The prospects for the troubled Anglo-American giant GlaxoSmithKline may be changing after a storm of patent expiry threats, senior executive departures and plummeting investor confidence in 2002.

GSK is trading at around £12, well down from almost £18 a year ago, as the company battles to prevent generic competition for its two biggest drugs, antidepressant Paxil (Seroxat) and antibiotic Augmentin from eroding sales.

But investment bank Goldman Sachs believes GSK market valuation fails to take into account the company's "Strong management" and the 10% growth of products not at risk from generic competition, which generate 78% of sales.

It says GSK high-profile patent expiries have obscured promising indicators such as the double-digit growth in drugs not threatened from generics and an aggressive in-licensing strategy.

Goldman Sachs forecasts that by 2004 GSK should have absorbed most of its patent expiries and be less affected than other companies, with less than 5% of its sales affected between 2004-8.

Augmentin lost patent protection in May last year, while GSK is currently embroiled in several lawsuits over the validity of various core Paxil patents with Canadian company Apotex. A US judge recently passed a summary judgement on four patent challenges to the antidepressant, one in favour of each company and two split decisions.

Line extensions to these two drugs could, however, reduce the generic threat further, says Goldman Sachs. Augmentin ES and XR have gained 25% of new prescriptions for both branded and generic Augmentin in the US while Paxil CR has gained 31% of new Paxil subscriptions since April 2002. Sales of these extensions could reach an estimated $500 million by the end of the year.

The company has also suffered with the controversy of a proposed huge pay deal for Chief Executive Jean-Pierre Garnier, though it was forced to back down last month after widespread shareholder criticism.

Mr Garnier has since hit back, saying the new £11 million remuneration deal was part of a wider package to bring the company senior executives more in line with US rivals such as Merck and Pfizer.

Goldman Sachs remains upbeat about GSK much-maligned pipeline. Late-stage compounds due out in 2003-4 include cancer drug Bexxar, which recently received strong support from the FDA Oncologic Drugs Advisory Committee, erectile dysfunction treatment Levitra, COPD drug Ariflo, HIV inhibitor GW433908 and Alvimopan for post-operative bowel paralysis.

Major line extensions include Advair (for COPD and paediatric use), Lamictal (bipolar depression), Valtrex (oral, once-daily cold sore treatment) and an extended release version of antidepressant Wellbutrin.

The company has 51 new chemical entities in phase I/II trials, and a further 20 more should pass the proof of concept stage this year.

Mr Garnier and senior executives will host an R&D update towards the end of the year, following its cancellation last November because of a lack of good news.

GSK has also agreed a $545 million in-licensing deal with the private US company Theravance for several respiratory drugs, and has now made over 20 in-licensing deals over the last two years.

Two of these long-acting beta-2 agonists are in phase I trials, leading some analysts to comment on the expense of the deal, though the potential of these drugs for a once-daily dosing regime, rather than twice daily for many similar drugs, is attractive.

Theravance will receive an upfront payment of $50 million with further payments of $495 million, depending on development and commercialisation milestones.

Tachi Yamada, Chairman of GSK R&D, said the deal would help the company to maintain its leading role in the respiratory field, building on products such as Flixotide, Seretide, Serevent and Ventolin.

World-wide pharma sales for the third quarter of 2002 rose 6% to £4.3 billion, with 9% growth in the US. Earnings per share performed better, rising 15%. CNS was the leading therapy area with 21% growth to £1.1 billion with respiratory up 11% to £922 million.

pharmafocus@pharmafile.co.uk