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Glaxo Future Hangs in Balance on 2013 U.S. Drug Approvals

January 10, 2013

Glaxo Future Seen Hanging in Balance With 2013 Approvals

The GlaxoSmithKline Plc headquarters in Brentford, U.K. Photographer: Simon Dawson/Bloomberg

It’s a make or break year for GlaxoSmithKline Plc. (GSK) The U.K.’s largest pharmaceutical company is counting on a spate of drugs winning approval this year to reverse recent setbacks and revive growth.

Glaxo needs some wins. Its shares fell 9.3 percent in 2012, compared with an 11 percent increase in the Bloomberg Europe Pharmaceutical Index. With five new medicines submitted to regulators for approval and another in the works, help is on the way, according to a top executive.

“If all six things failed and we didn’t get them we would be in a bad situation; I don’t think that’s going to happen,” Patrick Vallance, Glaxo’s head of pharmaceuticals research and development, said in an interview in San Francisco. “For the first time in 20 years, GSK could be in a real growth area.”

It’s an ambitious rollout for a single year. And the skepticism about Glaxo’s pipeline also reflects a wider problem in the drug industry. Companies have struggled to deliver on their promises to investors to develop enough new products to keep sales growing. For London-based Glaxo, that problem has been compounded because the company’s earnings disappointed investors repeatedly last year.

After sales declined 3 percent in 2011, Glaxo in July cut its forecast for 2012, saying sales would be in line with the previous year’s level. It also missed profit and revenue estimates in each of the last three quarters.

Worst Performer

“Glaxo will seal its fate in 2013,” Philippe Lanone, an analyst at Natixis Securities in Paris, said in a telephone interview. “If the new products fail to make it, the company will be in big trouble.” He has a neutral rating on the shares.

The stock’s decline last year was the worst performance among the world’s 10 biggest drugmakers. The shares sell for 11.5 times estimated earnings versus an average price-earnings ratio of 12.2 for rivals.

Glaxo has filed with regulators for approval of the lung drugs Anoro and Relvar, dolutegravir for HIV and dabrafenib and trametinib for skin cancer. The U.S. Food and Drug Administration is scheduled to make decisions on all five this year, according to data compiled by Bloomberg. The company plans to submit albiglutide for Type 2 diabetes soon.

There’s a 40 percent chance Relvar will be approved, a 70 percent chance for dolutegravir and an 85 percent likelihood for each of the skin cancer drugs, according to Deutsche Bank. The firm didn’t give odds for Anoro and albiglutide.

Big Potential

Relvar and dolutegravir have the biggest potential, while albiglutide will face challenges as it enters a “crowded area,” Vallance said.

Relvar, a follow-up to Glaxo’s best-selling respiratory drug Advair, will be differentiated from existing treatments because it’s a once-a-day medicine, he said. Advair is taken twice daily.

“The properties of the molecule and the once-a-day will lead to greater adherence and will lead to therefore much greater efficacy in the real-world setting,” Vallance said.

Still, Relvar may not be much different than Advair, Peter Verdult, an analyst at Morgan Stanley, said last month in a report. He said he also has concerns about the trial results Glaxo is depending on to win approval. Glaxo is Morgan Stanley’s least favorite stock among diversified European drugmakers. The FDA is scheduled to decide on Relvar in May.

Albiglutide, which will be filed early this year, has demonstrated mixed results, with studies showing it wasn’t more effective than Novo Nordisk A/S’s (NOVOB) Victoza in controlling blood- sugar levels, while reducing nausea and vomiting side effects. Once-weekly dosing is also an important improvement over once- daily administration, Vallance said.

Crowded Field

It’s unlikely that sales of albiglutide will reach anywhere near those of Avandia, once the world’s best-selling diabetes pill, bringing Glaxo $3 billion in annual revenue. The drug was withdrawn from the market in Europe in 2010 and sales were limited in the U.S. because of an increased risk of heart attacks. Peak sales of albiglutide may reach $800 million, Deutsche Bank AG analysts said in a report last month.

Glaxo also plans to release results from 14 late-stage clinical trials over the next two years. For 2013, analysts have highlighted darapladib for heart disease and MAGE-A3, a cancer vaccine.

Still, as drugmakers have learned in recent years, winning regulatory approval isn’t a sure thing.

“You’ve still got this legacy over the last 10 years where pipelines haven’t really delivered,” said Dan Mahony, who manages a health-care fund at Polar Capital LLP in London and owns Glaxo shares. “There’s a general amount of skepticism as to whether any of these companies are going to come up with any products.”

Early-Stage Assets

Given its optimism about new drugs, Glaxo isn’t focused on spending billions of dollars to buy experimental medicines in late stages of testing, and is instead looking mostly at deals for early-stage compounds and technologies, Vallance said.

“We have a full late-stage pipeline and I am not sure we are desperate to bring in things,” he said.

Should Glaxo’s pipeline fail to deliver as promised, the company may find itself looking for bigger acquisitions to plug a gap in sales. Glaxo Chief Executive Officer Andrew Witty said in October the company’s interest in doing acquisitions is lower than in recent years.

“This is an important reason why we haven’t been investors,” said Jose Aymami, a fund manager at Merchbanc in Barcelona. “We don’t know how they would manage this situation.”

To contact the reporters on this story: Albertina Torsoli in Paris at atorsoli@bloomberg.net; Makiko Kitamura in London at mkitamura1@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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