Glaxo Returns to Growth Amid Easing Drug Headwinds

GlaxoSmithKline's sales returned to growth in the third quarter as Britain's biggest drugmaker put patent expiries and a collapse in revenue from troubled diabetes pill Avandia behind it.GSK is emerging from a revenue trough caused by a slump in sales of Avandia -- due to heart risks -- and loss of patent cover on herpes drug Valtrex, as well as the absence of last year's windfall sales of vaccines and drugs for swine flu.

It now has a smaller burden of near-term patent expiries than most of its global rivals, although uncertainty remains about when its top-selling inhaled lung drug Advair will face generic competition.

GSK said earlier this year it now expects to report actual sales growth on a full-year basis in 2012, accompanied by an expansion in profit margins, and Chief Executive Andrew Witty said on Wednesday the group was on track to achieve this goal.

Turnover in the quarter was up 4 percent from a year earlier at 7.10 billion pounds ($11.3 billion) and the the company made a pre-tax profit before major restructuring of 2.00 billion, equivalent to earnings per share (EPS) up 1 percent at 28.5 pence.

Analysts, on average, had forecast sales of 7.00 billion pounds and EPS of 28.6p, according to Thomson Reuters I/B/E/S.

GSK also increased its expectation for share buybacks this year to up to 2.3 billion pounds.

Trading conditions are tough for pharmaceutical companies around the world at the moment as pricing pressures increase. The squeeze is being felt particularly in Europe where many cash-strapped governments are cutting healthcare budgets.

Sales of Advair fell 3 percent in the latest quarter, with a decline in the United States following labelling changes only partly offset by modest growth elsewhere.

There was a 3 percent increase in U.S. list prices in September for some GSK products, including Advair and Lovaza, which provided a small boost in the period, although it only affected one month.

Witty is diversifying the group to reduce reliance on "white pills in Western markets," the part of the business most vulnerable to generic competition and price cuts imposed by cash-strapped governments.

The result is an increased focus on consumer healthcare and emerging markets in a strategy that is starting to bear fruit.

With the shares trading at just over 12 times expected 2011 earnings, GSK is at a premium to other large-cap European drugmakers, including Swiss rivals Roche and Novartis, which both disappointed the market with their third-quarter results.