Glaxo Doubles Buyback to $25 Billion as Earnings Flatten
GlaxoSmithKline more than doubled its share buyback program to 12 billion pounds ($25 billion) on Wednesday, boosting its shares even as sliding sales of diabetes drug Avandia held back second-quarter profit.
Europe's biggest drugmaker kept its forecast for 2007 earnings growth of 8 to 10% at constant currencies, but signaled this depended on results of a U.S. regulatory review of Avandia after a study said it raised heart attack risks.
Glaxo shares were up 3.6% at 12.91 pounds, the second biggest rise on London's benchmark FTSE-100 index, after the firm said it was increasing its share buyback program by a net 7.7 billion pounds.
It expects to complete the 12 billion pound program, the size of which Chief Executive Jean-Pierre Garnier said was unprecedented in the drug industry, over the next two years.
Garnier told reporters on a conference call that the buyback would not affect Glaxo's flexibility to do deals and the group had scope to borrow large amounts of money for the right acquisition.
"It's certainly very aggressive," said Nomura Code analyst Mike Ward of the buyback. But he said it was supported by strong performances of established drugs such as Advair for asthma and continued progress in a strong pipeline of new medicines.
"That's all been rather overshadowed recently by the Avandia situation," he added.
Second-quarter pretax profits were flat at 1.9 billion pounds, equivalent to earnings per share of 24 pence.
Analysts had on average forecast 23.4p, according to Reuters Estimates.
Sales slipped 2% to 5.67 billion pounds, also held back by a weak dollar and the generic competition now facing older products such as anti-nausea drug Zofran, which no longer enjoys U.S. patent protection.
FDA Panel Looms
Glaxo has mounted a fierce defence of Avandia, its second biggest-selling product, but prescriptions have slumped since top cardiologist Steven Nissen published his critical study on May 21. Worldwide sales of Avandia products in the three months to June dropped 22% to 349 million pounds.
The U.S. Food and Drug Administration is to hold an advisory meeting on July 30 to discuss the safety of Avandia and industry analysts say the drug's future and Glaxo's near-term profits will depend heavily on the outcome.
Garnier, who is due to step down next May, told reporters that Glaxo would present fresh data at the FDA meeting which contained "important new information."
The submission to the FDA will include findings from an analysis of 400,000 diabetes patients and compares all the commonly used drugs in day-to-day clinical practice.
Garnier added he was increasingly optimistic about Glaxo's pipeline of new drugs, saying the firm had the opportunity to launch up to 25 new products in 2007-9.
Recent concerns about Avandia, coupled with nagging investor doubts about the pipeline, have punished Glaxo's shares, which trade at just over 12 times forecast 2008 earnings a 17% discount to the European sector average.
Glaxo's results follow a generally healthy results season so far for the world's top drug companies, although Pfizer disappointed after sales of its top-seller Lipitor fell sharply.