GSK 'ready to grow'

Anglo-American pharma leviathan, GlaxoSmithKline, managed to break the back of the 'generic hit' - which carried a loss of around £1.5bn - yet still effectively grow the business by 1 per cent during 2004.

Europe's largest drug maker blamed the small increase on the effects of the loss of patents on two of its best-selling antidepressant drugs, Wellbutrin and Paxil. The firm disclosed that sales of Wellbutrin dropped 64 per cent while sales of Paxil dropped 39 per cent, leaving a large dent in sales figures.

However, the company claimed it had handled the challenge of fierce generic competition better than some of its competitors, which had reported declines in company growth following significant patent losses.

Speaking at GSK's annual full-year results presentation, CEO Jean-Pierre Garnier gave an optimistic outlook, advising investors to expect “low double-digit growth” for 2005 and beyond.

“We are in good shape and can now get back to the business of growing our company,” he told reporters last week at the Savoy Hotel, in London.

GSK group sales rose 1 per cent at constant exchange rates, although the total global pharmaceutical turnover figure was down at £20.4bn against £21.4 for 2003 due, in part, to the effects of the weak dollar. The company delivered a 2 per cent growth in earnings per share, at 75p.

The figures were largely in line with expectations, following JP's warnings in early 2004 of a flat year to come.

The firm's full-time results were also affected by a new method of accounting, introduced last year, which provides for anticipated product liability lawsuits. To this end, GSK placed an additional (to the existing £1bn) £141m in reserve for pending litigation.

“We started to account ahead of time, [and so] we should be able to moderate costs,” JP noted, referring to a number of unresolved issues concerning tax payments - the US and UK authorities are in dispute over how much GSK owes.

“In America, legal costs are outrageous,” he commented. “We are the victim between two authorities.”

Lehman Brother analyst, Stewart Adkin, agreed that the figures “do seem sizeable, but it's a sign of the times in the US, which is a very litigious marketplace”.

Innovation and safety

Garnier cited the pressure to reduce drug prices in Europe as another factor for the company's stunted growth, expressing his dismay at the lack of governmental understanding regarding the research and development cost of drugs.

“Society wants us to sell innovative drugs at a fair price but we need the government and payers to understand that innovation is a very costly process.” GSK has become embroiled in the dispute with the German healthcare system over its much-maligned reference pricing system.

Tachi Yamada, head of research and development at GSK, expressed his view on the current industry climate concerning drug safety, following the withdrawal of Merck's COX-2 inhibitor, Vioxx, and the global investigations into the role and effectiveness of the drug regulators.

He opposed the separation of the safety and marketing approval functions of regulatory bodies. “[It] doesn't make any sense to me,” he said.

“The increased focus on safety is good, [but] you will have a bias if all you look for is safety… you would not arrive at a balanced conclusion…if you set the safety hurdle too high, you may never have any new products.”

GSK also revealed it will go ahead with trials of its COX-2 inhibitor, referred to as 381. The company claimed early clinical studies comparing the drug to Pfizer's Celebrex, showed 381 had better efficacy.

Garnier said the company “may have to demonstrate safety in a larger outcome study” by using double the number of patients in tests and increasing the trial to 18 months. He added, however: “We are very committed to 381.”

The European Medicines Agency and the US Food and Drug Administration safety panel will separately meet this week to consider the fate of the COX-2 class. “GSK is hopeful and believes it has evidence that 381 has a different chemical composition that is less likely to cause cardiovascular risks,” added Lehman Brothers.

Pipeline

On the sticky topic of its pipeline, GSK pointed to a potential 148 new products, 40 per cent of which were in stage II and III trials. “GSK has the best pipeline in the industry,” commented Yamada, “and much work will focus on delivering on that.” He highlighted the progress of a new vaccine against cervical cancer and rotavirus.

Adkin added that with the Paxil expiry behind the company, the impact of Wellbutrin coming to an end and top-line growth in products like Advair, Avandia, Valtrex and Lamictal, “it should be able to achieve expectations”.