GSK hit by Avandia woes and generic competition

GlaxoSmithKline, the UK's largest pharmaceutical group, reported third-quarter numbers at the bottom end of consensus forecasts yesterday, hit by lower sales of Avandia, its diabetes treatment, and generic competition. The company also announced that it will embark on a £1.5bn cost-cutting programme that will include the closure of plants, job losses and a restructuring of its sales force.

The US Federal Drug Agency is still to decide on Avandia's future after concerns were raised over possible cardiovascular side-effects. Sales of Avandia were expected to have fallen to approximately £260m in the third quarter but the company revealed a much steeper decline to just £225m. The drug achieved sales of £368m in the corresponding period of 2006.

Although Avandia accounts for less than 5 per cent of total group sales and has been given backing by the European drug regulators, it generates 60 per cent of revenue in the US and shows no sign of regaining market share. Julian Heslop, GSK's chief financial officer, said the future of Avandia depends on the FDA decision. He said: "We continue to believe in the product and have lots of supporting data. Discussions are ongoing but the timing is in the FDA's hands."

The company also announced a review of its operations that, pending consultation with affected staff, will result in job losses. GSK declined to comment on where it will seek to cut its staff, only confirming that negotiations have begun and that the review is global, meaning that not all cuts will be in the UK. It forecast £700m of annual savings by 2010 on the back of the restructuring.

The company also reported a strong quarter in vaccine sales and consumer drugs as it revealed a 7 per cent decline in pre-tax profits to £1.8bn, after a 3 per cent fall in total sales to £5.48bn. Vaccine sales, which account for just over 10 per cent of total sales, rose 49 per cent, boosted by demand for flu and children's disease vaccines. The launch of two major new vaccines, Cerverix (cervical cancer) and Tykerb (breast cancer), is not expected to have an impact on revenue until the fourth quarter.

Sales in consumer pharmaceuticals, which include Sensodyne and Aquafresh toothpastes, Lucozade and Gaviscon, rose by 16 per cent. Its new weight loss treatment, Alli, is performing particularly well. The company again denied it was considering selling its consumer division. Mr Heslop said: "Consumer healthcare is absolutely integral to GSK's future and is a key driver of growth. We will keep it."

Analysts gave a muted reaction. James Millet, at Cazenove, told clients: "Ultimately, we see little scope for near-term upgrades to forecasts." GSK shares closed 15p lower at 1,245p.