Avandia loss to hit GSK profits, but rivals benefit

GlaxoSmithKline's Avandia will soon be a pale shadow of its former multibillion-dollar self. Yesterday's regulatory decisions make sure of that. And now that we know its fate, it's time to re-examine the future. Two commercial questions to ponder: How will it affect GSK? And which rival drugs are likely to pick up the slack?

The company helpfully put a pencil to the Avandia-sales problem and came up with this: The drug is likely to pull in £100 million to £150 million during the second half of this year ($158 million to $236 million). That's down from £321 million in the first half. After that, the company expects "minimal annual sales." GSK's statement to that effect emphasized the fact that the drug's sales have already dropped off significantly, noting that first-half revenues were down 18 percent.

In cutting their forecasts for the company, analysts also noted that Avandia sales are already down, and given the fact that it was set to go off patent in 2012, were expected to drop even more that year. So, the biggest change in expectations comes for 2011; analysts now predict flat earnings growth next year. As Jeffries analyst Jeff Holford told Reuters, it's GSK's bottom line, rather than top-line sales, that will take the biggest hit, because Avandia's profit margin ran at about 80 percent.

Whose profits stand to gain most from Avandia's slow fade? The first logical choice would be Actos, Avandia's direct competitor in the same class of treatments. Takeda Pharmaceutical Industries issued a release yesterday, hoping to position Actos as a safer alternative to Avandia. "Although drugs may be in the same class and have the same use," the release says, "they also may have different effects due to their unique chemical structure."

At least one analyst points to Merck's Januvia as the big winner. As Forbes reports, BMO Capital Markets' Robert Hazlett figures that, post-Avandia, Januvia could climb to $6 billion in annual sales. He sees Actos as a poor second, because Januvia has fewer side effects. You can bet that all drugmakers with potential alternatives will be angling to capture any patients who switch. We'll see who wins when the numbers come in.

- see GSK's release
- get the statement from Takeda
- read the Reuters piece
- check out the Forbes post