Glaxo's Profit Rises, but Sales Fall 11%

GlaxoSmithKline PLC Wednesday posted an 11% fall in first-quarter revenue, weighed by a steep drop in sales of pandemic flu vaccines and anti-virals, but said quarterly profits were supported by strong sales of new products, continued expansion in emerging markets and Japan as well as asset disposals.

For the three months to end-March, Glaxo posted a profit of £1.64 billion ($2.70 billion) before major restructuring, up 5.1% from £1.56 billion a year earlier. Net profit, which includes restructuring charges, was up 14% at £1.53 billion compared with £1.34 billion. The group booked restructuring charges of £135 million in the first quarter.

Sales in the period fell to £6.59 billion from £7.36 billion, hit by generic competition to herpes drug Valtrex, a continued steep fall in revenue from its controversial diabetes pill Avandia, and a drop in sales of flu products after last year's pandemic-linked windfall. Analysts had forecast quarterly sales of £6.66 billion.

Still, the U.K.'s largest drug maker said asset disposals delivered positive earnings per share growth in the quarter. Glaxo is selling its Quest Diagnostics stake for $1.7 billion and North American rights to cold sore treatment Zovirax to Valeant Pharmaceuticals International INC for $300 million.

As a result, earnings per share came in at 32.2 pence versus 30.7 pence in the year-ago quarter. Market expectations had seen first-quarter EPS at 31 pence.

The drug industry overall is suffering as older products lose patent protection and governments and health insurers push back on pricing. But Glaxo now looks better placed than many of its rivals when it comes to patent expiries. The company said its prospects look bright going forward.

"These first quarter results are in line with the expectation that I set out in February that GSK will make significant progress during 2011 to improve sales performance, enhance cash generation and deliver new product approvals and pipeline visibility," Chief Executive Andrew Witty said in a statement.

Mr. Witty has pursued a diversification strategy since taking the helm three years ago at Glaxo, building its consumer and vaccines businesses and expanding in emerging markets.

Dominic Valder of Evolution Securities said Glaxo's sales and earnings performance looks set to improve from the second half of this year. "Glaxo is now sort of in the eye of the storm from a growth perspective and the stock should return to growth later on this year and we're becoming more confident about where the growth is coming from," said Mr. Valder, who rates Glaxo a buy.

Glaxo, which reports in sterling, set a first-quarter dividend of 16 pence, up 7% from a year earlier.

Glaxo recently resumed its share buyback program, suspended in 2008. Having bought back shares to the tune of £317 million in the first quarter, the company Wednesday said full-year buybacks are now expected to be at the top end of its repurchase range of between £1 billion to £2 billion.

The company doesn't provide detailed sales or earnings guidance.

Glaxo said it received a subpoena on April 18 from the U.S. Department of Health and Human Service's Office of the Inspector General, "requesting production of documents relating to the group's marketing and promotion of Lovaza," a fish oil-based product designed to lower high triglycerides. The U.S. inspectors are requesting documents from January 1, 2006 to the present, Glaxo said.