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GSK inspires more confidence than shaky AstraZeneca

Published on 01/11/05 at 02:23pm

The UK's two pharma giants have posted strong growth in the third quarter, but investor doubts about AstraZeneca's long-term prospects persist.

The share price of both companies has been rising steadily over the last 12 months, but AstraZeneca saw its shares dip despite the good news.

The Anglo-Swedish company reported strong third quarter figures, with sales growth of 10%, but shaky pipeline prospects are undermining stockmarket confidence.

The company raised its full-year forecast after recording sales of $5.7 billion with a 23% increase in pre-tax profit, driven up by rising sales of ulcer treatment Nexium and schizophrenia drug Seroquel.

AstraZeneca has also overcome concerns about the side-effects of Crestor, which is performing particularly well in Europe where sales have leapt by over 50% in the past year.

Global sales rose 23% to $325 million in the quarter as it increased its share of new prescriptions from 6.8% in the all-important US market.

Lower research and development costs also helped profits, the company cutting R&D costs by 5% to $781 million in the period - a fall reflected in a reduced level of late-stage clinical trials and a concentration on productivity.

But AstraZeneca's pipeline prospects remain underwhelming. Confidence in its future was further dented by the news that two drugs have been dropped from development - one for overactive bladder and one for heart arrhythmia.

It is just the latest problem to hit the company, which has been hit by major setbacks to a number of products including once-promising Iressa and Exanta.

Recent challenges on the US patents of Seroquel and Nexium (from Teva and Ranbaxy respectively), which together accumulated $6 billion in sales in 2004, also added to investor unease about AstraZeneca's future revenues.

AstraZeneca's chief financial officer Jon Symonds has admitted the company needs to improve its pipeline and said it would look to acquiring products from other companies.

Meanwhile, GlaxoSmithKline also reported strong sales growth of 9% in the quarter, but says its current R&D spending - representing 17% of sales - will rise to as much as 30%, in its pursuit of truly innovative medicines.

Chief executive Jean-Pierre Garnier said: "GSK is facing the future with confidence - today we are raising our earnings guidance for 2005 and confirming that we will review our promising oncology portfolio at an R&D seminar in November."

Its performance was driven by diabetes treatments Avandia and Avandamet, which reported a sales leap of 22% to 355 million, and asthma treatment Seretide, with a 20% sales increase to 737 million, in the quarter.

GSK recorded third quarter sales of 5.4 billion, with a 21% increase in pre-tax profits to 1.7 billion. Its 11% increase in US sales was its strongest since the last quarter of 2003, when generic competition hit its antidepressant, Paxil/Seroxat.

The company's vaccine franchise also performed well, with a 20% sales rise to 399 million, boosted by two new launches, whooping cough vaccine Boostrix and influenza vaccine Fluarix.

Meanwhile, the global bird flu scare is further boosting GSK's vaccine franchise. The company plans to convert more of its manufacturing capabilities to produce a pandemic flu vaccine as well as extending manufacturing capacity for antiviral Relenza.

GSK expects to launch a number of products in the next 12 to 18 months, including cervical cancer vaccine Cervarix. Garnier claims it will be the biggest-selling vaccine ever - though Merck look set to reach market first with its rival vaccine Gardasil.

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