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Another major drop in sales for GSK

Published on 23/07/14 at 03:43pm
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GlaxoSmithKline posted a 4% slide in revenue for the second quarter today as its recovery from a slew of patent expiries drags on.

So poor were its sales (on a constant exchange basis) that the firm has been forced to cut its 2014 outlook, as its big-selling lung drug Advair took a generic hit in Europe.

Total revenue for the second quarter totalled £5.56 billion ($9.48 billion) but analysts had expected sales of £5.76 billion.

GSK’s investors are worried that the firm is relying too heavily on its inhaled lung drug Advair, which makes up nearly a fifth of sales. It brought in £1.1 billion for the quarter, down 12 per cent.

The fall in sales is due to the fact that it already faces competition from copycat versions in Europe, with generics in the US now also on the horizon.

GSK is hoping two new inhaled respiratory medicines, namely Breo and Anoro that are set to be next generation versions of Advair, will fill the gap left behind from the blockbuster treatment. Their uptake has so far been slow however, a situation that has disappointed analysts.

Although the worst of its patent losses are now behind the company, GSK still faces challenges in some areas including the launch of a generic version of heart pill Lovaza in the US market in April.

GSK’s chief executive Sir Andrew Witty says that while sales of Advair will continue to reduce, “we expect new products such as Breo, Anoro and Incruse, together with anticipated pipeline products, to generate new sales growth”.

He goes on: “Already we are seeing some recovery in our overall volume share as new product launches progress, albeit at lower price points given the scale of price competition in the market. We expect the transition of this portfolio to continue over the next two to three years and remain confident that GSK will maintain its leadership position in respiratory well into the next decade.”

The firm is certainly trying new things such as in April when it announced a major pact with Swiss rivals Novartis, that sees the manufacturers combine their consumer health units under GSK’s majority (63.5%) control, while also in effect swapping some of their major assets.

GSK will also sell its cancer portfolio to Novartis for a maximum of $16 billion, and in turn Novartis will let GSK acquire its own vaccines business for up to $7.1 billion – a business that made a loss this quarter.

GSK’s decision to sell its cancer drugs, which are some of the more profitable treatments for the industry, is a questionable one.

It is more painful for GSK as it gained major clinical trial success against a key rival this month, after its two melanoma drugs Mekinist and Tafinlar bested Roche’s skin cancer offering in a head-to-head study.

These two treatments made just £16 million and £33 million this quarter respectively, although they have only been on the market for a few months.

Analysts have, however, predicted peak annual sales for the two medicines to reach around £1.5 billion ($2.4 billion) by 2020.

China syndrome

This is proving a tough time for Sir Andrew who promised last year to return the firm to sustained growth, but has so far failed to deliver.

He is under further pressure as the firm is still dealing with the fallout from allegations that it bribed doctors in China to increase drug prescriptions there to the tune of around £320 million.

There is more to come too on the horizon as on 7 August a former private investigator for the firm, Briton Peter Humphrey, will take to the stand to defend himself against allegations that he spied on Chinese citizens for money.

Humphrey had been paid by GSK last year to look into a secret sex tape made concerning GSK China’s former boss Mark Reilly and his Chinese girlfriend. They have since both been arrested.

Overall it has been an embarrassing period for the company, which could soon get worse during the trial as Humphrey has already publically criticised GSK for not giving him the full facts about the sex tape, and the situation around it.

The China scandal has barely affected the share price of the London-based firm to date however, but a continued run of poor financial results saw shares in the company fall by 2.8% this morning, showing where the real pressure for Sir Andrew is.

Ben Adams

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