GSK chief outlines ways to steady course

Jul 24, 2008 (The News & Observer - McClatchy-Tribune Information Services via COMTEX) -- GSK | Quote | Chart | News | PowerRating -- Andrew Witty, GlaxoSmithKline's new chief executive, took charge of his first quarterly financial update Wednesday, and did his best to accentuate the positive and stare down the perils ahead.

For the good news, he called the quarter "robust." True, revenue and profits were 2 percent lower during the three months ended June 30 than a year ago, but they were better than some analysts expected.

Then, facing the perils, Witty admitted the future didn't look pretty. The British drugmaker, which employs about 5,700 at a U.S. headquarters and a manufacturing plant in the Triangle, still suffers from the loss of Avandia sales. And like most other large drugmakers, it faces increased competition from cheaper generics even as it gets harder to find and bring new medicines to market.

Witty's plan to steady GSK's course?

--Smaller, more competitive groups of scientists to boost the number of new treatments in development.

--Oversight panels to identify drugs with liabilities before they advance to costly late-stage testing.

--Efforts to raise sales in emerging markets, such as Asia, Africa and Latin America.

--Grab a share of the generics market by forming an alliance with Aspen Pharmacare, a large South African manufacturer of generic drugs.

Linda Bannister, a pharmaceutical analyst with Edward Jones, said she didn't find much new in Witty's remarks. Although Witty spoke of more outsourcing and simplifying operations, she said she had expected more cutbacks, including layoffs. In the past eight months, GSK has laid off at least 1,500 in the United States and Puerto Rico, including more than 70 in the Triangle.

But Bannister credited Witty for identifying the challenges and coming up with an action plan.

"It's a step into the right direction," she said. "That's all it is going to take to get the stock moving higher."

GSK was one of three large drugmakers reporting second-quarter earnings Wednesday.

Pfizer's profits doubled compared with the same quarter a year ago, and Wyeth's earnings beat analysts' expectations.

GSK reported a $2.6 billion profit on $11.7 billion in revenue for the quarter.

Job cuts and plant closings did not reduce expenses enough to overcome lost Avandia sales. After the drug was linked to an increased risk of heart attack, regulators added stringent warnings to its packaging information.

Avandia sales, which have now fallen four quarters in a row, were down about 46 percent compared with the second quarter last year.

GSK's quarterly profit came in just under analysts' expectations, according to Bloomberg News.

Witty said that although strategic changes in research and development have already been made, it will take several years to show results. Meanwhile, he's counting on GSK's marketing and sales muscle.

The company will expand in vaccines, especially in Asia, South America and other emerging markets, Witty said. Also, GSK will continue to buy smaller drug companies doing research in areas such as ophthalmology, oncology and neuroscience.

To free up cash for new investments and limit debt, GSK also slowed its stock buyback plan.

Witty, who took over from Jean-Pierre Garnier in May, said he wants to prepare GSK to "go into the storm as healthy as possible" and "come out with a more attractive business model."

GSK reported earnings before the market opened. Its American depositary receipts, which are like stock, closed at $48.66 Wednesday, up 11 cents.

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