We must diversify, says new Glaxo boss

The new head of GlaxoSmithKline today said the drug giant must change to survive the growing threat of generic competition for its leading products.

Andrew Witty, who became chief executive in May, wants to create a more diversified global business to reduce GSK's dependence on a small number of drugs, boost productivity, and create a more cost-efficient company.

"It is clear that GSK must change if it is to be successful in the future," Mr Witty said.

His comments came as the group posted pre-tax profits of £1.84m (€2.33m) in the three months to June 30, 3% below last year.

Revenues were also 2% lower at £5.87bn (€7.4bn) after lower sales of diabetes treatment Avandia - hit by a health scare last year - as well as generic rivals to its drugs in the US.

Mr Witty, who has taken over from long-serving chief executive Jean-Pierre Garnier, said the pharmaceutical sector faced "immense challenges" as the demand for better and cheaper medicines added to the pressure from copied treatments.

He said GSK would look to make new investments in fast-growing areas such as vaccines and consumer healthcare products.

GSK would grow its presence in emerging markets to expand its geographical footprint, through moves such as a tie-up with South African pharmaceuticals firm Aspen announced today.

The company added that as much as 50% of its new drugs could come from outside the business in the future, as it externalises more of its research and development work to reduce the risk and expenditure involved in developing new treatments.

GSK, which employs around 100,000 people in more than 100 countries, saw shares fall around 3% following the update as investors were underwhelmed by the group's results and its strategic update.

Keith Bowman, equity analyst at stockbrokers Hargreaves Lansdown, said: "GSK continues to entice investors with the possibility of potential new drugs and a growing focus on the emerging markets but, for now, underlying trading continues to deteriorate."

GSK's biggest seller, asthma drug Seretide/Advair saw a 6% rise to sales to £964m (€1.22bn), but sales of Avandia fell by 46% to £194m (€245.9m) over the quarter.

The largest decline was seen in the US market, where sales slipped by more than half to £104m (€131.8m).

Mr Witty admitted the outlook for the future performance of Avandia remained "uncertain" but said there was independent long-term data to support it as a diabetes treatment.

Hypertension treatment Coreg, meanwhile, was hardest hit by generic competition as sales slumped 97% to just £5m (€6.3m). Depression drug Wellbutrin was 27% lower at £97m (€122.9m).