The Wall Street Journal - February 22, 2001
Gautam Naik, Staff Reporter of The Wall Street Journal

LONDON -- GlaxoSmithKline PLC, the newly merged pharmaceutical giant, reported a 13% rise in pretax profit for 2000, and said it would strengthen efforts to provide AIDS drugs at 90% discounts to poorer countries.

In its first earnings report since the December merger of Glaxo Wellcome and SmithKline Beecham, the company said pretax profit for 2000 one-time items rose to 5.33 billion British pounds ($7.73 billion or 8.47 billion euros) from 4.71 billion pounds a year earlier. The results met consensus forecasts. Shares in GlaxoSmithKline rose 75 pence to 19.20 pounds in London trading.

Sales rose nearly 12% to 18.08 billion pounds from 16.16 billion pounds. The figures are pro forma and therefore reported as if the merger applied to both the current and year-earlier periods.

GlaxoSmithKline, which is the world's largest drug company and has a dominant position in the supply of HIV/AIDS drugs, has been targeted by groups fighting to get cheaper AIDS drugs to poor countries in Africa and elsewhere.

In a conference call with journalists Wednesday, Glaxo's chief executive, Jean-Pierre Garnier, said the company would offer HIV/AIDS drugs at a 90% discount to nonprofit organizations that could distribute the medicines in poorer countries. The plan, he said, is "to offer our best prices in Africa on a sustainable basis, not just to generate big headlines." The company already offers discounted AIDS drugs through a United Nations program.

However, Mr. Garnier strongly rebuffed a recent -- and widely publicized -- proposal made by an Indian drug company, Cipla Ltd. The generic drug firm has offered to pay GlaxoSmithKline and other drug makers 5% royalties in exchange for permission to sell knockoff versions of their AIDS drugs in developing countries. Mr. Garnier said Cipla's proposal would appear to give the Indian company the freedom to sell the drug knockoffs even in the high-income U.S. market. "We're not going to give it away just because someone is asking," Mr. Garnier said.

AIDS drugs are big business for GlaxoSmithKline. Last year, sales in this area rose 14% to 1.15 billion. The best-selling antidepressant, Paxil/Seroxat, saw sales increase 17% to 1.55 billion British pounds, helped by its new use as a treatment for a social-anxiety disorder. Seretide, an asthma drug, and Avandia, a drug for diabetes, also showed strong growth. In all, new products at GlaxoSmithKline contributed nearly b1 billion in sales growth, according to the company.

Pharmaceutical sales rose 10% to 15.43 billion pounds, contributing 85% of the company's overall sales. The consumer health-care area, which includes toothpaste and sports drinks, recorded a smaller 3% increase in sales.

While GlaxoSmithKline's performance has been strong -- it has about 15 drugs currently bringing in more than $500 million (549.5 million euros) in annual sales each -- investors are worried about the longer term. The problem is that the company has few major late-stage products in its drug-development pipeline to replace the current best-selling drugs.

Analysts say the company needs more drugs like Seretide, the asthma drug, which has the potential of racking up more than $1 billion in annual sales when it is launched under the name Advair in the U.S. in April. But lacking other such potential blockbusters, GlaxoSmithKline may have to rely on teaming up with other drug companies.

Earlier this month, GlaxoSmithKline sealed a pact with Germany's Merck KGaA, involving Merck's promising new antidepressant drug. GlaxoSmithKline will take over late-stage clinical testing and marketing of the product. Analysts expect the British company to sign other such "in-licensing" deals in the coming months. Thursday, GlaxoSmithKline will provide further details of its drugs pipeline and business strategy to the investment community in London.

Write to Gautam Naik at gautam.naik@wsj.com

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