July 25, 2012 3:39 pm

GSK hit by price cutting in Europe

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GlaxoSmithKline cut its sales forecast to flat for the full year against a backdrop of intensifying European price cuts, as it posted second-quarter core earnings down 5 per cent to 24.6p a share – below expectations.

The UK pharmaceutical group reported turnover down 4 per cent, or 2 per cent at constant exchange rates, to £6.5bn, and operating profits for the quarter
2 per cent lower at £1.7bn.

Core operating profit, excluding amortisation, legal and restructuring charges, fell 8 per cent to £2bn, while total pre-tax profits were flat at £1.6bn.

With European sales down 8 per cent, Sir Andrew Witty, chief executive, said that he was combining the commercial organisations of the region with all others outside North America, placing them under the responsibility of Abbas Hussein, who runs the emerging markets and Asia-Pacific divisions.

Sir Andrew called the marketing practices that led to £1.9bn in fines agreed with US regulators this month “unacceptable” and pledged his commitment to a “values-based decision-making culture inside GSK” to prevent a repeat. “I can’t be in everybody’s pocket when you have 105,000 people in the company. [But] we are relentlessly continuing to ensure this message gets to everybody inside this organisation.”

GSK also finalised its $3bn purchase of Human Genome Sciences of the US this month and said it expected to complete the acquisition during the third quarter, bringing synergies and benefits for Benlysta, its lupus drug, and two other experimental medicines. It has abandoned the attempted sale of Alli, its over the counter weight loss treatment, which has been plagued by poor sales and manufacturing supply problems. Sir Andrew stressed strong performance from GSK’s pipeline of experimental medicines, saying it could deliver up to eight new drugs and vaccines in the next two years.

GSK raised its dividend
6 per cent to 17p and reiterated its aim for £2bn-£2.5bn in share buybacks this year. Sir Andrew said that since his appointment in 2008, £22bn had been returned to shareholders.

GSK said manufacturing improvements would result in a £500m savings by the end of 2015. Tim Anderson at Bernstein Research wrote: “A slightly disappointing quarter for GSK with a slight miss on revenues and EPS . . . The longer-term growth continues to look comparatively good.”

Also on Wednesday US drugmakers Eli Lilly and Bristol-Myers Squibb reported big drops in second-quarter profit as expiring patents hit their bottom lines. Eli Lilly’s net income fell 23 per cent year on year to $923.6m, or 83 cents a share.

Net earnings at BMS fell 38 per cent to $808m, or 38 cents a share, after the expiration of its exclusive rights to sell Plavix, used to prevent heart attacks.

Additional reporting by Alan Rappeport in New York

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