Glaxo Profit Misses Estimates as Price Hurts Europe Sales

Glaxo Profit Misses Estimates as Sales Slide in Europe, Japan
The logo of GlaxoSmithKline Plc hangs outside the company's headquarters in Brentford. Photographer: Simon Dawson/Bloomberg

GlaxoSmithKline Plc, the U.K.’s largest drugmaker, reported third-quarter profit and sales that fell more than analysts estimated as revenue declined in Europe and a vaccine program in Japan came to an end.

Earnings excluding some items decreased 15 percent to 1.97 billion pounds ($3.17 billion), or 26.5 pence a share, London-based Glaxo said in a statement today. That missed the average estimate of 28 pence from 14 analysts surveyed by Bloomberg. Sales declined 8 percent to 6.53 billion pounds, falling short of the average analyst estimate of 6.66 billion pounds.

A 9 percent sales decline in Europe, where governments are cutting prices on drugs, is prompting a “comprehensive review” of the company’s business in the region, to be outlined next quarter, Glaxo said today. Glaxo reiterated its sales and profit margin forecasts for the full year, saying revenue will be in line with 2011 levels.

“On Europe, in the short run, over the next quarter or two, I see no cause for optimism,” Chief Executive Officer Andrew Witty told reporters in a conference call today. “Could this be the new normal? I very much hope it isn’t.”

European countries cross-referencing their prices is also creating a “pan-industry phenomenon,” Witty said.

Sales in Japan also fell 25 percent after the end of a program that introduced the cervical-cancer vaccine Cervarix. Revenue from flu shots Fluarix and Flulaval fell 13 percent as fewer doses were sold in the U.S. and Glaxo lost a tender in Europe.

Shares Decline

The shares fell 2.4 percent to 1,386.50 pence in London. The stock has lost 1.8 percent this year including reinvested dividends, compared with a 14 percent return for the Bloomberg Europe Pharmaceutical Index.

Glaxo raised its dividend 6 percent to 18 pence a share. The company still expects to repurchase between 2 billion pounds and 2.5 billion pounds in shares this year. Buybacks next year will probably follow a similar pattern to 2012, depending on whether other opportunities arise, Witty said.

The company won’t rule out “occasional bolt-on acquisitions” in consumer health care and in emerging markets, while the general level of interest in purchases is lower compared with recent years, he said.

Drug Pipeline

This week, Glaxo’s ViiV Healthcare Ltd. joint-venture with Pfizer Inc. agreed to buy the rights to HIV treatments the unit has developed with Japan’s Shionogi & Co. The most advanced medicine from the collaboration, dolutegravir, will be submitted for approval by the end of the year, it said.

Glaxo said in July it agreed to buy Human Genome Sciences Inc. for $3 billion in cash, winning control of its U.S. partner on the Benlysta lupus therapy. Benlysta sales doubled to 20 million pounds in the quarter.

Glaxo has released late-stage clinical trial data from 12 compounds this year, with results on migalastat for Fabry disease, the Mosquirix malaria vaccine, and drisapersen for Duchenne muscular dystrophy due by the end of December.

Glaxo plans to submit a once-daily treatment for smoker’s cough to regulators for approval by the end of the year, and a separate drug for respiratory disease, to be marketed as Relvar or Breo, was submitted in the U.S. and Europe in July. Albiglutide for diabetes will also be filed by the end of the year, Glaxo said today.

New products coming to market will be “larger-scale opportunities,” compared with recent introductions targeting specialist markets, Witty said.

“Overall, a weaker quarter for GSK,” said Timothy Anderson, an analyst at Sanford C. Bernstein & Co. in New York. “The longer-term growth with GSK continues to look comparatively good.”


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