GlaxoSmithKline warns over possible earnings drop this year if Advair generic launches in US

GlaxoSmithKline reported Wednesday that fourth-quarter sales increased 1 percent year-over-year to 7.6 billion pounds ($10.6 billion), topping analyst estimates of 7.5 billion pounds ($10.4 billion), while revenue from prescription drugs declined 1 percent to 4.5 billion pounds ($6.3 billion). The company added that three-monthly sales of vaccines climbed 6 percent to 1.2 billion pounds ($1.7 billion).  

CEO Emma Walmsley noted that GlaxoSmithKline "delivered encouraging results from across the company with sales growth in each of our three global businesses." In the quarter, the drugmaker posted a loss of 546 million pounds ($759 million), down from a profit of 257 million pounds ($357 million) in the prior-year period.  

Regarding individual segments, GlaxoSmithKline noted that respiratory revenue fell 1 percent to 1.9 billion pounds ($2.6 billion), as sales growth for new products, which climbed 65 percent to 599 million pounds ($833 million), was offset by decreased revenue for Advair, Flovent and Ventolin. Sales of Advair/Seretide in the three-month period dropped 19 percent to 787 million pounds ($1.1 billion). Additionally, HIV revenue was up 13 percent in the quarter to about 1.2 billion pounds ($1.7 billion), driven by increases in market share for Triumeq and Tivicay.  

Meanwhile, GlaxoSmithKline recorded 97 million pounds ($135 million) in revenue for its immuno-inflammation portfolio, reflecting a year-over-year decline of 13 percent, which the company attributed to the divestment of raxibacumab. Sales of established pharmaceuticals decreased by 9 percent to 1.4 billion pounds ($1.9 billion) due to divestitures, including the sale of the drugmaker's thrombosis and anaesthesia portfolio to Aspen Pharmacare in the first quarter of last year.

For 2017, sales rose 8 percent to 30.2 billion pounds ($42 billion), with revenue from prescription drugs up 7 percent at 17.3 billion pounds ($24 billion) and sales of vaccines rising 12 percent to 5.2 billion pounds ($7.2 billion). Meanwhile, GlaxoSmithKline recorded an annual profit of 1.5 billion pounds ($2.1 billion), higher than the 912 million pounds ($1.3 billion) seen in 2016.  

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Walmsley remarked "improving our pharmaceuticals business remains our main priority and we are strengthening our pipeline with a focus on priority assets in two current therapy areas, respiratory and HIV, and two potential areas, oncology and immuno-inflammation." The executive added "we will provide a further update to investors at Q2 on our plans for R&D."  

"Looking ahead, in 2018 we could see a potential generic version of Advair in the US and our 2018 guidance reflects this," Walmsley noted. GlaxoSmithKline said that if no substitutable generic competitor to Advair is introduced to the US this year, then earnings per share growth is expected be between 4 percent and 7 percent, on a constant exchange rate basis, with sales of Advair falling by 20 percent to 25 percent. However, the company added that if a substitutable generic competitor to Advair is launched in the US mid-year, then earnings per share will be flat to down 3 percent, with annual Advair sales in the country of around 750 million pounds ($1 billion), versus 1.6 billion pounds ($2.2 billion) in 2017.

"Given the momentum we are seeing in our new products and recent launches, the performance improvements we are driving and the benefit of US tax reform, we are increasingly confident in our ability to drive growth over the next few years," Walmsley said. GlaxoSmithKline indicated that its effective tax rate for 2018 is expected to be approximately 19 percent to 20 percent following recent changes to US tax laws.  

Earlier this week, sources suggested that GlaxoSmithKline was one of only two companies to submit offers for Pfizer's consumer health business. Walmsley previously acknowledged that GlaxoSmithKline was interested in the unit, but vowed not to overspend to acquire it. The executive said Wednesday that a large consumer health 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."

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