast EPS growth this year of 8%-10%. Analysts thought it would be just 5%.

Glaxo expects to launch five new prescription drugs this year. The top two are Tykerb for breast cancer -- FDA approval could come very soon -- and Cervarix, an HPV/cervical cancer vaccine. GSK says it'll file for approval of Cervarix by April, so it could be on the market later this year or early next. (Merck has a head start with the similar Gardasil.) When I asked Garnier about the Texas governor's decision to require the vaccine for sixth-grade girls, Garnier said he supports the move, but believes parents should be given the ability to opt-out their kids.

As far as Alli is concerned, obesity experts and analysts say if the side effects are a turn-off, patients should sit tight until the FDA makes a decision on Sanofi-Aventis' Acomplia. That prescription drug could become the next diet-pill craze, and it doesn't cause the same problems. Analysts believe Acomplia could be approved within the next few months.

Questions? Comments? Pharma@cnbc.com