Glaxo Gains on FDA Nod

Updated from 10:46 a.m. EDT

GlaxoSmithKline (GSK) said Thursday that it expects to return to marketing big-selling drugs in the U.S. by midyear after having signed a consent decree with the federal government to improve its manufacturing practices.

Early last month, the Food and Drug Administration seized batches of the antidepressant Paxil CR and the diabetes drug Avandamet, saying GlaxoSmithKline repeatedly failed to correct problems at a manufacturing plant in Puerto Rico.

Although the FDA said it wasn't aware of any patients being injured by the drugs, the agency said it took the rare move because the company hadn't acted quickly to fix problems that had been cited during inspections in 2003 and 2004.

Thursday's announcement helped boost GlaxoSmithKline's stock, because analysts had expected the delay in returning the two drugs to the market could have lasted into 2006. The stock jumped $3.11, or 6.6%, to $50.52, as two investment banking firms raised their ratings.

The company also issued first-quarter financial results in which earnings per share rose 19% and sales grew 5% in terms of constant exchange rates. "GlaxoSmithKline is off to an excellent start in 2005," said J-P Garnier, the chief executive in a prepared statement. "We are now entering a new phase of growth for the company as the impact of generic competition diminishes and the underlying strength of our business shows through."

GlaxoSmithKline avoided paying a fine for the seizing of its products, although the consent decree calls for a possible penalty of $10 million if the company doesn't abide by all terms of the agreement. In addition, GlaxoSmithKline must post a $650 million bond to assure that products seized by the FDA "are appropriately destroyed or reconditioned," the company said. It added that it expects to meet the requirements of the bond within 90 days, after which the bond will be cancelled.

The consent decree also calls for an independent expert to review the Puerto Rico plant's manufacturing practices. The company said it is "fully committed to working cooperatively" with the FDA to improve its operations and identify other potential problems. The consent decree enables GlaxoSmithKline to continue making the pills at the Puerto Rico plant before the company gets FDA clearance to sell them again.

GlaxoSmithKline said the consent agreement wouldn't have any effect on the predicted earnings per share growth this year, which GlaxoSmithKline pegs at "low double-digit range" in terms of constant exchange rates. GlaxoSmithKline is the second-largest seller of pharmaceuticals in the U.S.

The first-quarter was paced by some of the company's biggest products including the asthma drug Advair (up 22% to $1.3 billion), the epilepsy drug Lamictal (up 30% to $372 million), the herepes medication Valtrex (up 28% to $313 million), the heart disease drug Coreg (up 50% to $258 million) and the diabetes drugs Avandia and Avandamet (up 25% to $548 million). The company said the loss of Avandamet "has been largely offset" by sales of Avandia.

Major products hit by generic competition and/or brand name competition include the antidepressants Paxil (down 43% to $311 million) and Wellbutrin (down 23% to $311 million).

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