GlaxoSmithKline Plc will halt research into drugs for depression and pain and begin making treatments for rare diseases as the U.K. company tries to squeeze more products out of its laboratories.
Glaxo will also focus on discovering new medicines for Alzheimer’s and Parkinson’s diseases and multiple sclerosis, the London-based company said today in a statement. Chief Executive Officer Andrew Witty said an expanded cost-savings program would bring job cuts affecting “hundreds rather than thousands” of positions in the U.K.
Britain’s biggest drugmaker is seeking new products to keep sales rising after revenue from swine flu vaccine falls and older medicines lose patent protection. Fourth-quarter sales surged 17 percent, helped by sales of H1N1 flu vaccine, Glaxo said today. Glaxo is trying to weed out compounds from its 3.95 billion pound ($6.25 billion) research budget that are expensive to develop and provide little return on investment, Witty said.
“This really all revolves around realities about doing research in this field,” Witty said of depression and pain projects on a conference call with reporters. Developing a drug that’s significantly better than existing medications is difficult and “they’re very expensive trials. That’s what drove the decision.”
Orphan Status
“If you want to save money in R&D, that’s a sensible area to go,” Jeffrey Holford, an analyst at Jefferies International Ltd., said in an interview. “Depression hasn’t delivered very many great medicines in the recent past for anyone full stop.” Orphan drugs “are a very profitable area.”
Paxil, a Glaxo antidepressant that’s already on the market, has proved costly. The drugmaker has paid almost $1 billion to resolve lawsuits for over the drug since it was introduced in 1993, including about $390 million for suicides or attempted suicides, according to court records and people familiar with the cases. The drug brought in 513 million pounds of sales last year.
Witty said fewer than 10 percent of rare diseases have treatments. Glaxo in October agreed to pay as much as 460 million euros ($637 million) to develop drugs from closely held Dutch biotechnology company Prosensa aiming to treat Duchenne muscular dystrophy.
Savings Plan
Profit excluding some items gained to 35.4 pence a share in the quarter, beating the 33.5 pence average estimate of 16 analysts surveyed by Bloomberg. Net income was 1.63 billion pounds, compared with 982 million pounds a year ago, Glaxo said in the statement. Sales rose to 8.09 billion pounds.
Glaxo plans to add 500 million pounds of savings by 2012. The previous plan was to save 1.7 billion pounds a year by 2011.
New products generated 1.3 billion pounds of sales in 2009, 15 percent more than the previous year. Generic copies of Glaxo medicines hurt U.S. sales by 1.4 billion pounds.
“The problem for this company in terms of R&D has been that the revenue line is so big that they need to have an equally big portfolio of drugs coming through the pipeline to fill the holes,” Holford said. “Now that their patent drag is starting to ease off and it’s a more steady state then the pipeline can start to become more meaningful.”
Shares Rise
Glaxo shares gained 9 pence, or 0.7 percent, to close at 1,226 pence in London. The stock has fallen 3.3 percent in the past year, compared with a 13 percent rise in the Bloomberg Europe Pharmaceutical Index.
Germany and France were among the European countries to slash orders for the drugmaker’s swine flu vaccine after the virus was milder than predicted. The shot brought in 835 million pounds for Glaxo in the fourth quarter, below the 1 billion pounds in sales expected by Credit Suisse analyst Luisa Hector before the cancellations.
Sales of the vaccine helped offset revenue lost to generic copies of antiviral drug Valtrex, which hit the market in November. Valtrex revenue dropped 8 percent to 1.3 billion pounds in 2009.
“We remain concerned about the 2010 order book” for the swine flu vaccine, Hector and colleagues wrote in a Jan. 27 note to clients. Earnings in 2010 will be “flat at best,” hurt by the loss of the flu windfall and by a faster-than-expected sales decline for Valtrex after the patent expiry, they wrote.
Emerging Economies
Since taking over the top job two years ago, Witty has stepped up expansion in consumer goods and emerging economies, making dozens of small acquisitions and licensing ventures in 2009.
He repeated his strategy to stick with smaller, “bolt-on” acquisitions “only if we can find deals with clear financial hurdles,” he said. “We’ll have to see.”
Glaxo’s earnings per share exclude restructuring charges related to what it calls “significant” acquisitions and costs from the savings program, which started in October 2007
