U.K.’s biggest drug maker GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK) trimmed its 2014 earnings outlook as it posted a double-digit slump in profits for the second quarter. The strong pound also took a bite out of its growth.
Moreover, the pharma giant is facing a wide-ranging corruption investigation in China, where its sales dropped over 17% compared to last year.
GlaxoSmithKline’s earnings warning
Unveiling its second quarter results, GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK) said 2014 earnings per share looked set to be broadly similar to last year, compared with its previous forecast for growth of 4-8%. Moreover, the London-based company said sales are unlikely to increase.
Sales of its best-selling medicine Advair dropped 12% in the three months to the end of June, on top of the 15% drop witnessed in the first quarter. Advair accounts for about a fifth of GSK’s revenues.
Its pre-tax profits dropped to £ 986 million from £1.29 billion booked last year. GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK)’s earnings per-share also dropped 12% to 19.1p. Significantly, when not adjusted for the sterling appreciation, the decline totaled 25%. Its quarterly sales came in at £5.56 billion.
In contrast, consensus analyst estimates anticipated second-quarter revenues of £5.9 billion and earnings per-share of 22p.
Reflecting the poor showing, shares in the company dropped over 6% by 1300 GMT (9.00 a.m. EDT), marking the biggest drop in a single day since 2008.
GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK)’s CEO Sir Andrew Witty said the group was in a period of transition as it introduced new respiratory products to offset the decline in sales of Advair.
Grappling with China bribery scandal
Last year, Chinese state media accused the British pharmaceutical giant of bribery, saying the firm was responsible and not just individual employees. Police have accused GlaxoSmithKline plc (ADR) (NYSE:GSK) (LON:GSK) staff of offering doctors bribes to prescribe its products. The bribery case has hit GSK’s sales in China, as buyers have shied away from doing business with the company and GSK itself has revamped its sales and marketing model.
Echoing the problem in China, GSK’s sales in China were down by a quarter compared to the same period a year ago. The London-based company has to grapple with competition as its rival AstraZeneca plc (ADR) (NYSE:AZN) (LON:AZN)’s product Symbicort is winning business in the U.S. and further eroding its leading market position.
GSK is hoping two new inhaled respiratory medicines – Breo and Anoro – will bridge the gap, but their uptake so far has been disappointing.
The group is also confronting challenge from a major restructuring exercise after a complex deal with Novartis AG (ADR) (NYSE:NVS) (VTX:NOVN) involved swapping GSK’s oncology unit with the Swiss major’s vaccines business.