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Q2 net loss for GSK

GSK records £304m loss due to legal fee settlements, but boasts strong pipeline and growth in emerging markets to offset declining US sales

In its Q2 2010 results, announced July 21, GlaxoSmithKline (GSK) posted turnover of £7bn for the second quarter of 2010, constituting a loss of £304m for the three months ending June 30. Operating profit before major restructuring was £641m, which represents an 80 per cent decline in Capital Expenditure Request (CER) terms, compared to a profit of £1.34bn in the first quarter.

This loss was attributed to the company having to absorb £1.57bn in settlement fees for several legal cases, over the antidepressant Paxil (paroxetine) and diabetes drug Avandia (rosiglitazone) and other provisions for long-standing legal cases, which also include an investigation of its facility in Cidra, Puerto Rico.

Progress in GSK's diversification strategy successfully offset the decline in US sales. Emerging markets saw a 17 per cent increase in sales and Asia Pacific/Japan an increase of 9 per cent which, coupled with a 1 per cent increase in European pharmaceutical sales, offset a US sales decline of 13 per cent in Q2.

Sales in the US were impacted by individual factors and adverse prior year comparisons, such as an acceleration of generic competition to Valtrex (valacyclovir), the temporary suspension of Rotarix (rotavirus vaccine), the discontinuation of the company's promotion of Boniva (ibandronate sodium), lower Avandia sales and reductions in pricing resulting from healthcare reform.

According to the company's CEO, Andrew Witty, GSK is "making good progress to build our group of healthcare businesses, which offer sustainable growth and have complementary risk/value profiles. At the same time, we have also taken action to drive improved returns on invested capital in our core R&D operation. This combination is creating a balanced business with a lower overall risk profile and the option for significant potential upside from the pharmaceutical pipeline."

In an interview with financial broadcaster Cantos following the announcement, Mr Witty pointed to "an unprecedented" five new drugs in late-stage trials as a sign of the successful restructuring of the group and said the recent payout was "in the best interest of the company's shareholders."

Also following the announcement, GSK shares were up 0.3 per cent at 1,180.5 pence on the London Stock Exchange.


21st July 2010


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