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Avandia shadow hangs over GSK

The final annual results to be released under Jean-Pierre Garnier's authority as CEO of GlaxSmithKline warned of a "mid-single digit percentageî fall in earnings per share, at constant exchange rates, to come in 2008.

The final annual results to be released under Jean-Pierre Garnier's authority as CEO of GlaxSmithKline (GSK) warned of a "mid-single digit percentage" fall in earnings per share, at constant exchange rates, to come in 2008. The company cited intensifying generic competition, a restructuring charge and plummeting sales of diabetes drug Avandia, which was linked to an elevated risk of heart attack in May 2007, for the shortfall.

By 16:00GMT on Thursday 7 January 2008, GSK's share price had dropped by almost 7 per cent, worsening a steady decline since early January. Overall sales for 2007 were reported to be 2 per cent down, while revenue from Avandia dropped by £0.4bn, to £1.2bn, versus 2006. Sales of the drug in the US dived by 55 per cent in Q4 07 and, though there was a slight increase in European sales, the company said it expects the negative effects of the ëheart attack link' to remain through 2008.

JP Garnier, who will be replaced at the helm by Andrew Witty in May this year, pointed out that without the Avandia issues, he would have been in a position to report that GSK had "grown 19 per cent in 2007". He also said that prior to restructuring charges, of £388m, earnings per share rose 10 per cent (to 99.1p) in 2007, adding that the company's pipeline development had been maintained through 10 marketing approvals plus 10 product filing.

However, the restructuring charges - linked to a cost-cutting programme which aims to save £700m over the next two years - and fall in sales hit overall profits hard, leading the firm to report its underperformance for the year.

Consumer division to stay

Mitigating GSK's losses in part was a rise in sales for the year through its consumer healthcare business, yielding a 14 per cent climb.

There had been some speculation that the company could sell the consumer unit, which includes popular brands such as Lucozade and Panadol. However, CEO-in-waiting Andrew Witty put paid to any rumours on Thursday, announcing his intention to keep the business.

Witty is quoted by Reuters as referring to it as "terrific" and a "key" part of the company. He said that "it's fast-growing, its margin is at the high end of the sector for consumer companies [and] we're proving we're great managers for that businessÖ for me, that checks all the boxes".

7th February 2008

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