Disposals cushion GSK profit as drug sales fall

Disposals cushion GSK profit as drug sales fall

London: Gains on disposals cushioned GlaxoSmithKline’s first quarter profit from a sharp fall in sales of flu products, following 2010’s pandemic-linked windfall.

Britain’s biggest drugmaker acknowledged the first three months of 2011 were tough but pointed to an improving picture in underlying growth as its diversified portfolio adjusts to pressure on prices and competition from generics.

Quarterly sales fell 10% to 6.59 billion pounds ($10.9 billion) while earnings per share before major restructuring rose 9% to 32.2 pence.

Analysts expected sales of 6.66 billion pounds and EPS of 30.4p, according to Thomson Reuters I/B/E/S consensus forecasts.

Exceptional demand for vaccines and anti-flu drug Relenza flattered results a year ago and their absence this year -- plus sharply lower revenue from diabetes pill Avandia and herpes drug Valtrex -- lopped around 1 billion pounds off quarterly sales.

But chief executive Andrew Witty said on Wednesday the negative drag from these products was set to decline.

“We expect underlying sales growth to translate into sustainable reported growth as we exit the year and move into 2012," he told reporters in a conference call.

Quarterly profit was shielded by chunky disposal gains on the group’s stake in Quest Diagnostics and the sale of North American rights to cold sore treatment Zovirax, which together added 7.1p to EPS.

GSK underlined its commitment to improving shareholder returns by stating that share buybacks in 2011 were expected to be at the top end of the previously indicated 1-2 billion pounds range.

Shares in the group were 1% higher by 1215 GMT, off pre-results highs hit on expectations of a solid performance.

“It’s a steady set of results," said Evolution Securities analyst Dominic Valder. “It underpins our confidence that the company will be able to return to sales and earnings growth from later on this year."

Emerging markets were particularly strong, which helped compensate for price cuts in Europe and North America, where governments are stepping up a squeeze on healthcare costs.

GSK had a rocky 2010, hit by big legal charges due, in part, to claims surrounding Avandia, which has been linked to heart risks and now faces severe restrictions on its use.

The group has also suffered increased generic competition to key drugs, such as Valtrex -- although it is now moving through the biggest period of patent losses ahead of its main rivals.

Higher rating

On paper, GSK has a comparatively robust growth profile through 2015 -- certainly compared to rival AstraZeneca, where sales are expected to fall over the next five years -- but this is arguably already reflected in its rating.

GSK shares trade at around 11 times this year’s forecast earnings, slightly above Novartis on 10.5 and well above sector laggards like AstraZeneca and Sanofi-Aventis on 7.2 and 8.0 times respectively.

As with Novartis, which has multiple sclerosis medicine Gilenya to interest investors, GSK also has a ground-breaking new drug in Benlysta, for lupus -- though the British group has to share its profits with Human Genome Sciences.

Witty said early interest in Benlysta, which has been on the US market for only a few weeks, was “very encouraging".

Pharmaceutical companies across the globe are grappling with US healthcare reforms and a push by cash-strapped governments in Europe to slash the prices of drugs, along with competition from cheaper generic treatments.

That means new products which really make a difference to patients are more important than ever.

So far, European drugmakers have had a mixed first-quarter report card, with Novartis last week beating expectations on the back of strong sales of its newer drugs, while Swiss rival Roche disappointed earlier IN April.