Glaxo becomes swine flu victim

As the biggest gainer from the H1N1 swine flu pandemic, GlaxoSmithKline now has most to lose as countries cut back their orders.

While supplies already shipped in 2009 look safe, the British drugmaker will make less money than expected from its Pandemrix shot in 2010. It also faces weaker demand for flu treatment Relenza as swine flu concerns wane.

At the same time, sales of herpes drug Valtrex are plunging after its US patent expired last month, spelling a tough year ahead for Glaxo, which is trying to reduce its traditional reliance on sales of prescription products in Western markets.

Consensus forecasts point to a meagre 1 percent uptick in earnings per share this year, following impressive growth of 14 percent forecast for 2009, according to Thomson Reuters.

But even that may be optimistic in the light of recent H1N1 order cuts. Germany this week reduced its order by 30 percent, costing Glaxo 133 ($NZ265.68)  million euros in lost sales, and France is looking to cancel half its vaccine supply.

Glaxo is also discussing reductions with Britain, Spain, the Netherlands and Belgium as health authorities around the world face oversupply caused by slow public uptake and the fact most people need only one dose, not two.

Analysts at Credit Suisse believe Glaxo earnings will be at best flat in 2010, as rivals grow profits by an average of more than 5 percent, while Deutsche Bank sees a 2 percent decline.

Glaxo has been coy about flu sales since reporting orders for 440 million doses back in October, but plans to give an update on shipments before the end of this month.

Glaxo Chief Executive Andrew Witty said in October that analyst forecasts for around 1 ($NZ2.21)  billion pounds of of H1N1 vaccine sales in the fourth quarter of 2009 were ``pretty close to being right'' and the market has been expecting similar sales for the first part of 2010.

Those figures now look too high and Credit Suisse has reduced its forecast for 2009 and 2010 H1N1 vaccine sales by $US800 million.

Some of the European cuts may be offset by sales to poorer countries but average prices may be significantly lower.

Witty said this week it was not unreasonable for governments that had ``moved quickly'' on the pandemic to now reduce orders as H1N1 proved less deadly than feared.

In practice, Glaxo _ along with rival suppliers like Sanofi-Aventis and Novartis _ may have little choice but to cut a deal on reducing contract volumes.

``Glaxo has to be a good corporate citizen. They have benefited from a big surge of orders in the fourth quarter and clearly they have to be responsive to their customers when things go the other way,'' said Mark Clark of Deutsche Bank.

Drugmakers also need to to protect their fragile reputation as a political row bubbles over accusations that governments were overly influenced by industry in buying vaccines.

World Health Organisation flu expert Keiji Fukuda said it was unfair to second-guess such stockpiling decisions.

``If the pandemic virus changes and we begin to see much more serious illness from infections, it is quite possible that countries will also be asked why they didn't buy more vaccine,'' he said.

Shares in Glaxo sank to a fresh six-week low on Thursday on continuing concerns about H1N1 contracts, before rallying.

But the stock is a lot more than a play on swine flu.

The widely anticipated arrival of generic Valtrex is another big issue for in 2010, with sales of the drug forecast to plummet from $US2.25 billion last year to just $US782 million, according to Thomson Pharma consensus forecasts.

The impact on the bottom line will be even greater, since Valtrex has been hugely profitable drug, with estimated 2009 pretax margins of 74 percent, according to Sanford Bernstein.

Two other drugs will also overshadow prospects in 2010.

On the downside, Novartis unit Sandoz, working with Vectura , could file for approval of a generic version of Glaxo's top lung drug Advair in the first half of the year, although analysts don't see a fully substitutable generic any time soon.

On the upside, Glaxo and partner Human Genome Sciences expect to submit their experimental lupus drug Benlysta for US approval in the first half of this year.

- Reuters