Glaxo hopes profit improvement continues with R&D and sales changes

GlaxoSmithKline reported Tuesday that it improved its profits for all of 2011, including the fourth quarter, compared with the same periods in 2010 because of savings from restructuring of the company.

Glaxo is based in London, but has about 5000 employees in the Philadelphia area, with 1300 in Center City, though that group will move to the Navy Yard when a new building is completed.

The company reported its results in British pounds, but with the conversion to dollars, Glaxo said it made $8.3 billion in net profit in 2011 after making $2.6 billion in 2010. It reported a net profit of $1.98 billion for the fourth quarter after a net loss of $1.1 billion in the fourth quarter of 2010.

Sales revenue dipped in the fourth quarter and for all of 2011 compared to 2010. The 2011 full-year revenue was $43.4 billion compared to just shy of $45 billion in 2010.

Glaxo chief executive officer Andrew Witty said he is optimistic that new drugs in the later stages of the pipeline and new approaches to research and development will yield profits in the next few years. The company also reduced and changed the focus of its sales force in the last few years. It announced no new layoffs Tuesday. Indeed, it might add a few spots to some facilities in the United Kingdom.

Much of the profit and emphasis has shifted from the United States and Europe to emerging markets, but challenges can arise in those areas, too. Witty noted that governments in Turkey and Russia were pushing down the price of drugs.

"Three and a half years ago, we set out to fundamentally change GSK to create a more balanced business capable of addressing the market challenges we face, delivering sustainable financial performance and providing new value to patients and consumers. Our record in 2011 demonstrates that we are succeeding," Witty said in a statement.

The company said it would increase its share buy-back program.

The company refers to "underlying sales growth" of 4 percent, which excludes the decreases in revenue related to some pandemic flu medicines, the patent expiration of the herpes medication Valtrex and the departure of diabetes drug Avandia. Avandia was pulled from the market amid problems with the drug and litigation has been going for several years.

In 2010, the company set aside $3.4 billion to cover Avandia litigation. It also announced that it reached a tentative and general settlement with the U.S. Justice Department over illegal marketing of drugs, including Avandia. The company said the specifics regarding criminal and civil charges had not been finalized but that the cash settlement involves a payment of $3 billion. The Justice Department has declined comment thus far.

"In order to maximize the operating profit, earnings and cash generated from our sales growth we remain focused on managing our cost base and improving financial efficiency throughout the organization," Witty said in the statement.

"As we have previously said, we expect the core operating margin to begin to improve gradually in 2012 with further improvement over the next two to three years. Of course the rate and the extent of this will depend on the precise mix of our businesses and the delivery rate of our pipeline which will drive sales growth in high margin innovation-led markets."