The US Food and Drug Administration (FDA) recently issued a warning regarding the possibility of rare cases of liver injury occurring with the use of weight loss drugs Xenical and Alli. While Roche’s (RHHBY) Xenical is available only by prescription, GlaxoSmithKline’s (GSK) Alli is available as an over-the-counter (OTC) medicine.

Both Xenical and Alli contain the same active ingredient, orlistat, albeit in different strengths. While Xenical contains 120mg of orlistat, Alli contains 60mg of orlistat.

The FDA’s warning is based on a review of 13 cases of liver injury that were detected in people taking orlistat. 12 of these cases were reported from outside the U.S. According to the FDA, about 40 million people have taken either Xenical or Alli worldwide.

Although the FDA said that no direct causal effect has been established between severe liver injury and the use of orlistat, the agency has nevertheless recommended changes in the product labels of Xenical and Alli.

The FDA recently approved a revised label for Xenical which includes safety information regarding the cases of severe liver injury that have been associated with the use of the drug. The agency is currently working with Glaxo on a revised label for Alli. The inclusion of warnings could have a negative impact on Alli sales.

Alli, which was launched in the U.S. in 2007 and in Europe in 2009, was a major contributor to Glaxo’s over-the-counter segment sales in 2009. Alli is currently approved in 38 countries and posted sales of $317 million in 2009.

We currently have a Neutral recommendation on Glaxo. The consumer side of the business is performing well and should help drive top-line growth. Moreover, the company’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 the company’s progress with its late-stage pipeline.
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