Generics, weak Avandia sales hurt GSK profits

GlaxoSmithKline added a troubling new verse to a familiar tune in the quarterly earnings report it released Wednesday.

For the third time in as many quarters, the drug maker said its profits had declined -- this time almost 14 percent.

Driving the drop were the same conditions as in previous periods: generic competition and weak sales of the diabetes drug Avandia.

GSK's net income fell to $2.65 billion in the three months ended March 31, from about $3 billion the same period a year ago.

"We knew it was going to be bad, but we didn't think it would be this bad," analyst Jeremy Batstone-Carr of Charles Stanley in London told Bloomberg News.

Revenue for the quarter was up 1.6 percent because of higher sales of the asthma drug Advair, consumer health products and vaccines. The company reported $11.3 billion in quarterly sales, compared with $10.9 billion a year ago.

GSK, which employs about 5,000 people in the Triangle, has watched sales of its $3.3 billion-a-year diabetes drug Avandia decline 56 percent since a May report in the New England Journal of Medicine linked the pill to increased heart attack risks.

Unable to offset sales losses to generic competitors, GSK has been buying back shares and eliminating jobs. In past months, jobs have been cut at the drug maker's U.S. headquarters in Research Triangle Park and at its plant in Zebulon. Five of GSK's top-selling medicines are losing patent protection and facing competition from generic versions.

Sales of pharmaceuticals in the U.S., where GSK generates about half of its worldwide sales, decreased 10 percent to $4.25 billion in the first quarter.

First-quarter prescription data for Avandia suggested the sales losses might have bottomed out, chief executive Jean-Pierre Garnier said.

"It's too early to say whether this franchise will be a growth driver again," Garnier said of Avandia. "So far at least we have stopped the bleeding."

New revenue coming

Two new products approved in the first quarter, vaccine Rotarix and migraine drug Treximet, are projected to generate new revenue for GSK. Both are improvements on competing products on the market, Garnier said.

Treximet, a drug designed by Chapel Hill company Pozen and co-developed by GSK, will replace Imitrex, GSK's blockbuster migraine pill that will face generic competition at the end of the year. Some analysts have been cautious about health insurers' willingness to pay for Treximet and physicians' willingness to switch to Treximet, but Garnier said the choice is "a no-brainer."

Still, sales from Treximet and Rotarix won't be enough to make up the sales losses to generic competitors.

GSK affirmed its forecast for the year. The drug maker said in February that earnings will decline in 2008.

Investors appeared to accept that GSK's troubles may be near a bottom. The company's American depositary receipts, which are like stock, closed Wednesday at $44.61, up 88 cents.