GlaxoSmithKline Sees Light at End of Advair Tunnel

GlaxoSmithKline CEO, Emma Walmsley, arrives for a meeting in Downing Street in central London
GlaxoSmithKline (GSK) CEO, Emma Walmsley, arrives for a meeting in Downing Street in central London, Britain, October 9, 2017. Picture taken October 9, 2017. REUTERS/Toby Melville

By Ben Hirschler
LONDON (Reuters)

GlaxoSmithKline sees growth strengthening over the next few years as the drugmaker weathers increased competition in its core respiratory and HIV businesses that could cause earnings to dip this year

Prospects hinge on the timing of generic copies of its blockbuster lung inhaler Advair arriving in the United States. Copycats failed to hurt 2017 earnings after U.S. regulators knocked back applications, but their impact is widely expected to be felt this year.

Despite this threat and looming competition from a new Gilead Sciences HIV drug, Chief Executive Emma Walmsley is more optimistic GSK will deliver on a promise of mid to high single digit earnings growth in the five years to 2020.



“Given the momentum we are seeing in our new products and recent launches, the performance improvements we are driving and the benefit of U.S. tax reform, we are increasingly confident in our ability to drive growth over the next few years,” she said.

Walmsley, who took over 10 months ago, is battling to rebuild GSK’s drug pipeline by refocusing its research and appointing heavyweight outsiders, such as veteran Roche  scientist Hal Barron.

Still, the stock has underperformed the European healthcare sector by 20 percent during her tenure and Walmsley’s decision to look at Pfizer‘s  consumer healthcare business – a potential $20 billion deal – has unnerved investors.

GSK shares traded 3.5 percent higher at 1525 GMT on Wednesday.



GSK is in the running to buy the Pfizer operation, according to sources familiar with the matter.

Investors are worried a large acquisition could strain GSK’s ability to maintain its current 80p a share dividend. The company reiterated on Wednesday it continued to expect to pay 80p in 2018 but it has not made concrete commitments for 2019.



Ketan Patel, co-manager of the Amity UK fund at EdenTree Investment Management, said a potential bid for Pfizer’s consumer healthcare assets was a concern but he welcomed a small decline in group debt, given anxieties about GSK’s dividend, which currently yields more than 6 percent.

Walmsley declined to comment specifically on Pfizer, when asked by reporters, and said a big consumer acquisition was “not a need to have”, although “you would expect us to take a serious look at any leading and very appealing assets in the sector”.

She added: “We know the dividend matters to our shareholders.”



After growing adjusted earnings per share (EPS) 4 percent in 2017, at constant exchange rates, GSK sees them flat to down 3 percent in 2018, if generic Advair launches in the U.S market by mid-year. Without generics, earnings would be up 4 to 7 percent.

In sterling terms that would translate into a bigger decline, given an expected 4 to 6 percent negative currency effect, which analysts said would drag EPS down to the lower end of market forecasts.

GSK reported fourth-quarter adjusted EPS of 27.2 pence on sales of 7.64 billion pounds ($10.61 billion). Analysts, on average, had forecast 26.0p and 7.49 billion pounds, according to Thomson Reuters data.



Last year GSK won approval for three significant new products – a shingles vaccine, a three-in-one lung inhaler and a two-drug HIV combination – but its research labs need to do more to refill a relatively sparse medicine cabinet.

Walmsley said investing in pharma R&D, including potential biotech acquisitions, was a priority. Head of pharmaceuticals Luke Miels told Reuters in December that GSK would scout for deals as it seeks to rebuild its presence in oncology.

GSK has long been Britain’s biggest drugmaker but after many years in which the shares have largely moved sideways, smaller rival AstraZeneca  has almost closed the gap in terms of market value.


(Additional reporting by Simon Jessop; Graphic by Ritvik Carvalho; Editing by Keith Weir)