GlaxoSmithKline announced Thursday that third-quarter net profit fell 3.5 percent to 1.3

billion pounds ($2 billion) compared with the prior-year period, as US healthcare reform, government spending cuts in Europe, and charges related to Avandia all weighed on performance. Three-month pharmaceutical sales fell 3 percent to 5.6 billion pounds ($8.8 billion), due in part to declining revenue from Avandia and Valtrex.

CEO Andrew Witty noted that performance was also hurt by comparison to high influenza A (H1N1) pandemic product sales in the year-ago period, with overall revenue increasing by less than 1 percent to 6.8 billion pounds ($10.7 billion) but falling in line with analysts' estimates. Witty said that excluding these three factors "sales growth was around 6 percent," adding "it is worth noting that these particular headwinds will diminish rapidly over the next 12 months."

Witty said the company's strategy to diversify "is generating sustained sales growth from key investment areas," such as emerging markets, where third-quarter sales rose 14 percent to 873 million pounds ($1.4 billion). This increase partially offset losses in the US and Europe, where revenues were down 8 percent and 9 percent, respectively, to 1.9 billion pounds ($3 billion) and 1.4 billion pounds ($2.2 billion).

Healthcare reform measures in the US and Europe reduced turnover by 2 percent in the quarter, which Witty said deprived the company of 140 million pounds ($220.7 million) of sales. For the full year, Witty indicated that US healthcare reform would reduce sales by around $500 million.

In Europe, governments are reducing drug prices by around 3.5 percent this year, and will drop them by a further 5 percent in 2011, Witty said. The CEO added that some European governments are also delaying the purchase of vaccines to save money, which he indicated was concerning "not from a business perspective but from a public health perspective."

However, quarterly sales of vaccines grew 19 percent to 982 million pounds ($1.5 billion), which included 58 million pounds ($91 million) of revenue from influenza A (H1N1) pandemic vaccines. For other products, combined quarterly sales of Seretide/Advair were up 5 percent to 1.2 billion pounds ($1.9 billion) and Avodart revenue grew 16 percent to 156 million pounds ($246 million).

 Sales of Valtrex dropped 75 percent to 95 million pounds ($150 million) due to increased generic competition, and revenue from Avandia plunged 65 percent to 70 million pounds ($110 million).

GlaxoSmithKline said it recorded a charge of 147 million pounds ($232 million) in the quarter to write off supplies of the diabetes drug, which is being pulled from the market in Europe and restricted in the US due to safety concerns. The company also disclosed that it received a subpoena from the US Department of Justice regarding its development and marketing of Avandia, to which it is responding.

 The company said it has also received "civil investigative demands" from "a number of states Attorneys General offices relating to the development and marketing of Avandia." The drugmaker indicated that the "enquiries are at an early stage, and [it] is cooperating with these offices."

Looking forward, Witty said that the drugmaker "is emerging back into daylight after a very long period of time of restructuring and facing many challenges from genericisations and other pressures." However, Matrix Corporate Capital analyst, Navid Malik, said the quarterly results were not that impressive, with sales falling behind forecasts.

"They are flagging some price reductions for this year and next year which are somewhat more aggressive than we'd factored in," he added