GlaxoSmithKline posts lower Q1 net profit on increase in generic competition

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The London-based company, however, reaffirmed its fiscal 2008 earnings per share outlook and also declared an interim dividend.

The company managed to beat analysts' forecast, posting profit after tax (PAT) of £1.4 billion for the three months ended March 31, 2008, compared to £1.53 billion in the corresponding period a year earlier. On a statutory basis, PAT was £1.33 billion.

According to the company, quarterly operating profit dropped 5 percent to £2.05 billion from £2.17 billion in the previous year corresponding period.

The company's earnings per share (EPS) for the fiscal quarter fell to 25.5 pence per share, from 26.7 pence per share, in the corresponding period a year earlier. On a statutory basis, EPS stood at 24.2 pence, during the quarter.

Turnover for the quarter amounted to £5.69 billion, as against £5.59 billion, a year-on-year (YoY) rise of nearly 2 percent.

However, in the key US market, revenue fell 10 percent to £2.14 billion.

The company's Board of Directors has declared a first interim dividend of 13 pence per share, higher than 12 pence per share paid in the same quarter of 2007. The dividend will be paid on July 10 to shareholders on the record as on May 2.

Looking ahead, the company said that it continues to expect a mid-single digit percentage decline in full-year 2008 EPS, at constant exchange rates.

"Our performance this quarter was in line with our expectations," said J.P. Garnier, CEO, GlaxoSmithKline. "We continue to see sustained growth from key areas of our business such as Seretide/Advair, vaccines and consumer. However, sales were impacted by generic competition and declines in Avandia sales."

Avandia, a diabetes treatment drug, received a "black box" warning, the most serious a drug can carry, from the US authorities last November after it received complaints that the drug carried risk of heart attacks. Besides agreeing to the labeling alert, Glaxo has also agreed to a major study assessing Avandia's heart effects, but it said the study will not be complete until 2014.

The drugmaker said sales of Avandia fell 56 percent to £191 million.

While sales of asthma medication Seretide/Advair rose 10 percent to £954 million, sales of heart medication Coreg fell 77 percent to £48 million due to increase in generic competition.

Other Glaxo products hit by generic competition included the antidepressant Wellbutrin, down 3 percent, the Flixonase/Flonase treatment for rhinitis, down 33 percent, and the anti-nausea drug Zofran, down 69 percent.

However, the drugmaker remained upbeat on its its cervical cancer vaccine Cervarix, which is expected to become a major earner for the company.

The company will be filing additional information about the vaccine with the US Food and Drug Administration (US FDA) in the second quarter, a company official said. It has already been approved in more than 60 countries, he added.

"Despite the generic attrition and the fallout from Avandia, they still managed to maintain the top-line performance, which is testament to the resilience of their broad product portfolio," said David Seemungal, analyst at ING.

In a related development, the drugmaker is trying to boost its portfolio by agreeing to acquire Boston-based Sirtris Pharmaceuticals Inc. in an all-cash deal valued at $720 million. Sirtris is best known for developing a modified version of a red wine extract called resveratrol for people with Type 2 diabetes. It is also researching on a recently discovered class of enzymes known as sirtuins that are believed to be linked to the aging process, and appear to restrict calorie intake without a change in eating habits.

Glaxo is the latest of major drug companies to have reported mixed results over the past week, reflecting a global slowdown in sales and a squeeze on margins.

Earlier, Pfizer Inc, the industry leader, shocked investors with worse than expected results although others, like Novartis AG, have managed to salvage profits with cost cutting.