* China sales slump 61 percent as doctors shun GSK products
* Too early to quantify long-term impact of corruption probe
* Worldwide Q3 sales 6.51 bln pounds vs consensus 6.65 bln
* Q3 core EPS 28.9p vs 27.2p, helped by cost controls
By Ben Hirschler
LONDON, Oct 23 GlaxoSmithKline's drug
sales in China slumped 61 percent in the third quarter, hit by a
bribery scandal that damaged its ability to market products in
the country and pushed some sales into the hands of rivals.
Chief Executive Andrew Witty said GSK's China business had
suffered most where other drug options were available - as with
its top-selling lung medicine Advair/Seretide, for which
AstraZeneca's Symbicort is an alternative treatment.
The fall in Chinese sales, described by Deutsche Bank
analysts as "dire", was steeper than investors expected and
Witty told reporters it was too early to say when business might
recover from the Chinese-government probe into allegations that
GSK had bribed doctors to boost drug sales.
GSK could also end up facing hefty fines, although Witty
said he believed existing legal provisions were sufficient - and
he stressed there was "absolutely no question" of GSK pulling
out of China.
"We are totally committed to China," he told reporters in a
conference call on Wednesday. "This is a very important business
to GSK. China is a critically important country of the future."
Although Britain's biggest drugmaker generates less than 4
percent of its sales in China, it has invested heavily in the
country, where it employs 7,000 staff and has five factories and
a research centre.
Worldwide, GSK's sales were flat at 6.51 billion pounds
($10.6 billion) in the quarter, generating core earnings per
share (EPS) of 28.9 pence, 10 percent higher than a year ago.
Analysts, on average, had forecast sales of 6.65 billion
pounds and core EPS, which excludes certain items, of 27.2p,
according to Thomson Reuters.
The higher-than-expected earnings number reflected lower
costs, including reductions in spending on research and
development (R&D) as several expensive late-stage clinical
trials reached a conclusion. Witty said the trend of lower R&D
costs was likely to continue into 2014.
GSK also made savings on post-retirement healthcare benefits
for its staff.
The sales shortfall, however, knocked the shares 2 percent
lower by 1330 GMT in a flat European sector for healthcare
The company reiterated that it expected sales growth for the
year to be around 1 percent in local currency terms, with EPS
rising by between 3 and 4 percent.
GSK's reputation has been tarnished and its management team
in China left in disarray by Chinese police allegations in July
that it funnelled up to 3 billion yuan ($490 million) to travel
agencies to facilitate bribes to doctors and officials.
Industry insiders and analysts had been expecting that the
police probe - one of Beijing's biggest into a foreign company -
would dent sales significantly in the three months to September,
perhaps by around 30 percent.
In the event, Chinese sales of pharmaceuticals and vaccines
were down 61 percent in the quarter to 77 million pounds.
Other multinational drug companies are also being
investigated but GSK has suffered the most damage from the
scandal as many Chinese doctors have shunned its sales
Swiss rivals Roche and Novartis, by
contrast, both saw continued growth in their Chinese drug sales
in the third quarter.
Although China accounted for only 3.6 percent of GSK's
global drug sales last year, the company has been investing
heavily in the country. Before the scandal, GSK's China sales
rose 14 percent year-on-year in the three months to end-June.
Emerging markets are an important plank of Witty's growth
strategy as he grapples with slower uptake of GSK's products in
the developed world.
GSK has recently seen some encouraging progress with its
pipeline of new drugs - including approvals this year for new
treatments for lung disease, cancer and HIV - but austerity
pressures in Europe remain a drag on sales and profits.
Traditionally, GSK has been particularly strong in
respiratory medicine and analysts at Berenberg Bank said the
commercial roll-out of its new lung drug Breo in the United
States last week should reassure investors.