Testing Times for Glaxo's Avandia - Analyst Blog

GlaxoSmithKline, plc (GSK) recently announced that the risk-benefit profile of its diabetes drug Avandia will be reviewed by the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP). The review will be conducted from July 19 – July 22.
 
In addition to being reviewed in Europe, Glaxo’s Avandia will also be reviewed by the US Food and Drug Administration’s (FDA) advisory committees. A joint meeting will be conducted by the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee and the Drug Safety and Risk Management Advisory Committee on July 13-14. The committees will review all new and existing cardiovascular safety data on Avandia.
 
Avandia is a thiazolidinedione anti-diabetic agent indicated as an adjunct to diet and exercise to improve glycemic control in adults with type II diabetes. The product first came under fire in 2007 when the New England Journal of Medicine published an analysis of studies conducted with people who had taken Avandia.
 
According to the analysis, a higher risk of heart attack was observed in patients taking Avandia compared to patients taking other diabetes drugs or no diabetes medication. Avandia’s label was revised to include a warning regarding the potential cardiovascular risk.
 
Following the emergence of safety concerns related to the use of Avandia, Avandia/Avandamet franchise sales plunged to $1.2 billion in 2009 from $2.4 billion in 2007.
 
With safety concerns regarding the use of Avandia re-emerging, we expect Avandia/Avandamet franchise sales to decline further. The withdrawal of the product from the market or the addition of stricter warnings to the label would be a major blow for Glaxo. We note that the FDA’s advisory committees had voted 22-1 in favor of keeping Avandia on the market the last time the committees met in 2007.
 
We currently have a Neutral recommendation on Glaxo (Zacks Rank #3 - Hold). The consumer side of the business is performing well and should help drive top-line growth. Moreover, Glaxo’s diversified base and presence in different geographical areas should help support revenue growth.
 
Glaxo’s restructuring initiative should help offset the impact of increasing generic competition in the next few years and help earnings grow faster than revenues. While we remain concerned about the looming generic competition, we are pleased with Glaxo’s progress with its late-stage pipeline.
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