Glaxo CEO sees little risk to margins

NEW YORK (Reuters) - GlaxoSmithKline Plc (GSK.L) does not expect profit margins to slip substantially, despite an aggressive drive to diversify into areas like emerging markets and consumer health, its chief executive said on Thursday.

"I don't really anticipate huge changes going forward," Andrew Witty told the Reuters Health Summit, adding that profit levels in emerging markets are better than they might appear.

"It is by no means certain that our margins will significantly erode over time ... I feel very relaxed about the notion of having businesses at differential margins, provided they are delivering growth."

Investors have questioned Witty's strategy because of its potential to dilute profitability by focusing on activities like selling branded generic drugs in developing countries.

But Witty said it is wrong to think emerging markets are fundamentally less profitable, since selling older medicines in these countries does not involve the large research spending needed to develop new drugs for Western markets.

"A lot of people miss that," he said.

Since taking the helm at Europe's top drugmaker in May 2008, Witty has made diversification a priority to ensure more predictable long-term growth.

Emerging markets are a central plank of that and Glaxo will brief investors on its plans for this area at a December 10 seminar.

BOLT-ON DEALS

Unlike rivals such as Pfizer Inc (PFE.N) and Merck & Co Inc (MRK.N), Witty said GlaxoSmithKline has no interest in large-scale acquisitions.

He also ruled out buying a Western generics business, such as Germany's Ratiopharm, which has received interest from bidders including Sanofi-Aventis SA (SASY.PA), according to people familiar with the procedure.

Instead, any deals are likely to be focused on building up presence in emerging markets, vaccines and consumer healthcare -- although Witty acknowledged that good consumer assets are hard to find.

In common with other Big Pharma companies, Glaxo has lost sales to cheap generics recently, as patents on its older medicines expire.

As a result, less than 30 percent of sales are now generated from "white pills in Western markets" -- down from 38 percent at the time Witty took over -- and he is ready to see the percentage fall further, to between 25 and 30 percent.

He has high hopes for some modern biotech drugs, including a new treatment for lupus, Benlysta, being developed with Human Genome Sciences Inc (HGSI.O), which is set to be "a very significant medicine" for Glaxo.

A big unknown for investors is how soon the British-based group might face generic competition to its top-selling respiratory drug Advair.

Advair could encounter generic competition in the key U.S. market in 2011 -- but the drug is delivered by an inhaler, complicating matters for would-be generic producers, who also face a fight to get cheaper copies of the medicine approved as straightforward substitutes.

"It would be unwise to believe that Advair will either face generic competition very early, or that that generic competition is likely to be pure substitutable competition," Witty said.

"It's got a lot of life left in it, and I think we are going to be seeing that medicine continuing to develop and be a significant contributor to GSK for many years to come."

For the long term, Glaxo is working on a follow-up to Advair designed to "sustain our leadership" in the respiratory market, he said.

(Reporting by Ben Hirschler, editing by Matthew Lewis)