Glaxo: Generics will hit profits
LONDON, England (Reuters) -- GlaxoSmithKline, Europe's biggest drugmaker, missed consensus forecasts for 2003 earnings Thursday and said generic competition to two antidepressants could wipe out growth this year, hitting its shares.
"The first nine months of 2004 will be challenging as we absorb the full erosion from Paxil and Wellbutrin generics," Chief Executive Jean-Pierre Garnier said.
Despite the tough year ahead, Garnier added he was not interested in major transactions as a way to kickstart growth.
The world's second-biggest pharmaceutical group said 2003 earnings per share, dragged down by a weaker U.S. dollar and legal and restructuring charges, rose 10 percent to 82.1 pence, against 83.5p forecast in a Reuters poll of 22 analysts.
Fourth quarter earnings, which bore the brunt of generic Paxil competition and included an unexpected 178 million pound ($336 million) charge for cost saving, fell 24 percent, the first quarterly drop since GSK was formed three years ago.
"I think most people were expecting growth to be fairly flat this year. What's changed is that the earnings on which that's based have actually gone down significantly," said Max Hermann, an industry analyst at ING Financial Markets. "I think you'll see a lot of downgrades on the back of these results.
Analysts had been expecting 2003 earnings per share of over 86p before GSK said last week it would take a 220 million pound legal charge in its fourth quarter after settling an anti-trust case over arthritis drug Relafen.
GSK shares were down 4.9 pct at 11.15 pounds at 1400 gmt, after touching a 10 month low of 10.97.
The downbeat results pressured drugs stocks across the sector, with the DJ Stoxx healthcare index off two percent.
Year of transition
Pre-tax profits for 2003 rose eight percent at constant exchange rates to 6.72 billion pounds ($12.7 billion) while sales rose five percent on the same basis to 21.44 billion, underpinned by strong revenues from asthma drug Advair.
GSK said 2004 earnings at constant exchange rates would be "at least in line" with 2003, with growth returning in the fourth quarter. But this could translate to a seven percent fall in reported earnings if exchange rates remain at their current levels, it added.
"The underlying operational position is probably at its most difficult over the next few months, and there's not much for shareholders to hold on to in the meantime," said Tim Rees, director of investment strategy at Insight Investment and a major GSK investor.
Garnier said GSK was entering a challenging "year of transition" as generic competitors sliced into sales at a time when its large line-up of experimental medicines is not ready for launch.
"The company will be changing dramatically in 2004. By the end of 2004 our exposure to generics will be greatly diminished and our late-stage product portfolio will be greatly increased," he told reporters on a conference call.
Garnier said GSK had no plans to make major acquisitions and would focus on developing its new drug pipeline, which it believes contains more than 20 potential $1 billion-a-year blockbusters.
GSK had been mentioned as a possible "white knight" bidder for Aventis, which faces a hostile bid from French rival Sanofi-Synthelabo.
Investing in new drugs would require a mid to high single digit increase in research spending this year, somewhat more than analysts had been forecasting, Garnier added.
Despite this, GSK said it expected to make a similar increase in dividend payments in 2004 after lifting the payout for 2003 by one penny to 41p per share.
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