GlaxoSmithKline Shares Slump

Shares of (GSK Quote) stumbled Thursday after the U.K-based drug giant said 2004 would be a "transition year" in which earnings per share would be "at least in line" with that of 2003.

In afternoon trading, the company's shares were down $1.90, or 4.2%, to $43.25, after trading as $42.66.

The company said this year's results would be severely affected by the fact that three major drugs have lost or will lose patent protection. Those drugs are the antibiotic Augmentin, which went off patent in mid-2002, the antidepressant Paxil which lost U.S. patent protection last September and the antidepressant Wellbutrin, which becomes vulnerable to generic competition in mid-2004.

"The first nine months will be challenging as we absorb the erosion from Paxil and Wellbutrin generics," said J.P. Garnier, the company's chief executive. But starting in the fourth quarter, "we expect to return to growth as the impact of generics diminishes and our underlying business strength shows through," he said.

John Coombe, GSK's chief financial officer, said some companies can lose 90% of a brand name drug's sales within a few months from the time a drug is attacked by generic competitors. Garnier said GlaxoSmithKline is trying to take steps to slow the anticipated revenue loss of the antidepressants by making improved versions of these drugs. "We will come out of this transition year stronger than ever," he said.

As an illustration of generic competition, the company noted that worldwide sales of Paxil (sold as Seroxat in Europe) fell 4% in 2003 compared to 2002, with U.S. sales dropping 9%. But in the fourth quarter alone, global sales sank 40% and U.S. sales plunged 58%, following the September expiration of the drug's U.S. patent.

Garnier said he was "not looking" to divest products, adding that he would "not comment on the specifics" of the French drug giant Sanofi-Synthelabo's (SNY Quote)hostile bid for European rival Aventis(AVE Quote). GlaxoSmithKline is one of several drugmakers that analysts have speculated might make a white-knight bid for Aventis.