GSK's European sales suffer by 7% on pricing cascade

Once again, Europe is dragging GlaxoSmithKline ($GSK) down. And this time, the drag was worse than expected: Sales in the region dropped by 9%. Together with a 6% decline in U.S. sales on generic competition, that was enough to push overall revenues down by 5%, to £6.54 billion, or $10.3 billion.

Price cuts on the continent accounted for 7% of the regional sales drop, as countries' price-referencing triggered a downward cascade. "On Europe, in the short run, over the next quarter or two, I see no cause for optimism," CEO Andrew Witty said during the earnings call. "Could this be the new normal? I very much hope it isn't."

In the U.S., generics of Arixtra and Valtrex continued to wear away at sales, while disontinued products--Vesicare, for instance, which GSK no longer co-promotes--obviously took their toll. The cancer drugs Promacta and Votrient grew, though, at rates of 59% and 70% respectively, as did GSK's respiratory portfolio, with 4% increases each from Advair and Flovent.

Meanwhile, Japan ended a vaccination program that featured GSK's cervical-cancer shot against human papillomavirus, Cervarix, which was enough to slash sales there by one-fourth.

The company stuck to its downwardly revised forecasts for the full year, which it cut in July after reporting second-quarter results. Some causes for hope: Growth in emerging markets and newly launched drugs for cancer and heart disease, Bloomberg notes. Consumer healthcare sales also grew--if you back out the now-sold-off OTC brands--bearing out Glaxo's diversification strategy.

Witty pointed out that, if you back out some unusual effects on last year's Q3, "sales for the quarter were broadly in line with last year." In fact, Witty said he's expecting sales to grow next quarter, partly on big orders of vaccines. "[A]bsent a further deterioration in Europe," that is.

"[O]ur focus is to continue to  ... maximize growth opportunities and actively prepare for the roll-out of multiple new products," he said. "We remain confident that these new products, combined with our strengthened businesses in emerging markets and consumer healthcare ... provide GSK with clear opportunities to deliver sustained improvement in long-term financial performance."

- get the Glaxo release (PDF)
- see the Bloomberg story