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Glaxo Profits Reflect Strong Sterling

Robert Steyer

04/25/07 - 03:27 PM EDT

Generic-drug competition played a key role in flat earnings and slipping sales during the first quarter for GlaxoSmithKline(GSK Quote - Cramer on GSK - Stock Picks).

The British drug giant said Wednesday that first-quarter operating profit was flat vs. the year-ago quarter; net earnings per share rose 2%; and revenue declined 4% when measured in British pounds sterling.

However, when measured in constant exchange rates, GlaxoSmithKline said operating profit rose 11%, net earnings per share gained 14% and revenue gained 4%. The weak U.S. dollar had a significant impact. One British pound was worth $1.96 during the quarter, up from $1.75 in the year-ago quarter; the pound also advanced vs. the Japanese yen and the euro.

Translated into U.S. dollars, GlaxoSmithKline reported a first-quarter operating profit of $4.25 billion, net earnings per share of 53 cents and revenue of $10.96 billion.

The constant-exchange rate data are "very encouraging" and show that the company "will continue to deliver strong earnings performance," said CEO Jean-Pierre Garnier. He reiterated a full-year earnings-per-share forecast of 8% to 10% growth in constant exchange rates.

Among major products, sales of the Advair asthma medication rose 11% to $1.64 billion vs. the year-ago quarter when measured in constant exchange rates. The herpes drug Valtrex gained 22% to $439 million, while the combined sales of several HIV/AIDS drugs slipped 3% to $704 million.

The company's vaccine business posted a 6% sales gain to $721 million; the Coreg family of drugs for high blood pressure and chronic heart failure advanced 8% to $425 million; and the Avandia family of diabetes drugs gained 19% to $811 million.

Popular drugs whose sales were hammered due to generic competition in the U.S. included the antidepressant Wellbutrin XL, sales of which fell 37%; the antihistamine Flonase, which dropped 49%; and Zofran, the anti-nausea drug for patients receiving chemotherapy, which fell 60%.

GlaxoSmithKline's stock was down 5 cents to $58.76 in recent afternoon trading.