Glaxo to invest in diversity

By Ben Hirschler

LONDON (Reuters) - GlaxoSmithKline's (GSK.L) new chief executive set out plans to make the world's second largest drugmaker a broader business with lower costs, but kept a cautious view on short-term prospects that dented its shares.

Laying out his strategy formally for the first time on Wednesday, Andrew Witty declared his three priorities were diversification, smarter value-based drug research and a simplification of operating systems.

He said money saved from the simpler group structure would be reinvested or returned to shareholders.

But Europe's biggest drugmaker signalled the short-term focus would be on investment as the timeline for its remaining 6.5 billion-pound share buyback programme is extended beyond July 2009.

Glaxo reported second-quarter pretax profit of 2.02 billion pounds, equivalent to a better-than-expected 13 percent rise in earnings, as strong sales of vaccines and most consumer products offset tough trading in pharmaceuticals.

Deutsche Bank analysts said Glaxo had benefited from good sales of its pre-pandemic flu vaccine, which is being stockpiled by governments in the event of a human pandemic that could be triggered by bird flu.

But the group kept its full-year forecast for a mid single-digit percentage decline in underlying earnings per share (EPS), dashing hopes it might raise its guidance, and some analysts were disappointed in a meagre rise in sales of its top-selling drug, Advair for asthma.

"There's nothing in these results to encourage analysts to upgrade and therefore investors have taken an opportunity to lock in profits after a reasonably good three-month performance," said Charles Stanley analyst Jeremy Batstone-Carr.