Cervarix Filing Delay, Pipeline Setbacks Take Shine Off Q3 for GlaxoSmithKline

It turned out to be unfortunate timing for GlaxoSmithKline (GSK) that its third-quarter (Q3) results announcement came on the same day as U.K. rival AstraZeneca's Q3 presentation. The latter's results were clouded by news that it was scrapping NXY-059, a key drug candidate for acute ischaemic stroke, from late-stage development and some of that disappointment appeared to have seeped into responses to GSK's third quarter.

The impact of a delayed filing for Cervarix and some disappointments in GSK's earlier-stage pipeline has perhaps been overstated. But the company's top-line results were not entirely trouble-free, albeit garnished with some impressive profit growth. Operating income for the three months up to 30 September 2006 was, by Global Insight's calculations, 21% higher at 1.93 billion pounds (US$3.63 billion), while net profit came in 14% higher at 1.43 billion pounds.

GSK also pleased investors by announcing a 6-billion–pound share buy-back programme, doubling its current annual repurchases to 2 billion pounds per year. And the company made amends for its rather conservative guidance on earnings-per-share (EPS) growth at the half-year stage, when it raised its forecast below analyst expectations from 10–12% (see United Kingdom: 27 July 2006: GSK Net Profit Rises 14%, Pipeline Excitement Builds Over Bird 'Flu Candidate). That guidance has now been adjusted to mid-teen EPS growth at constant exchange rates.

The profit figures were largely a testament to cost control. While research and development (R&D) expenditure was up by 8% over the quarter and sales costs increased by 3%, selling, general and administrative (SG&A) expenses dropped by 14% against the third quarter of 2005. This was attributed in the main to lower legal charges. Recent settlements with generic competitors Dr Reddy's Laboratories (India) and Kali Laboratories (U.S.) over patent challenges to migraine treatment Imitrex (sumatriptan) and nausea drug Zofran (ondansetron) should help to keep legal bills in check, although patent disputes over the antidepressant Wellbutrin (bupropion extended-release tablets) are still in play.

The grey spot in the headline results was turnover, which rose by just 3% to 5.64 million pounds, considerably behind the 11% sales growth seen in the second quarter. Currency translation reduced the turnover growth by four percentage points, however, and sales in the traditionally strong U.S. market were up by 14% year-on-year (y/y) to 2.6 billion pounds at constant exchange rates (CER). Generic competition ate into sales of Imigran, Zofran and the anti-epileptic Lamictal (lamotrigine) in Europe, where Q3 turnover was flat in CER terms at 1.3 billion pounds. On the same basis, international sales grew by 3% to nearly 1 billion pounds.

Despite the relatively modest sales increase overall, there was encouraging growth from key products. Sales of the combination anti-asthmatic Seretide/Advair rose by 10% (14% at CER) to 813 million pounds, in line with analyst expectations. U.S. sales jumped by 11% or 17% at CER, substantiating GSK's insistence that repeated safety concerns over Advair and comparable anti-asthmatics in that market would not do any long-term damage to the brand. In Europe, Seretide was 10% ahead (12% in CER) of the third quarter of 2005. GSK is also expecting sales of Seretide/Advair to pick up over the current quarter. The respiratory category was dragged down, though, by declining sales of Serevent (salmeterol) and Flixonase (fluticasone) in particular.

Sales growth from the Avandia (rosiglitazone maleate) family of antidiabetics was a robust 11% at CER to 378 million pounds, although this was some way behind both expectations and the 32% increase recorded in the second quarter of 2006. GSK noted that reported sales growth of 6% reflected the adverse impact of wholesaler stocking patterns, following the re-supply of Avandia and Avandamet during the second quarter of the year.

Hypertension drug Coreg (carvedilol) made another strong showing, with quarterly sales up by 27% or 32% at CER to 195 million pounds. In the antiviral category, the genital herpes treatment Valtrex (valacyclovir) offset declining sales of HIV Drugs with a 20% (26% at CER) increase to 215 million pounds. Lamictal (lamotrigine) for epilepsy and bipolar disorder was another star performer, with quarterly sales 22% (27%) higher at £257 million.

Outlook and Implications

Media discussion of the results was dominated by the news that GSK now expects to file its cervical-cancer vaccine Cervarix for U.S. approval in April 2007, rather than by the end of this year as previously expected. GSK has already been beaten to the U.S. and European markets (where an approval application for Cervarix went in last March) by Merck & Co's rival vaccine, Gardasil, but the U.K. company played down what it called a "minor" adjustment, commenting that Cervarix was a product with a 10–20 year lifespan in a growing market.

There was also concern about some pipeline developments. A Phase II clinical trial of Promacta (eltrombopag)—a promising oral platelet growth factor in GSK's fast-growing portfolio of investigational cancer drugs for the treatment of chemotherapy-induced thrombocytopenia—missed its primary endpoint as "the chemotherapy agent used in the trial did not induce sufficient levels of thrombocytopenia to differentiate Promacta versus placebo", the company reported. There were more encouraging results, though, from Phase III trials in idiopathic thrombocytopenic purpura and in a Phase II study in patients with hepatitis C-associated thrombocytopenia.

GSK also revealed that it had placed on hold clinical trials with Redona, a DPP-IV inhibitor for type 2 diabetes, following assessment of unfavourable preliminary data from long-term preclinical toxicity trials. Moreover, 270773, an investigational drug for sepsis has been dropped due to an unfavourable risk/benefit ratio.

None of these setbacks was on the scale of AstraZeneca's suspension of NXY-059 in late-stage development, particularly given the previous setbacks that have depleted AstraZeneca's pipeline. GSK's development portfolio still looks healthy and there is considerable promise in emerging new indications of marketed drugs, such as Avandia's potential in diabetes prevention (see United Kingdom: 18 September 2006: Can Diabetes Prevention Sweeten the Pill for GSK's Avandia?).

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