Feb. 8 (Bloomberg) -- GlaxoSmithKline Plc, Europe's biggest drugmaker, may say fourth-quarter profit increased 4 percent, as Chief Executive Jean-Pierre Garnier reduced spending to counter falling sales.

Fourth-quarter profit before costs to settle product liability claims probably rose to 946 million pounds ($1.76 billion), or 16.7 pence a share, from 906 million pounds, or 15.7 pence, in the year-earlier period, according to the median estimate of nine analysts surveyed by Bloomberg News. London-based Glaxo reports earnings and will present its 2005 forecast on Feb. 10.

Garnier last month eliminated 250 jobs in the U.S. after profit dropped for four consecutive quarters because of shrinking sales of Paxil, the antidepressant that once was Glaxo's top seller. Garnier, who in December predicted ``modest growth'' for 2005, is counting on products such as Advair for asthma to lift earnings.

``Full-year sales will be down a bit, and there's not much you can do to change that,'' said June Scott, who helps manage $1.5 billion, including Glaxo shares, at London-based Sagitta Asset Management. ``The only thing you can do is manage expenses.''

Garnier, 57, probably reduced marketing and administrative expenses by about 3 percent in the fourth quarter, according to analysts at Deutsche Bank and Credit Suisse First Boston.

Sales probably declined about 1.5 percent to 5.30 billion pounds from 5.38 billion pounds a year ago, hampered by the dollar's 9 percent drop against the euro in the quarter, according to the Bloomberg analyst survey.

Tight Spending

``Spending is pretty tight inside Glaxo right now,'' Peter McDougall, chief executive of London-based market researcher Druganalyst Ltd. said in a telephone interview.

The dollar's drop may have reduced Glaxo's fourth-quarter sales by 4 percent, Deutsche Bank analyst Mark Clark said in a Jan. 17 note. More than half of Glaxo's sales are from the U.S., the world's biggest market for prescription medicines.

Glaxo shares fell 4.5 percent last year, while the 17-member Bloomberg Europe Pharmaceutical Index gained 1.2 percent. Glaxo shares have fallen 1.2 percent so far this year. The stock trades at 14.8 times expected 2005 earnings, according to data compiled by Bloomberg, compared with a global industry average of 31.8 times earnings.

Low-Growth Company

``It's going to be a low-growth company and valuation,'' said Gareth Powell, who manages the $1.87 billion Framlington Health Fund in London and doesn't hold any Glaxo shares in his fund.

Of the 41 analysts tracked by Bloomberg, 11 rate the shares a ``buy,'' 22 a ``hold'' and eight recommend selling the stock.

Garnier, who was paid 2.79 million pounds in 2003, declined to comment through spokesman David Mawdsley in London.

Glaxo expects to report one-time costs during the quarter for settlement of pending product liability claims, the company said when it presented third-quarter results on Oct. 28. Those costs may be greater than last year's legal spending of 223 million pounds, Lehman Brothers analyst Stewart Adkins and colleagues said in a Jan. 21 note.

Sales of Paxil, which topped $3 billion in sales and accounted for 10 percent of Glaxo's revenue in 2003, may have dropped by 43 percent, Morgan Stanley analyst Duncan Moore said in a Jan. 18 investment note. Its Wellbutrin IR antidepressant, which had sales of 953 million pounds in 2003, is also losing market to generics. In the first nine months of 2004, sales of the depression drug had dropped to 254 million pounds.

``The generic factor, which has been painful for some time, is beginning to wash through the numbers,'' Code Securities analyst Mike Ward said in a telephone interview. ``It's not gone by any means, but it's not as painful as it's been.''

Sales Increase

Glaxo is trying to bolster sales of Advair, now its biggest product with 2.2 billion pounds in sales in 2003, by expanding its use in children and patients with bronchitis and emphysema. The U.S. Food and Drug Administration approved the drug for those uses last year.

The company aims to persuade more doctors to prescribe its asthma medication through studies such as the GOAL trial, whose results announced on Oct. 15 suggests Advair can help patients stay free of symptoms for at least seven continuous weeks

Glaxo also hopes to add revenue from its line of diabetes treatments by introducing a medication called Avandaryl that combines Avandia with Amaryl, another diabetes drug made by Sanofi- Aventis SA.

Glaxo's sales may increase 4 percent in 2005 to 21 billion pounds, after declining an expected 5.2 percent to 20 billion pounds in 2004, Morgan Stanley's Moore said in a note. Advair sales probably increased 12 percent to 2.5 billion pounds in 2004, and will rise another 17 percent this year, he said.

``It will be a story driven by Advair that will help sustain growth a little bit,'' Rodolphe Besserve, an analyst with Kepler Securities in Paris, said in an interview. He predicts Glaxo will generate just 1 percent earnings growth in 2005.

`Pedestrian Growth'

``In 2005, we expect fairly pedestrian growth in the pharmaceuticals business and in terms of guidance, we would expect Glaxo to make comments in the mid-single digits,'' said Max Herrmann, an analyst with ING Financial Markets in London. He has a ``hold' rating on the stock.

Of 148 projects in human testing, the company has 22 experimental medicines with sales potential of $1 billion each, Garnier said when he updated investors on drugs in development on Nov. 23. None is expected to reach the market until 2007.

Garnier is working to speed development of a cervical cancer vaccine as tougher regulatory scrutiny may delay other drugs, such as its experimental pain medication 406381. Tests showing Cervarix is safe and effective prompted the company on Oct. 28 to seek approval of the product in 2006, two years ahead of schedule.

The 406381 painkiller, in the same class of medicines as Merck & Co's Vioxx, which was pulled from the market in September, once was considered one of the company's most advanced drugs in development with the potential sales of $1 billion.

In an interview in December with Bloomberg News, Garnier said he can't say when Glaxo will seek its approval. The company plans to meet with U.S. regulators this month about the pain drug.

``People get excited about the pipeline on a perception basis,'' Powell said. ``I think there is problem of perception over reality.''

To contact the reporter on this story: Angela Zimm in London at at azimm@bloomberg.net

Last Updated: February 7, 2005 19:08 EST