GlaxoSmithKline's U.S. operation is being restructured to suit a pharmaceutical environment that is changing significantly, CEO Andrew Witty told investors during a third-quarter conference call Oct. 22.

To compete effectively in the future will require enhancements to existing skills, and not just because of the slowing market, he said. "The ultra-high frequency model of the selling environment, which has clearly been a feature of the last 15 years ... I'm not convinced is a sustainable way forward." The company's product portfolio is changing, as it reduces focus on older products and offers an expanded range of new products, he said.

While he did not offer details about the new structure, Witty said, "A lot of work is going on in this area." He said he is spending most of his time in the U.S. and "looking at everything" there, not just the selling model, to ensure that the company has the right organization and capabilities. Relationships with payers in the U.S. also need to evolve, for example, in order to ensure rapid access to the market.

GSK is the latest big pharmaceutical company to undertake a reorganization of U.S. operations in the face of a challenging and shifting selling environment. Merck & Co., Schering-Plough, and other companies have also recently announced changes in their commercial operations and sales force reductions. The companies are intent on reducing the size of their enormous primary care sales forces as they focus increasingly on products aimed at specialist markets and grapple with fundamental changes in the U.S. marketplace, including tighter reimbursement, greater emphasis on safety and a move to targeted therapies.

GSK's third-quarter U.S. sales fell 13 percent to £2.1 billion, as a result of generic competition, the company said. European sales grew 6 percent to £1.6 billion, while emerging market sales grew 9 percent to £581 million. Pharmaceuticals overall declined 4 percent to £4.9 billion year on year.

"This quarter clearly demonstrates the very considerable transition occurring in our portfolio as several brands face generic competition in the U.S. and our sales of Avandia continue to erode," Witty said. The outlook for Avandia, GSK's one-time blockbuster diabetes drug, remains grim; sales declined 23 percent over the same quarter last year, impacted by ongoing controversy surrounding its use.

Anti-epilepsy therapy Lamictal (lamotrigine) sales dropped 59 percent to £136 million as competing generics entered the U.S. market in July. Additionally, sales of anti-depressant Wellbutrin (bupropion extended-release tablets), were down 67 percent to £53 million and sales of the beta-blocker Coreg IR (carvedilol) fell 93 percent to £9 million, as both drugs continued to take a hit from generics launched in the U.S. in the past 12 months.

"All of these have been expected, but I think it's just worth noting that these products, at their peak, were generating almost £3 billion of annual sales," Witty said. "So it just gives you a context of how much genericization impact there really is and why it's appropriate, I think, for us to describe the period we are in now as a significant transition period for the company."

A recent surge in prescriptions for GlaxoSmithKline's largest product, the respiratory drug Advair , helped offset pharmaceutical sales declines in the third quarter during a time of transition, execs said.

Advair (fluticasone/salmeterol) sales were up 7 percent to £982 million for the quarter - with sales up 5 percent in the U.S. to £515 million and more than doubling in Japan to £25 million. Advair, however, and other long-acting beta agonists will be the focus of an upcoming FDA advisory board meeting to review the safety of the entire therapeutic class. GSK executives offered no further details on the upcoming meeting.

GSK plans to focus efforts on maintaining late-stage activity in the pipeline, with intentions to replace successful products entering the market with a series of drugs going in to Phase III.

New data for GSK's oncology products - Tykerb (lapatinib) and Armala - as well as positive data for its refractory chronic lymphocytic leukemia drug ofatumumab signal a progressing pipeline (¹ 'The Pink Sheet,' Sept. 22, 2008, p. 25).

"While the industry may be in a particularly tough place in 2011, I believe that for GSK, that's a period where much of our genericization will be behind us," Witty projected. "So I really don't see GSK being on the same cycle as the rest of the industry."

Vaccines keep sales afloat

Furthering sales, the firm's vaccines unit, backed by newly launched Rotarix and Kinrix in the U.S., and its Consumer Healthcare businesses (up 3 percent to £994 million) experienced growth. Vaccines sales grew 12 percent to £730 million, with hepatitis vaccines up 11 percent to £174 million for the quarter.

GSK notes that competition for tender orders and supply agreements could muddy the waters for vaccine sales as the business grows. Abating such concerns, Cervarix has been successful in about 70 percent of competitive tenders, specifically in the United Kingdom where it leads the HPV program in Europe, Witty said.

GSK awaits U.S. approval for its Cervarix BLA, which received a "complete response" letter from FDA last December (² Also see "FDA Starts Process For Regulating Next-generation Vaccine Adjuvants" - Pink Sheet, 15 August, 2008.). The vaccine uses an adjuvant that is both new and includes an active ingredient, which the agency does not have a framework in place yet to regulate. Witty said the company is on track to submit the final data from its pivotal study to the FDA in the first half of 2009. The company has been generating safety data, which it is making available through online scientific publications.

Cervarix generated £4.3 million of sales for the quarter. HPV vaccine competitor Merck experienced a global drop for Gardasil sales, down 4 percent, including a 16 percent sales decline in the U.S.

Shareholders should note that GSK bought £3.3 billion worth of shares back in the past nine months and expects to purchase up to £4 billion by the end of 2008, with no significant share repurchases projected for 2009.

The firm benefited from a 9 percent positive currency impact in the quarter, anticipating an overall currency benefit of 10 percent for the full year. Gross debt was £14.2 billion as of Sept. 30, and cash and liquid investments amounted to £5.6 billion, marking an overall net debt of $8.6 billion.

-Carlene Olsen (c.olsen@elsevier.com)

GlaxoSmithKline Looks To Revamp U.S. Operations In Tough Environment

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