GlaxoSmithKline's second-quarter sales drop on pressures in US, Europe

GlaxoSmithKline announced Wednesday that second-quarter sales slipped 2 percent to 6.5 billion pounds ($10.1 billion), falling short of analysts’ estimates of 6.7 billion pounds ($10.4 billion), due to pricing and other pressures in the US and Europe. Profits in the three-month period were up 13 percent compared to the same quarter last year to 1.3 billion pounds ($2 billion), but still short of analysts’ predictions. CEO Andrew Witty noted that overall sales "were flat for the first 6 months" of 2012, adding that "in this context and with the known adverse prior-year comparisons to come in Q3, we now expect that sales this year will be in line with 2011 on a constant currency basis."

Quarterly revenue from pharmaceutical products slipped 3 percent to 4.4 billion pounds ($6.8 billion), while sales in the company's vaccine unit were flat at 763 million pounds ($1.2 billion). In the three-month period, drug and vaccine sales in the US fell 6 percent to 1.7 billion pounds ($2.6 billion), reflecting a loss of patent protection on several products and the discontinuation of several others. Sales in Europe, meanwhile, slipped 8 percent to 1.2 billion pounds ($1.9 billion) due to government austerity measures and downward pressure on drug prices. Emerging markets registered growth of 9 percent to 1.2 billion pounds ($1.9 billion), while sales in Japan rose 6 percent to 484 pounds ($750 million).

The drugmaker noted that quarterly sales of Seretide/Advair were flat at 1.3 billion pounds ($2 billion), while sales of Flovent fell 4 percent to 189 million pounds ($293 million). In addition, Avodart revenue climbed 6 percent to 197 million pounds ($305 million) due to a recent launch in Japan and marketing of a Duodart/Jalyn combination therapy in Europe.

In vaccines, Infanrix/Pediarix was the largest growth driver, with sales up 19 percent to 179 million pounds ($277 million), primarily reflecting a 68-percent uptick in sales in the US due to a competitor supply issue. Meanwhile, sales of Cervarix fell 22 percent to 50 million pounds ($78 million), which GlaxoSmithKline noted was "largely as a result of the adverse comparison with Q2 2011 which benefited from sales related to the HPV vaccination catch-up programme in Japan."

"Our performance this quarter reflects the challenging macroeconomic environment in which we are operating and the continued transition of our product portfolio," Witty noted, adding that while "we're not growing as fast as we hoped at the beginning of the year…I am very much of the view that this is a delay rather than a change in the shape of the curve, so I think that the company is really moving into a really nice place where much of our drag of the old business is rapidly disappearing." The drugmaker has indicated that eight new products could be launched in the next 24 months and the executive remarked that "our growth in the future will really be dependent on that pipeline being delivered…I think it's really a matter of timing, two or three quarters, muted by the macroeconomic effect of pricing, particularly in Europe."

Commenting on the results, Cenkos Securities analyst Navid Malik said he sees additional potential for more product launches from GlaxoSmithKline, noting that the majority of the company's recent Phase III trial updates have been positive. "This is in our view a track record which is significantly ahead of the industry," he added.

Meanwhile, GlaxoSmithKline entered the current quarter by securing the takeover of research partner Human Genome Sciences after increasing its bid to $3 billion. However, the drugmaker earlier this month finalised a deal with US government investigators under which it agreed to plead guilty to criminal charges and pay $3 billion to resolve criminal and civil liability for drug marketing and other issues.

For further analysis, read ViewPoints: Witty talks up GlaxoSmithKline's pipeline as pricing, reimbursement pressures in developed markets continue to squeeze.

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