* 2014 EPS growth cut to "broadly flat" from 4-8 percent
* Q2 sales 5.56 bln pounds vs consensus 5.76 bln
* Q2 core EPS 19.1 pence vs consensus 21.3p
* Shares as much as 6.9 pct, biggest daily fall since 2008
(Adds further CEO, fund manager and analyst comment)
By Ben Hirschler
LONDON, July 23 GlaxoSmithKline cut its
2014 earnings outlook after sales fell by a worse-than-expected
13 percent in the second quarter as its all-important lung drugs
struggled in the United States and a strong pound took a bite
out of growth.
A run of weak results highlights the pressure on Chief
Executive Andrew Witty, whose drive to reshape Britain's biggest
drugmaker has yet to deliver the hoped-for return to sustained
revenue growth, following a lengthy period of patent expiries.
Investors are frustrated by the fact that profit growth has
been delayed year after year and GSK shares fell as much as 6.9
percent on Wednesday, the biggest daily fall since 2008, before
clawing back some losses to stand 5.2 percent lower at 1455 GMT.
The company is also mired in a serious corruption scandal in
China, where it has been accused of paying bribes to doctors to
use its medicines. Sales in China were down by a quarter
compared to the same period a year ago.
Witty told reporters he remained "very concerned" about the
allegations in China, which have damaged its business in a
fast-growing emerging market, but declined to comment further.
Investors had been braced for a tough quarter, given the
increasing competitive pressures facing GSK's 15-year-old
respiratory medicine Advair but the results were worse than
expected. Advair U.S. sales tumbled 19 percent.
The company pared its financial outlook for the full year,
predicting core earnings per share (EPS) would be "broadly
similar to 2013" in constant exchange rate terms. Previously, it
had been hoping to increase 2014 EPS by between 4 and 8 percent.
Sales growth in 2014 was "unlikely", it added.
Deutsche Bank analyst Mark Clark, with a hold rating on the
stock, said the revised guidance implied consensus 2014 earnings
forecasts for the group would have to be cut by more than 5
percent and the poor performance could call into question the
company's dividend payout ratio.
GSK said share buybacks over the rest of 2014 were likely to
be immaterial but added its dividend policy was unchanged.
A big investor concern is its reliance on the inhaled lung
drug Advair, which makes up nearly a fifth of sales. It already
faces competition from copycat versions in Europe, with generics
in the United States perhaps a couple of years away.
In addition, AstraZeneca's rival product Symbicort
is winning business in the United States and further eroding its
leading market position.
GSK hopes two new inhaled respiratory drugs - Breo and Anoro
- will fill the gap, but their uptake so far has been slow.
Witty declined to predict when GSK's growth would improve,
but he argued that the respiratory business was going through an
important period of change that would ultimately bear fruit.
"Now is the moment to start thinking about what this group
looks like post-Advair," he said. "We expect the transition of
this portfolio to continue over the next 2-3 years and remain
confident that GSK will maintain its leadership position in
respiratory well into the next decade."
Ketan Patel, senior investment analyst at Ecclesiastical
Investment Management, which holds GSK shares, said he believed
GSK would overcome its challenges in the long term - and in the
meantime the stock was offering an attractive 6 percent yield.
But many analysts remain sceptical. "We continue to look for
credible evidence that GSK's conviction in the growth potential
of its respiratory franchise is warranted given its importance
to the company's long-term pharma strategy," said Leerink
analyst Seamus Fernandez, who rates GSK shares market perform.
Quarterly sales totalled 5.56 billion pounds ($9.48
billion), generating pretax profits of 986 million, down from
1.29 billion a year earlier. Core EPS - the measure most
followed by investors - fell 25 percent to 19.1 pence, with the
results depressed by the strength of the pound versus other
Analysts, on average, had forecast sales of 5.76 billion
pounds and core EPS, which excludes certain items, of 21.3
pence, according to Thomson Reuters.
Although it has put the worst of its patent losses behind
it, GSK still faces challenges in some areas, including the
earlier-than-expected launch of a generic version of heart pill
Lovaza in the U.S. market in April.
The company's HIV business was a rare bright spot in the
quarter, showing growth of 13 percent thanks to strong uptake of
its recently launched drug Tivicay.
Witty joined the deal-making bandwagon sweeping the
healthcare sector in April by trading more than $20 billion of
assets with Swiss rival Novartis in a complex
three-part transaction designed to make the group more focused.
But the GSK boss has eschewed full-scale mega-mergers,
arguing they are distracting and disruptive to the company's
research and development activities.
He has opted instead for a strategy of focusing GSK's
portfolio, with the next step in the process involving the sale
of a number of older drugs that are marketed in North America
and Western Europe with annual sales of around 1 billion pounds.
Witty said there had been "very significant" interest from
mid-sized pharmaceutical companies and private equity firms in
these products and he hoped to conclude a sale by the end of the
Reuters reported exclusively on Tuesday that Indian generics
firm Lupin, some U.S. drugmakers looking for a
tax-saving deal in Europe and private equity funds were all
planning to bid for the drugs.
($1 = 0.5865 British Pounds)
(Additional reporting by Francesco Canepa; Editing by Elaine
Hardcastle and Pravin Char)