Glaxo Quarterly Profit Misses Estimates on Europe Sales

GlaxoSmithKline Plc (GSK), the U.K.’s largest drugmaker, reported first-quarter profit and sales that missed analyst estimates as revenue declined in Europe.

Earnings excluding some items were 27.3 pence a share, London-based Glaxo said in a statement today. That missed the average estimate of 29 pence from 11 analysts surveyed by Bloomberg. Sales increased 1 percent to 6.64 billion pounds ($10.7 billion), missing the average analyst estimate of 6.83 billion pounds.

The introduction of new treatments for cancer and heart disease failed to counter a 6 percent sales decline in Europe, where governments are cutting spending on health care amid sluggish economic growth. Sales in the Middle East and Africa, where economies are growing faster than in Europe and the U.S., dropped 6 percent, hurt by political instability and the timing of vaccine tenders, Glaxo said.

“Turkey and Russia, those are the markets that have been significant actors in terms of pricing pressures,” Chief Executive Officer Andrew Witty told journalists on a conference call today.

The shares fell 3 percent to 1,413.50 pence in London, the biggest decline in more than three months. The stock has returned 20 percent in the past year, compared with a 19 percent return for the Bloomberg Europe Pharmaceutical Index. (BEPHARM)

Share Repurchasing

The drugmaker said it would expand a program to repurchase shares to 2 billion to 2.5 billion pounds from 1 billion to 2 billion pounds.

Glaxo switched to a “core earnings” method in the first quarter for reporting operating profit and earnings per share, which now excludes items such as legal charges, amortization charges and restructuring costs, as other drugmakers do.

Glaxo said last week it bid to acquire Human Genome Sciences Inc. (HGSI) for $2.59 billion, an offer the U.S. biotechnology company rejected. The two companies have partnered on the lupus drug Benlysta and are collaborating on late-stage experimental drugs darapladib to prevent heart attacks and albiglutide to treat diabetes.

While Human Genome has said the offer undervalues the sales potential of Benlysta, Witty said it was a “full and fair” bid.

“We are the compelling owner for this business,” Witty said. “We have the rights and operational control for the three main assets.”

Benlysta Relationship

Benlysta sales were 9 million pounds in the quarter. While the lupus treatment is the main motivation for the Human Genome bid, the offer also includes the potential value of the two late-stage compounds, Witty said. Human Genome has the right to receive 10 percent in royalties from sales of darapladib and 5 percent of sales in albiglutide, he said.

“The reason why we’re interested in the deal with Human Genome is to simplify our relationship on Benlysta, to drive the performance of Benlysta for the benefit of our shareholders and to take efficiency opportunities that we believe exist,” he said.

An independent data monitoring board has conducted an interim analysis of one of the two darapladib clinical trials to assess whether the drug’s efficacy was low or high enough to halt the study, Witty said. The board advised to continue with the test, which doesn’t give Glaxo clarity yet on the potential of the drug, he said.

Darapladib

A “modest price bump” or a so-called contingent value right that entitles shareholders to payments if darapladib is commercialized may be possible, Jim Birchenough, an analyst at Bank of Montreal (BMO) Trust Co. in New York, said in a note today.

Earlier this month, Glaxo deepened its 10-year collaboration with Theravance Inc. (THRX) by boosting its stake in the company to 27 percent from 18 percent. The companies are developing new respiratory drugs to help succeed Glaxo’s Seretide, marketed as Advair in the U.S.

Witty declined to comment on whether the company would raise its stake further.

“We are delighted with the progress of our respiratory pipeline,” Witty said. “We feel very comfortable with what we’ve just done.”

In emerging markets, while the company may pursue smaller bolt-on acquisitions, it will focus more on “organic growth” through new product introductions, Witty said.

Glaxo said it has sufficient scientific data to seek regulatory approval this year for the Relovair respiratory medicine, Promacta for hepatitis C, and trametinib and a BRAF inhibitor for melanoma after filing a flu vaccine in the first quarter. The company also expects to release late-stage results on six drugs and vaccines this year, including albiglutide and the Mosquirix malaria inoculation.

To contact the reporter on this story: Makiko Kitamura in London at mkitamura1@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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