Alli Can't Save Glaxo's 3Q Profit, Which Is Down 5.8%

Despite strong sales of over-the-counter weight-loss drug Alli, GlaxoSmithKline reported that third-quarter profit fell 5.8% as several of its drugs lost sales to the competition, including generics.

Glaxo posted net profit of $2.68 billion for the three months to Sept. 30. Revenue fell 2% to $11.02 billion, largely due to a 7% decline in turnover in the U.S., where stiffer generic competition combined with a 38% drop in sales of the Avandia family of drugs over the quarter.

Sales for Alli--which hit shelves in June and is the first and currently only OTC weight-loss drug approved by the U.S. Food and Drug administration--were in line with the drugmaker's expectations, coming in at about two million starter kits. The pharmaceutical company expects to sell between 5 million and 6 million kits annually, translating to at least $1.5 billion in annual retail sales.

For the quarter, Glaxo's Consumer Healthcare division--which includes Alli, Breathe Right* and FiberChoice--registered a 16% increase in overall sales. Within the division, sales of OTC drugs like Alli rose 24% to $853.6 million, with Alli contributing $69.6 million of that increase.



On the downside, Avandia, Glaxo's second-best-selling product last year, lost market share to Takeda Pharmaceutical Co.'s Actos. Glaxo ran into trouble in May when a report in The New England Journal of Medicine found that Avandia raised the risk of heart attacks, and possibly death. The FDA ruled in July that Avandia could remain on the market, but Glaxo agreed to label the drug with warnings about a risk of heart failure to some patients.

CEO Jean-Pierre Garnier told analysts Wednesday that the company could potentially launch up to 25 new drugs over the 2007-09 period--it has already launched five--depending on regulatory approval.

As for the continued success of Alli, while it's too early to predict how many consumers will continue using the drug--which is an OTC version of the diet drug Xenical--feedback from current users so far has been overwhelmingly positive, says Joe Cadle, marketing director for Glaxo Consumer Healthcare.

A new ad campaign for the Alli began Tuesday. The campaign features first-person accounts from 100 users who were recruited by the company to take the drug for free prior to its launch. The spots will air on network and cable television.

Glaxo is banking on Alli to become a major drug in its portfolio. The company is spending $150 million on marketing the drug this year, making it one of the drugmaker's biggest campaigns to date. Analysts say Alli's long-term success will hinge on Glaxo's ability to educate people to have realistic expectations about the diet pill. "If [the marketing is] done correctly, it has to be a long and drawn-out campaign," Steve Brozak, an analyst with WBB Securities, told the Associated Press. Glaxo's understated campaign so far is a good sign, Brozak said. But he added that there's no way to truly gauge the financial success of the drug so soon after its release.

* Editor's note: The story was amended post-publication.

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