Glaxo eyes credit crunch bargains as Q3 beats forecasts

LONDON (Reuters) - GlaxoSmithKline Plc's earnings beat analyst forecasts on Wednesday, helped by a weak pound, and the world's second biggest drugmaker said it was hunting for acquisition bargains thrown up by the credit crunch.

The fall in sterling flattered third-quarter results from the British group due to its reliance on overseas sales, softening the blow of generic competition to several older products and a further fall in sales of diabetes pill Avandia.

Earnings per share before restructuring charges rose 6 percent to 25.2 pence on sales up 7 percent at 5.88 billion pounds. Analysts polled by Thomson Reuters had on average forecast EPS of 24.3p.

Glaxo's top-selling drug Advair -- for asthma and chronic respiratory disease -- showed good growth in the third quarter while vaccine sales were stronger than expected.

Shares in Glaxo were 2 percent higher by 1245 GMT, reversing earlier losses.

The results highlight the relative resilience of large pharmaceutical companies to the economic downturn, following better than expected figures from Pfizer Inc -- the global leader -- on Tuesday.

"GSK's earnings remain defensive and relatively predictable in the context of macroeonomic uncertainty," said Deutsche Bank analyst Brian Bourdot.

"That said, the EPS decline in local currencies reflects the current struggle for growth GSK is experiencing, impacted by generic competition to leading brands."

Glaxo Chief Executive Andrew Witty said the slowdown had so far had only a minimal impact on its over-the-counter consumer healthcare business and no discernible impact on prescription drugs.

Witty stuck to his cautious full-year forecast for a mid-single-digit decline in EPS in local currencies -- but in sterling terms Glaxo should do a lot better than that.

If exchange rates were to hold at average third-quarter levels for the rest of the year, the positive impact on EPS growth for the full year would be around 10 percentage points.

Pretax profit before charges for the quarter was flat at 1.88 billion pounds.

M&A PUTS BUYBACKS ON HOLD

Glaxo increased its interim dividend to 14p a share from 13p a year ago but said it was unlikely to make significant share repurchases in 2009 after around 4 billion pounds in 2008.

Witty said buybacks were hold because recent financial turmoil was now expected to create more investment opportunities.

"In a strange way, the buyback news is positive because it means they can acquire bolt-on business, buy biotechs and expand their base in emerging markets," said WestLB analyst Simon Mather.

The British group's shares trade on just over 10 times forecast 2009 earnings, reflecting investor skepticism about a once high-flying industry sector that faces an unprecedented threat to sales as a slew of blockbusters lose patent protection over the next 5 years.

In a bid to broaden the business and reduce risk, Witty, who took over in May, is diversifying into less traditional non-pharma areas, such as consumer healthcare and selling older, cheaper products in emerging markets.

He has struck two deals in the past week that reflect the diversification trend by buying the dry mouth treatment Biotene for $170 million and snapping up Bristol-Myers Squibb Co's mature products business in Egypt for $210 million.

(Editing by Michael Kahn and Victoria Main)