GlaxoSmithKline’s Andrew Witty has spent his entire CEO stint fending off concerns about the arrival of generic Advair. But on his final quarterly conference call as helmsman, he finally laid out just how much damage the company expects a knockoff can do.
If copycats don’t hit the U.S. market this year, GSK expects core earnings to grow by between 5% and 7% in 2017 at constant exchange rates. But if one hits midyear? Glaxo’s predicting core earnings to come in flat or decline by a single-digit percentage, with the respiratory behemoth posting £1 billion ($1.26 billion) in U.S. sales. For comparison's sake, Advair brought in £1.83 billion ($2.3 billion) in 2016.
After years of a reprieve from generic competitors, the arrival of a substitutable knockoff is now a “real possibility,” CFO Simon Dingemans acknowledged on the Q4 conference call. Generics giant Mylan and the Jordan-based drugmaker Hikma are expecting FDA decisions on their candidates in late March and May. Still, the “timelines for the introductions of a generic are far from clear, and its impact will depend heavily on the pricing strategy and supply capacity deployed,” he said.
And those are no small factors, Witty reminded investors. GSK, for one, needed six months to get from Advair approval to launch. And while “we’re 15, 16 years down the road” and “people are more sophisticated now,” he said, it’s “not super trivial to just produce 20 million packs of supply overnight” for a product such as Advair’s complex Diskus inhaler.
With all of that in mind, “of course it’s possible people could launch a bit earlier,” but it’s also possible they’ll launch later, Witty said. And the company took those possibilities into account when drafting its guidance number. “We think this is a reasonably simple way to pull together two or three elements of the assumption set, recognizing they won’t be right but probably covering most of the outcomes,” he noted.
Meanwhile, GSK has been readying its pharma portfolio to absorb the shock, and its new products helped it beat the Street’s revenue predictions yet again in Q4. Respiratory newcomers Breo, Anoro, Incruse and Nucala; HIV meds Tivicay and Triumeq; and meningitis vaccines Bexsero and Menveo combined for £1.4 billion ($1.75 billion) in quarterly sales, pushing Glaxo’s top-line mark to £7.59 billion ($9.51 billion) to top £7.44 billion ($9.32 billion) consensus estimates.
Per-share earnings of 26.1 pence (33 cents) also topped consensus by 4.8%, helped by a higher operating margin, Bernstein analyst Tim Anderson wrote in a Wednesday note to clients.