Pharmaceutical company GlaxoSmithKline (NYSE: GSK) says net profit was 18 percent lower in the third quarter as sales fell in Europe and the United States.
For the three months ending Sept. 30, GSK said Wednesday that net profit fell to 1.12 billion pounds ($1.8 billion), down from 1.38 billion pounds last year.
Revenue fell 8 percent to 6.5 billion pounds, or some $10 billion.
Sales declined by 9 percent in Europe, where the company faced pricing pressure from government austerity drives.
U.S. sales fell 6 percent following the end of a co-promotion agreement for incontinence drug Vesicare and declining sales of Avandia for diabetes.
Sales in emerging markets rose 11 percent and overtook Europe as the company’s biggest market in terms of revenue.
GSK shares were down 0.7 percent at midday.
“With sales contributions from new products, together with further cost discipline, we remain confident that we can drive improvements in core operating margin over the next few years,” Chief Executive Officer Andrew Witty said.
However, he also warned that “additional cost reductions” are coming.
“Sustained efforts to manage our cost base and to deliver financial efficiencies also continue,” Witty said. “We expect additional cost reductions and phasing of operating expenses to benefit earnings in the fourth quarter relative to Q3.”
He added that “absent a further deterioration in Europe, we now expect sales for the year to be broadly in line with 2011 on a constant currency basis.”
One analyst wasn’t impressed.
“The group’s results have again failed to inspire,” said Keith Bowman, analyst at Hargreaves Lansdown Stockbrokers. “Europe continues to weigh, whilst hoped-for new product sales are yet to compensate for disposals and tough comparatives.”
CEO Andrew Witty’s View on Earnings
GSK provided the following statement from CEO Andrew Witty about the report:
“We continue to make progress on our strategy, particularly through increasing our sales exposure to growth businesses, notably emerging markets, and delivering a step-change in output from R&D. As expected, reported sales performance this quarter of -5% was impacted by demanding prior year comparisons, product disposals and continuing weakness in the European environment for Pharmaceuticals and Vaccines.
“Excluding the prior year comparisons, related to sales of Cervarix in Japan and US flu vaccines (3 percentage points), and product disposals of OTC brands and Vesicare (2 percentage points), sales for the quarter were broadly in line with last year.
“Looking at our revenue base, many businesses continue to perform strongly. Consumer Healthcare sales grew 5% excluding the recently divested non-core OTC brands. In EMAP, pharmaceuticals and vaccines sales grew in all major markets (Middle East/Africa +16%, Latin America +11%, China +15%, and India 9%).
“In Japan, sales of key products were robust; and in the US, excluding the impact of genericisation and discontinued products, sales grew 2% with good performances seen particularly in respiratory and oncology products.
“In Europe, sales declined 9% in the quarter, with the decline reflecting an adverse pricing effect of 7% and a 2% decline in volumes. It is clear that the European market is facing a prolonged period of significant economic pressure. In this context we are reviewing our current business and assessing how best to respond to this environment and meet the increasingly diverse needs of European governments.
“Despite these challenges, we expect to see sales grow in the fourth quarter, in particular with further momentum in EMAP including anticipated completion of multiple pre-ordered vaccine tenders. On this basis, and absent a further deterioration in Europe, we now expect sales for the year to be broadly in line with 2011 on a constant currency basis.
“Sustained efforts to manage our cost base and to deliver financial efficiencies also continue. We expect additional cost reductions and phasing of operating expenses to benefit earnings in the fourth quarter relative to Q3. Assuming we deliver our sales expectations for the year, we continue to expect the core operating margin in 2012 to be broadly in line with last year.
“Progress in our late stage pipeline this year has been exceptional with output better than in any previous period for the company. We have now completed six Phase III programs and initiated global regulatory submissions for several potential new medicines. Since June, we have completed filings for two oncology treatments (MEK and BRAF inhibitors) and for a new respiratory medicine, Relvar/Breo. We expect to commence global regulatory filings for a further respiratory medicine (LAMA/LABA for COPD), a new HIV treatment (dolutegravir) and a new medicine for type II diabetes (albiglutide) around the end of the year.
“We plan to review the progress we have made with our Phase III assets at an event with investors on 3 December.
“Clearly, our goal is to maximize the potential return of our pipeline. For many of the advanced assets we have existing capabilities and infrastructure in place. We will also make investments, as necessary, to improve returns.
“Our acquisition of HGS and the new structure agreed between ViiV Healthcare and Shionogi, for the development of HIV integrase inhibitors, also represent actions to simplify operations and improve returns. Whilst in the short-term, these transactions will have a small dilutive effect on EPS as we take full accountability for all of the operating expenses, both these transactions substantially increase our share of the economics on key assets and, we believe, create long-term shareholder value.”
GSK operates its North American headquarters in RTP.
[GSK ARCHIVE: Check out 10 years of GSK stories as reported in WRAL Tech Wire.]
