GlaxoSmithKline saw sales fall 2% in the fourth quarter in 2003 and has warned of further erosion in the year ahead as top-earning products face generic competition.

The company says it expects earnings to remain flat until 2005, with chief executive Jean-Pierre Garnier warning: "2004 will be a year of transition for GSK. The first nine months will be challenging as we absorb the full erosion from Paxil and Wellbutrin generics."

GSK's pharmaceutical turnover rose 5% to £18.2 billion last year, held back from stronger growth by generic competition for Paxil and Augmentin. Wellbutrin, which has just begun to take a hit from generics, will add to the company's problems this year.

Sales of its second biggest brand antidepressant Paxil dropped 4% to £1.87 billion ($3.07 billion) and antibiotic Augmentin fell 29% to £825 million in 2003 as cheaper generics were launched.

The impact was most acute in the fourth quarter, when total sales fell by 2% to £4.5 billion and Paxil sales fell by 40% to £325 million. Sales excluding Augmentin and Paxil showed a healthier 9% rise.

Generic competitors to GSK third-biggest product anti-depressant Wellbutrin were launched in January 2004 and have already seized a 6% share of the total market.

Meanwhile, copies of the sustained release format of the drug (Wellbutrin SR) may also start at any time, but the company is pleased with its new patent-protected Wellbutrin XL, which now accounts for 40% of all new prescriptions for the drug.

The company's share earnings are expected to remain at 2003 levels until 2005 when the impact of generic competition lessens and the company expects earnings to start growing again.

Shares in the company fell on the news, and investors are not overly impressed with the company's late-stage pipeline. Later this year GSK plans to launch the overactive bladder treatment solifenacin with Yamanouchi, receive approval for Avandaryl, an addition to its diabetes franchise that combines Avandia with Aventis' Amaryl and launch Epivir/Ziagen, the first once-daily combination HIV/AIDS treatment in a single pill.

GSK also plans to file a number of new treatments with regulators this year. These include a monthly dosing formulation of osteoporosis drug Boniva/Bonviva co-developed with Roche, leukaemia treatment nelarabine and alvimopan, a treatment for ileus (an abdominal surgery complication) co-developed with Adolor Corporation.

GSK's biggest product, the asthma treatment Seretide/Advair, increased its sales by 39% to £2.2 billion in 2003 and is now one of the ten largest pharmaceutical brands in the world.

Diabetes products Avandia and Avandamet (Avandia plus metformin) grew 24% £931 million and will benefit in 2004 from Avandamet's December 2003 European approval.

There was further good news for the company from epilepsy treatment Lamictal and herpes treatment Valtrex. Both products showed strong growth in 2003 and are approaching blockbuster status, with sales that grew 31% to £556 million and 23% to £499 million respectively.