Glaxo Profit Hit by Avandia Sales Slump and Reuters

GlaxoSmithKline posted a lower profit on Wednesday due to tumbling sales of its Avandia diabetes drug, generic competition and pressure on top-selling asthma treatment Advair, and said it would cut jobs to save costs.

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

Shares of Europe's biggest drugmaker fell about 2 percent after the company reported third-quarter sales below analysts' average estimate and highlighted concern about growth of Advair, its top-selling medicine.

Navid Malik, an analyst at Collins Stewart, said while the company maintained its full-year earnings outlook, investors were focusing on Avandia, generic competition and questions about Advair, which has come under tough competition from AstraZeneca's Symbicort.

"In the short term, investors are nervous," Malik said. "Basically, people are worried about Advair growth."

Glaxo said it planned to take a 1.5 billion pound charge as part of a plan it said would result in annual pretax savings of 700 million pounds by 2010. It sees about 40 percent of the savings coming from manufacturing, 40 percent from selling and administration and the rest from research and development.

Chief Executive Jean-Pierre Garnier said this could also mean boosting areas of growth in areas like vaccines and cancer drugs, while cutting back in slowing markets like chronic diseases.

Good Long-Term Prospects

Garnier told CNBC the company expects good results from new products and would not rush into expanding by buying rival companies.

"We have a remarkable pipeline, we're looking at 25 new product introductions between '07 and '09, we have already introduced five this year" Garnier said. "So we need acquisitions less than some of our peers."

Analysts also said Glaxo's long-term prospects were good, but it needed to solve its short-term problems.

"The news on Advair was very, very hard to swallow," Dorman Followwill from Frost & Sullivan told "European Closing Bell."

"Clearly, GSK will have to take some tough measures here," he said, adding that the company may cut jobs in the sales and marketing departments as part of efforts to cut costs.

Garnier did not give specifics but said the plan would lead to job cuts and plant closures "across the board." The plan comes in a tough environment, he added, where regulators were slowing the launch of new products, the lifeblood of pharmaceutical companies.

"The environment is getting tougher," he told a conference call. "We are seeing a slowdown of regulatory agencies around the world, particularly in the United States."

Rivals Cutting Costs

Analysts had been expecting Glaxo to look to cost cuts following Anglo-Swedish rival AstraZeneca's move in July to cut 7,600 jobs in a restructuring.

Glaxo shares were down 1.51 percent at 1,241 pence, versus 1,277 pence before its statement.

Glaxo said earnings per share fell to 23.7 pence in the three months to end-September, on sales down 3 percent at 5.48 billion pounds. The average EPS forecast was 24 pence, according to Reuters Estimates.

Pretax profit fell 7 percent to 1.88 billion pounds, hit by Avandia sales which fell 38 percent to 225 million pounds after patients and doctors in recent months have shunned the drug since it was linked to heart attack risk in a U.S. study in May.

Avandia is Glaxo's second-biggest medicine, and analysts see no signs of an early recovery despite Glaxo's insistence its drug is no more risky than other oral anti-diabetics.

Stripping out the impact of the weak dollar in the United States, where it generates a large chunk of revenue, Glaxo said sales rose 1 percent to 5.48 billion pounds. This was below the consensus analyst view for quarterly sales of 5.64 billion pounds.

Meanwhile, the company maintained its current outlook for full-year earnings growth of 8-10 percent at constant exchange rates.