GSK hit by European austerity again
pharmafile | November 1, 2012 | News story | Sales and Marketing | Europe, GSK, Q3, austerity
GlaxoSmithKline suffered in the third quarter as sales fell 5% due to generic competition and austerity measures in Europe.
Exceptional sales in Japan last year of its flu and Cervarix vaccines also distorted the results, while product disposals in its consumer and pharmaceutical portfolios also hit revenues.
This produced a net profit decline of 18% to £1.7 billion, and the firm says it predicts it will avoid a decline in full year sales, but only match last year’s revenues.
Nevertheless GSK’s bank balance is healthy enough for it to increase its dividend by 6% in Q3 to 18p. Meanwhile it expects to have repurchased shares worth £2-£2.5 billion by the end of the year, helping it maintain a good mood among investors.
Revenue fell 8% to £6.5 billion with sales 9% lower in Europe, where the company faced pricing pressure from government austerity measures. Sales in the US fell 6% because of generic competition, the end of a co-promotion agreement for incontinence drug Vesicare and declining sales of Avandia for diabetes.
GSK also paid out £2.5 billion to acquire Human Genome Sciences, and expects to spend £233 million pounds on restructuring.
Parallel trade and generic substitution
Chief financial officer Simon Dingemans said pressures on European revenues were greater than predicted.
“What was more unexpected was the extent of the pressure in Europe, where not only a further austerity measures been implemented in the quarter, but we’ve also seen a further expansion of parallel trade and generic substitution measures,” he said. “This has impacted European volumes as well as price in the quarter but, importantly, also leaves the outlook more uncertain than before.”
The company hinted that it may have to consider further cutbacks to its European cost base in response to the shrinking market.
GSK also had to pay out $3 billion in the period to settle a criminal and civil liability claims by the US government and some states, relating to the marketing of Avandia, which has now been effectively withdrawn from all markets.
More encouraging news came from emerging markets, where sales rose 11% – led by a 16% increase in the Middle East and Africa. GSK’s merging markets business segment has now overtaken Europe as the company’s biggest market in terms of revenue.
Chief executive Andrew Witty was optimistic of prospects for new drugs in development. The company expects to begin regulatory filings around the end of the year for its new respiratory treatment LAMA/LABA, HIV drug dolutegravir and diabetes treatment albiglutide.
Andrew McConaghie
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