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GlaxoSmithKline Earnings Fall Less than Expected

GlaxoSmithKline’s profit fell 5 percent in the first quarter, hit by falling sales of diabetes drug Avandia and generic competition to other products, the world's second biggest drugmaker said.

The company logo of GlaxoSmithKline, is seen on the headquarters building in London, Wednesday May 10, 2006. GlaxoSmithKline PLC said Wednesday it has been granted a High Court injunction against animal rights activists who sent threats to the drugmaker's shareholders, barring them from sending more letters or revealing private information about the investors. (AP Photo/Alastair Grant)
Alastair Grant
The company logo of GlaxoSmithKline, is seen on the headquarters building in London, Wednesday May 10, 2006. GlaxoSmithKline PLC said Wednesday it has been granted a High Court injunction against animal rights activists who sent threats to the drugmaker's shareholders, barring them from sending more letters or revealing private information about the investors. (AP Photo/Alastair Grant)

But the decline was less than analysts had feared.

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

The company on Wednesday 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, who takes over from Jean-Pierre Garnier next month.

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

Glaxo is seeking salvation from its large pipeline of new drugs. 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, best known for developing a drug based on the active ingredient in red wine.

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

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