GlaxoSmithKline reported stronger first-quarter profit, as the British drugmaker cut costs and boosted sales of its flu vaccine, Advair asthma medicine and other products.
As North Carolina's largest pharmaceutical company, GSK's financial health is especially important to this region's economy. The company employs about 4,900 people at its North American headquarters in Research Triangle Park and a manufacturing plant in Zebulon after cutting hundreds of local jobs during the past two years.
The company sells a wide range of consumer health products, including Aquafresh toothpaste and Tums. But it's most dependent on prescription drugs that are used to prevent or treat respiratory diseases, cancer and other ailments.
With its main business increasingly threatened by cheaper generic rivals, GSK has cut thousands of jobs worldwide to offset slowing sales, especially in the United States. The company announced in February that it will stop research into new drugs for depression and pain and look at new ways to reduce its overhead expenses.
The moves mirror similar steps at other large drug companies.
"Cost cutting is the new normal for this industry," said Linda Bannister, an analyst with Edward Jones. "Some of these companies got a little fatter than they needed to be. Now it's about trying to become as efficient as possible."
On Wednesday, GSK reported some positive signs. The company's net income rose about 19 percent from a year earlier to $2.4 billion, beating analysts' expectations. Revenue rose to $11.4 billion.
Sales at its U.S. pharmaceuticals business were down 1 percent, compared with a 24 percent drop in the same quarter last year. Growth was much stronger outside the United States, with sales up 45 percent in Asia Pacific, 43 percent in emerging markets and 16 percent in Europe.
"GSK has made a good start to 2010, and this provides further confirmation that our strategy is working," CEO Andrew Witty said. "[We] remain confident of our prospects for the year."
The results eased fears among investors about GSK's future as the economy begins to recover, Gbola Amusa, an analyst at UBS in London, told Bloomberg News.
"It was a solid set of numbers and if anything somewhat boring," Amusa said. "A solid and boring quarter in a way is very good, because it tells the market that all these concerns are overblown."
GSK is developing drugs to bolster its future results and continues to seek promising products it could buy from smaller companies. The company expects to request approval from the Food and Drug Administration for its experimental lupus drug Benlysta during the current quarter.
As part of its strategy shift announced in February, GSK will focus new research onareas with greater potential such as Alzheimer's, multiple sclerosis and Parkinson's.
Plans also call for reducing expenses by about $2.3 billion this year. Those efforts will likely include more jobs eliminated at GSK's Triangle operations.
Some local employees who leave aren't being replaced, and some are being offered buyout packages, said spokeswoman Mary Anne Rhyne. She declined to comment on specific targets for job reductions.
"It's an ongoing process to change the size and shape of the work force to meet the current environment," she said.
Avandia fallout
GSK also faces legal and regulatory challenges amid increasing worries about the health risks of its Avandia diabetes drug. The company will "make our case" for keeping Avandia on the market at aJuly FDA meeting, Witty said.
Avandia sales fell about 10 percent during the first quarter to $264 million.
Another looming challenge: Higher costs resulting from this country's health-care overhaul. That reform includes increased drug discounts under the Medicaid and Medicare programs, prompting rivals such as Eli Lilly and Johnson & Johnson to cut 2010 sales forecasts.
GSK said its cost-cutting efforts will allow it to offset the financial hit this year. But the effect will increase in 2011 and beyond, Bannister said.
Still, she said that GSK is "well-positioned" over the next three to five years as the company continues to expand its business into faster-growing foreign markets. Just over a quarter of GSK's business is now "white pills in western markets," she added. "GSK's business diversity is a lot deeper than people realize."
GSK's American depositary receipts, similar to common shares for foreign companies, fell 28 cents Wednesday to close at $37.28. The stock is up 22 percent in the past year.
