Glaxo Net Rises on Vaccines, Avandia Diabetes Drugs (Update5)

By Etain Lavelle

July 26 (Bloomberg) -- GlaxoSmithKline Plc, Europe's largest drugmaker, said second-quarter profit increased 14 percent, driven by children's vaccines and diabetes treatment Avandia.

Net income rose to 1.32 billion pounds ($2.42 billion), or 23 pence a share, from 1.16 billion pounds, or 20.2 pence, a year earlier, London-based Glaxo said today. Analysts surveyed by Bloomberg News had a median estimate of 1.31 billion pounds. Revenue climbed 11 percent.

Sales of diabetes medicines rose as Glaxo reintroduced Avandamet, a combination of Avandia and metformin, a generic version of an older drug. Chief Executive Officer Jean-Pierre Garnier said earnings will increase about 12 percent this year, compared with a previous forecast of 10 percent. Shares fell after analysts expected the company to say profit might rise at least 14 percent.

``Launching 10 products next year is going to cost them and probably means that they're cautious on their guidance for the year,'' said Navid Malik, a drugs analyst at Collins Stewart in London. ``I think they're leaving room for a further step up in the guidance later in the year.''

Shares of Glaxo fell 23 pence, or 1.5 percent, to 1,507 pence in London. The stock has gained 2.6 percent this year, compared with an increase of 5.8 percent for the Bloomberg index that tracks the performance of 15 European drugmakers.

Flu Vaccine

Glaxo earlier today said its experimental pandemic flu vaccine is effective in about 80 percent of people who received it in trials. The results put Glaxo at the forefront of companies trying to develop vaccines for a possible pandemic sparked by bird flu.

Unspecified legal expenses and restructuring costs led to the ``conservative'' second-half forecast, Garnier said.

``This is not a precise 12 percent guidance, its `around' 12 percent guidance,'' Garnier said on a conference call with analysts. ``We have probably taken a bit of a careful stand on that.''

Sales of Advair for asthma increased 12 percent to 822 million pounds, while vaccine sales rose 17 percent to 387 million pounds, helped by a 35 percent increase in revenue from the U.S.

Avandamet Sales

Glaxo this month resumed sales of its Avandamet treatment for the most common form of diabetes after resolving quality control problems at a plant in Puerto Rico, which was the focus of a regulatory investigation.

Revenue from the Avandia and Avandamet diabetes medicines climbed by about a third to 477 million pounds, helped by stockpiling of Avandamet. Some 3,000 sales representatives will be promoting the treatment to help with its re-introduction this month and the company today forecast significant growth in 2006 and beyond.

``Avandamet is just flying off the shelves in Europe and doing very well in the U.S.,'' Garnier said. ``We have a lot of runway space and a big opportunity ahead of us.'' Avandamet is a combination of Avandia and metformin, a generic version of an older diabetes drug.

New Products

Garnier is preparing to introduce new products, including four in coming years that may garner sales of more than $1 billion each. Experimental breast cancer treatment, Tykerb will be filed with U.S. regulators in the third quarter, and ``later in the year'' with European authorities, he said today. Recent data showed that Tykerb works on patients who no longer respond to Herceptin, the current best seller for breast cancer.

``They're making solid progress in research, but generic competition is weakening some products,'' said Thomas Brenning, an analyst at Helaba Trust in Frankfurt. ``It's pretty clear that they can't sustain the growth of the first six months through the second half.''

Garnier brushed aside the suggestion that its consumer business might be spun off after it failed to win Pfizer Inc.'s business last month and Boots Plc's over-the-counter business last year.

``We like our consumer franchise,'' he said. ``Organic growth is the way to grow for us.''

Glaxo was forecast to earn 1.31 billion pounds, according to a survey of nine analysts gathered by Bloomberg News. They had forecast revenue of 5.73 billion pounds for the company, which ranks as the world's No. 2 drugmaker behind New York-based Pfizer.

Avian Flu

Roche and Glaxo are the only two companies with drugs that may help prevent an avian flu pandemic. Glaxo last week received a $16.8 million U.S. contract to supply state and local health officials with Relenza. Governments are stockpiling Relenza and Roche's Tamiflu to prepare for a global outbreak of influenza as a lethal strain carried by birds spreads in Asia, Africa, the Middle East and Europe.

Glaxo has seven new drugs in the last stage of clinical tests required to file with regulators, including Tykerb and Cervarix for cervical cancer. Merck & Co. has already introduced its own vaccine against cervical cancer, called Gardasil.

Prescriptions of Advair, its best-selling medicine, slowed after the FDA asked for a strengthened warning label on it and two rival products. Glaxo has now raised Advair's price and boosted its sales force to refocus demand on smokers' cough alongside asthma.

``We believe increased promotional intensity in the months ahead should help Advair trends begin to show growth again,'' Gbola Amusa and his colleagues at Bernstein Research in London wrote in a report July 25.

Next year Advair will face competition from AstraZeneca Plc's Symbicort in the U.S. AstraZeneca won approval to sell the drug last week and plans to introduce it in the U.S. in the middle of 2007.

``Advair growth is picking up very nicely,'' Garnier said today. ``We're not too concerned about Symbicort. We'll be ready with strong labeling, strong indications.''

To contact the reporter on this story: Etain Lavelle in London at at elavelle1@bloomberg.net.

Last Updated: July 26, 2006 11:43 EDT

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