GlaxoSmithKline hits targets, earnings could slip due to generic rival

GlaxoSmithKline hit its full year earnings target on Wednesday but said growth in 2017 could be severely hampered by the looming prospect of generic competition to its key Advair respiratory drug.

The group said US sales of Advair could decline by as much as 45% to £1bn at constant exchange rates in the event that competition appears in mid-2017, with a "flat to a slight decline" in earnings per share.

On the other hand, guidance for core earnings in 2017 was for a rise of 5-7% at constant rate if no substitutable generic competition in launched in the year.

Currencies could also have a big effect, as if January 2017 average exchange rates are applied to the whole of 2017, it would benefit sterling turnover by around 6% and core EPS by around 9%.

"Clearly, this year we face some uncertainty as to the level of our earnings performance, given the possibility of substitutable generic competition to Advair in the US, and this is reflected in the guidance we have issued today," said chief executive Andrew Witty, who is due to retire next month.

"This event is something we have anticipated and prepared for, and whilst there will be an inevitable financial impact to absorb, we fully expect to maintain leadership in this therapy area given our new product portfolio and the innovation we have in our pipeline."

GSK is expecting regulatory decisions on four major potential products this year - Shingrix, Closed Triple, Benlysta SC and sirukumab - which leaves the mid-term financial outlook unchanged.

Important clinical data read-outs are also anticipated for 20-30 assets in HIV, respiratory, immuno-inflammation, oncology and vaccines.

Calendar 2016 numbers generally were in line or ahead of forecasts, with revenues of £27.9bn 17% higher than the prior year in sterling terms and 6% at constant exchange rates, with pharmaceuticals up 3%, vaccines up 14% and consumer healthcare up 9%.

Core operating profits of £7.77bn rose 36% to thanks to sterling's weakness or 14% if excluding FX, with core earnings per share up 35% to 102.4p, or 12% if ignoring currencies.

A fourth-quarter dividend of 23p was declared, resulting in a total dividend for 2016 of 80p, with management saying they continued to expect an 80p dividend for 2017.

New product sales more than doubled to £4.5bn, representing 24% of drug sales and 27% of fourth quarter sales, with the drive coming from HIV drugs Tivicay and Triumeq; respiratory treatments Relvar/Breo, Anoro, Incruse and Nucala; and meningitis vaccines Bexsero and Menveo.

Having opened at 1,556p, shares in GSK dropped as low as 1,517.5p straight after the results were posted on Wednesday afternoon, before settling down around 1% at close to 1,544p.

Analyst Nicholas Hyett at Hargreaves Lansdown said the consensus-beating results were overshadowed by the comments around the potential generic impact.

"However, that headwind has been a long time coming. The group has been developing a new batch of drugs to help it bridge the gap and they’ve been growing strongly so far.

"Longer term, the group is looking to reduce its reliance on the volatile world of blockbuster pharmaceuticals, turning its attention to the more stable consumer and vaccine businesses – they’re small at the moment, but are growing steadily and should boost confidence in the long term."