July 22 (Bloomberg) -- GlaxoSmithKline Plc is increasing production capacity for influenza drug Relenza and said its vaccine unit will help fuel second-half profit amid “unprecedented” government orders for flu treatments.

By the end of the year, capacity to make Relenza will have more than tripled, the London-based drugmaker said today in its quarterly earnings report. The company said it’s in talks with more than 50 nations on its swine flu vaccine.

Second-quarter net income climbed 12 percent after currency benefits and a sale of drug rights offset U.S. revenue lost to generic versions of five best-selling medicines. The worst is over for the company’s generic threats, and vaccines will be “a key driver” for the rest of the year, Chief Executive Officer Andrew Witty said today on a conference call.

“It was a tough first half, significantly impacted by generics,” Witty said on a conference call with investors. “We are expecting a better second half benefiting from a lower generic impact plus higher pandemic vaccine sales and higher Relenza sales.”

Vaccines such as Cervarix for a cervical cancer-causing virus, Rotarix for children’s diarrhea and Synflorix for meningitis also “give us very significant upside potential,” he said.

Sales of vaccines excluding the swine flu orders surged 14 percent during the quarter. The 195 million doses the company has booked so far is a “conservative” number, Witty said.

‘Significant Orders’

“We’re very encouraged by progress we are making,” Witty said. “We’re working very hard to deliver a vaccine as soon as possible. Discussions with governments are at very advanced stages and we expect further significant orders.”

The company earned 31 pence a share excluding some items, beating the median 30-pence estimate of 17 analysts surveyed by Bloomberg. Sales gained 15 percent to 6.75 billion pounds ($11.1 billion), helped by Relenza, which brought in 60 million pounds in the quarter, compared with 3 million pounds a year earlier.

“It’s a good set of results,” said Navid Malik, an analyst at London-based Matrix Corporate Capital Ltd. “There is good cost control, despite an impact on gross margin from U.S. patent expiries, and a windfall lining up on pandemic antiviral and flu sales which will give Glaxo a strong offset against multiple generic hits in 2009.”

Glaxo said Relenza sales are rising in part because of concerns by governments that the pandemic flu virus may become resistant to treatment with Roche Holding AG’s Tamiflu. Witty said as much as a third of some countries’ stockpiles consist of Relenza.

Generic Competition

Second-quarter sales in the U.S. were hurt by generic versions of Imitrex, Lamictal, antidepressants Wellbutrin and Paxil CR, and Requip for restless legs. The products had 586 million pounds in U.S. revenue last year.

“We’ve had such a heavy burden of genericization to work through,” Witty said.

Glaxo fell 6.5 pence to 1,153.5 pence in London trading. The stock had fallen 10 percent this year before today.

Profit got a boost from a pretax gain of 340 million pounds after a sale of rights for Wellbutrin in May. The dollar’s rise against the pound also lifted earnings.

Glaxo’s earnings per share excluded costs of a reorganization program, expanded in February, aimed at saving 1.7 billion pounds a year by 2011. Glaxo has slashed about 10,000 jobs since October 2007.

To contact the reporter on this story: Trista Kelley in London at tkelley2@bloomberg.net

Last Updated: July 22, 2009 13:23 EDT