* U.S. Advair sales drop 20 percent, China also weak
* CEO says broad-based M&A deals "distracting"
* Q1 sales 5.61 bln pounds vs consensus 5.84 bln
* Q1 core EPS 21.0 pence vs consensus 20.7p
* Shares down 2.4 percent, underperform FTSE 100
(Adds further analyst comment, latest shares, story link)
By Ben Hirschler
LONDON, April 30 GlaxoSmithKline's sales
fell 10 percent in the first quarter as its flagship lung drug
Advair struggled in a tough U.S. market, highlighting the kind
of pricing pressures behind a wave of deals sweeping the sector.
GSK joined the deal-making bandwagon last week to trade more
than $20 billion of assets with Swiss rival Novartis,
representing the kind of targeted transaction that Chief
Executive Andrew Witty said he much preferred to mega-mergers.
U.S.-based Pfizer has rocked the industry by trying
to buy GSK's smaller British rival AstraZeneca for $100
billion, but Witty said he was just an "interested observer" in
Asked if GSK could consider a "white knight" counterbid, he
declined to comment specifically but told reporters that such
broad-based deals were "distracting".
GSK's performance in the three months ended March was
overshadowed by a 20 percent fall in sales of Advair in the
United States, after one of the country's largest healthcare
providers stopped paying for prescriptions.
Sales of its new respiratory drug Breo have also been slower
than anticipated due to delays in securing healthcare contracts
for the medicine, although GSK expects things to improve from
Alistair Campbell, an analyst at Berenberg Bank, said GSK's
reliance on Advair had long been a concern for investors, making
new lung products vital for the future, and the unimpressive
start for Breo in the U.S. market was disappointing.
GSK shares fell 2.4 percent by 1500 GMT. Deutsche Bank
analyst Mark Clark said the worse-than-expected sales
performance and the dropping of explicit sales growth guidance
would lead analysts to question their profit assumptions.
NO EXPLICIT SALES FORECAST
Reported sales in the first quarter, which were hit by the
strength of sterling, totalled 5.61 billion pounds ($9.45
billion), generating "core" earnings per share down 20 percent
at 21.0 pence.
Analysts, on average, had forecast sales of 5.84 billion
pounds and core EPS, which excludes certain items, of 20.7
pence, according to Thomson Reuters.
GSK said it still expected sales to grow over the year in
constant exchange rate terms, after a 2 percent decline on this
basis in the first quarter, but it is no longer giving a
specific figure. Previously it had predicted 2 percent growth.
The company reiterated its target of increasing 2014 EPS by
between 4 and 8 percent.
In addition to the weak Advair performance, GSK also
continued to be held back by difficulties in China, where sales
fell 20 percent from a year ago, following a damaging bribery
scandal that broke last July.
The global drugs industry is having to contend with
increasing pressure on healthcare spending, prompting a wave of
restructuring as companies seek to focus on areas of strength
and exit those where they lack the scale to compete.
CEO Witty aims to do that via his recent deal with Novartis
to sell its cancer drugs and buy most of the Swiss group's
vaccines, with the two firms also creating an $11 billion-a-year
consumer health business.
The revamp means GSK in future will get 70 percent of sales
from its franchises in respiratory medicines, HIV, vaccines and
non-prescription consumer health.
($1 = 0.5936 British Pounds)
(Editing by Mark Potter and Erica Billingham)