Pharma giants hit by £5bn hangover

Source: This Is Money

Ian Lyall, Daily Mail
8 February 2008

It was a bloodbath for the pharmaceuticals industry yesterday. More than £5bn was wiped from Britain's two leading drugs companies, with both feeling the pain from copycat competition.

GlaxoSmithKline led the way as it warned its earnings will go into reverse this year as a number of its products come under attack from cheap pill pushers.

The group will also struggle to fill the void left by Avandia, the controversial diabetes treatment dogged by safety concerns.

At one point the shares were down almost 10% - their sharpest one-day fall ever - but recovered to close down 89p at 1,078p.

Meanwhile, rival AstraZeneca was also in the sick-bay as it emerged that the Indian firm Ranbaxy had won permission to produce a cut-price version of its heartburn pill, Nexium, in the US.

But most of the fireworks were at GSK, where departing boss Jean-Pierre Garnier must be wishing he exited early rather than sticking around until May to take the plaudits at the company's annual meeting.

They are more likely to be brickbats after yesterday's annual results, which leave successor Andrew Witty with a tricky inheritance.

Operating profits were up 8% at £7.6bn, and the dividend rose 10% to 53p.

But that's where the good news ends. GSK warned about the after-effects of Avandia's fall from grace and the threat from generic competition, which hits its peak in 2008.

Analysts also detected a worrying weakening in profit margins and an additional US tax claim for £350m.

GSK said its earnings will fall by 'mid-single digits' this year, when some brokers were predicting a rise.

Garnier played up the potential of new drugs such as cervical cancer inoculation Cervarix and Avodart for male prostate problems.