JEAN-PIERRE GARNIER, chief executive of GlaxoSmithKline, told shareholders yesterday that profits for the current year might suffer from generic competition, as he sounded the death knell for the drug maker’s Cox-2 painkiller.

The news, which accompanied a multibillion-dollar escalation in the company’s dispute with American tax authorities, marred a better than expected 11 per cent jump in fourth-quarter profits to £1.6 billion. The performance helped to lift earnings for the year to £6.7 billion on sales of £21.6 billion.

Dr Garnier, justifying a cautious earnings forecast for the 2006 financial year, said that two drugs in particular could face competition from cheaper copycats: Flonase, a treatment for hayfever, and Wellbutrin XL, an antidepressant. A third treatment, Zofran, might also fall prey to generic rivals pending an appeal, GSK said.

Dr Garnier said that the outlook for Flonase and Wellbutrin XL was uncertain, prompting the company to forecast earnings-per-share growth of only 10 per cent in 2006, almost half that of last year. “We have decided to take a number that we know we can deliver, even if we see generics by the end of 2006,” he said.

He added, however, that the company had left considerable scope to beat its target. “If we get lucky on generics we might do better, but we are confident that we can deliver on the current guidance,” he said. In a mixed presentation, Dr Garnier also cast doubts over the future for the Cox-2 painkiller, known by the codename ‘381. The results of phase-III tests on the drug, which belongs to the same family of medicines as Merck’s Vioxx, were not encouraging, Dr Garnier said. Further analysis of the results was underway.

Tadataka “Tachi” Yamada, GSK’s outgoing head of research and development, added to the gloom over the painkiller’s prospects. He said that it would “have a very tall hurdle to climb” to merit further development.

Dr Garnier said that he expected to launch seven top medicines this year, including Arranon, Entereg and Avandaryl. He said that the company would ask regulators to approve a further seven medicines, including a vaccine to treat the H5N1 bird flu virus, an injection to combat cervical cancer, called Cervarix, and Tykerb, which one day could unseat Herceptin as the best cure for breast cancer.

Dr Garnier noted that there were also a number of potentially significant medicines moving into mid-stage tests.

He maintained a long-standing commitment to look at opportunities for acquisitions, but emphasised that he would be circumspect in what he would chase. He conceded that GSK would take a look at Pfizer’s over-the-counter business, but said that there could be no guarantee that the company would participate in any auction.

Dr Garnier would not comment on Serono, the Swiss drugs company up for sale, suggesting that GSK had firmed-up bid intentions. However, the GSK boss said that the strength of the company’s balance sheet would be important as businesses came up for purchase.

Shares in GSK rose 13p to £14.57 as Dr Garnier reiterated a promise to bolster the company’s investment in new research, adding that the company’s pipeline would survive the departure of Dr Yamada. “We are in a good place right now and as soon as we can afford it, we will increase our investment in R&D,” he said.

A PICTURE OF HEALTHIER PROFITS

Growth*

Fourth quarter, 2005
Turnover £5.9bn 8%
Operating profit £1.6bn 20%
Pre-tax profit £1.6bn 11%
Earnings per share 19.8p 33%
Full year
Turnover £21.6bn 7%
Operating profit £6.8bn 16%
Pre-tax profit £6.7bn 13%
Earnings per share 82.6p 18%

*constant exchange rate

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