Glaxo says generics fueled income drop

Competition from generic drugs ate into profits at GlaxoSmithKline P.L.C., sending its first-quarter net income down 13 percent from a year earlier, the London company said yesterday.

GlaxoSmithKline, which employs 4,500 people in the Philadelphia region, said revenue rose 19 percent to 6.7 billion British pounds ($9.7 billion) in the first three months of 2009, despite a 22 percent decline in U.S. sales. Outside the United States, pharmaceuticals sales grew 7 percent to 3.3 billion pounds ($4.8 billion).

"In the USA, we are experiencing some of our toughest performance challenges as our product portfolio transitions and we reshape our business," chief executive officer Andrew Witty said in a written statement.

Much of the gain in sales measured in pounds occurred because of currency fluctuations. Measured in what the company calls a constant exchange rate, sales fell 5 percent.

Glaxo, which earlier this week announced it was buying U.S. dermatology business Stiefel Laboratories Inc. in a $2.9 billion deal, said that it would continue to "reengineer" its U.S. operations but did not immediately provide more details. It said it expected generic competition in this country to fall in the second half of the year.

"It is essential that we reconfigure our U.S. business to make sure we have the right resource in the right areas and an overall lower level of infrastructure costs," Witty said.

The company booked net profit for the three months to March 31 of 1.1 billion pounds ($1.6 billion), down from 1.3 billion pounds ($1.9 billion) a year earlier.

GlaxoSmithKline said generic competition in the U.S. market cut deeply into sales of key drugs. Sales for its epilepsy drug Lamictal, for example, dropped 61 percent to $207 million.

The company has estimated it will lose about $5 billion in sales as demand falls for treatments such as its diabetes drug Avandia - which has suffered from safety concerns - its antidepressant Wellbutrin and the heart medication Coreg.

Along with the Stiefel purchase to beef up its presence in the dermatology market, it also introduced plans this month to pool resources with Pfizer Inc. to create a new company to develop and sell HIV medicines.

Attempts to boost Glaxo's lineup of consumer health-care products include the launch of its nonprescription weight-loss drug alli in pharmacies across Europe earlier this week. Glaxo says it believes over-the-counter medicines are a growth opportunity at a time when sales of many prescription products are slowing.

American depositary receipts in Glaxo, traded on the New York Stock Exchange, closed at $29.29, down $1.63 or 5.27 percent.