UPDATE: GlaxoSmithKline Extends Revamp As Profits Soar

LONDON (Dow Jones)--GlaxoSmithKline PLC (GSK) Thursday met forecasts with a 32% jump in fourth-quarter net profit--inflated by pandemic flu products and higher contributions from consumer healthcare operations and emerging markets--but said it will reduce investment in some disease areas and cut more infrastructure costs and jobs as the world's second-largest drugmaker continues to diversify away from its core pharmaceutical business.

The U.K.-based drug maker, whose results were also boosted by a GBP296 million gain from spinning off its HIV activities into a joint venture with Pfizer (PFE), said it will continue to reallocate resources to fast-growing activities, notably emerging markets.

"2009 saw GSK return to sales growth and I am confident of our prospects in 2010," Chief Executive Andrew Witty said.

GlaxoSmithKline no longer provides a specific numerical outlook but Witty told reporters the company expects operating margin to remain stable in 2010 compared to 2009. Excluding legal costs and gains from the Pfizer HIV deal, operating margin was 33.7%.

Witty said "headwinds" from generic competition to former big sellers are weakening.

Herpes virus infection treatment Valtrex, epilepsy drug Lamictal and migraine-relief drug Imigran lost patent protection in 2009. Although other best-selling medicines face the same fate over the next few years--notably asthma medicine Advair--it's bringing new drugs to market. Twelve new medicines were approved in 2009 and Glaxo said it expects to launch another six over the next 18 months, including Benlysta, for lupus.

The company also announced fresh restructuring plans Thursday including reducing its R&D operations while establishing a new rare diseases unit.

Witty told reporters the bulk of Glaxo's R&D revamp will affect its neuroscience unit. He said the company will cut funding for research into conditions like depression and pain in favor of putting its resources into neurodegenerative and inflammatory diseases, like Alzheimer's.

He declined to be specific on the number of jobs cuts the company plans until after it has consulted employees. Witty did say the company would be cutting hundreds, not thousands, of jobs in the U.K., in response to recent newspaper reports there.

The move builds on far-reaching restructurings launched since Witty took over the helm two years ago. The company, which employs some 99,000 staff in more than 100 countries, has said it aims to identify GBP1.7 billion of savings every year. The latest restructuring plan aims to generate an addition GBP500 million by 2012, the company said.

In the three months to December 31, net profit soared 32% to GBP1.8 billion from GBP1.36 billion in the same year-ago period and in line with a GBP1.78 billion forecast by a survey of 13 analysts conducted by Dow Jones Newswires.

Sales rose 17% to GBP 8.09 billion, also in line with the GBP7.98 billion predicted by the Dow Jones poll, reflecting in part the weakness of sterling against most major currencies. But this effect didn't completely offset the impact of generics on GlaxoSmithKline's U.S. drug business, where sales declined 13% for the full-year.

Also weighing on earnings were GBP591 million of legal charges--GBP392 million of which were charged in the final quarter. Witty declined to be specific about what the charges related to. Glaxo is involved in several ongoiong patent disputes.

Glaxo said full-year sales of its Pandemrix pandemic flu vaccine totaled GPB883 million, higher than the company's recent guidance but below initial expectations which were subsequently tapered downwards by a relatively mild H1N1 pandemic and canceled orders from governments.

Glaxo's CEO said he expects 2010 swine flu vaccine sales to be about the same as 2009, with the bulk of the orders expected in the first quarter.

The company is paying a full-year dividend of 61 pence per share.

At 1310 GMT Glaxo shares were trading up 1.6% at 1,236 pence, in a lower London market. The stock has lost 2.5% of its value over the past 12 months.

-By Sten Stovall, Dow Jones Newswires; +44 207 842 9292; sten.stovall@dowjones.com

http://online.wsj.com/article/BT-CO-20100204-709265.html?mod=WSJ_World_MIDDLEHeadlinesEurope