July 15, 2009 / 1:33 PM / 9 years ago

PREVIEW-Weak pound shields Glaxo ahead of Q4 flu booster

 * Glaxo Q2 results, July 22, 1100 GMT
 * Reported EPS seen up 10 percent, sales up 14 percent
 * Currency benefits to mask heavy generic erosion
 * Pandemic flu vaccine sales, lower costs to help in H2
 By Ben Hirschler
 LONDON, July 15 (Reuters) - Weak sterling will let GlaxoSmithKline (GSK.L) post higher earnings next week, in spite of heavy generic erosion for key drugs, as it awaits a better second half fuelled by windfall sales of pandemic flu vaccine.
 The three months to end June were always going to be tough, given the loss of patent protection on a raft of central nervous system medicines, including Lamictal, Imitrex, Wellbutrin XL and Paxil CR.
 Still, industry analysts predict earnings per share (EPS) will get a boost of around 20 percent from currency effects, turning a “down” quarter in constant currency terms into a positive one at the reported level.
 Because the world’s second biggest drugmaker sells the vast majority of its products abroad, it has gained substantially from the pound’s decline. It also benefits from having a large sterling-denominated cost base.
 A 340 million pounds ($557 million) gain from the sale of Wellbutrin XL to Biovail BVF.TO will also flatter the numbers.
 Group sales for the second quarter are seen up 14 percent with EPS rising 10 percent, according to consensus forecasts, but in constant currency terms EPS may fall more than 10 percent.
 Underlying profit margins will be down, reflecting a shift in Glaxo’s sales mix to lower-margin consumer health, and investors will be looking anxiously for any signs of consumers switching to cheaper private label non-prescription remedies.
 The group no longer provides specific short-term numerical earnings guidance, so analysts will be watching for any indications on future margin development to gauge prospects.
 Looking ahead to the rest of the year, the signs are better with cost pressures easing in the second half, year-on-year comparisons for generic erosion improving and vaccines likely to do well.
 “One source of financial upside for GSK — at least temporarily — relates to governmental orders for swine flu vaccine. Swine flu sales are currently not included in our forecasts,” said Sanford Bernstein analyst Tim Anderson.
 Analysts expect windfall orders for the company’s H1N1 swine flu vaccine, which is now in development, to be booked in the fourth quarter.
 Relenza, an inhaled flu treatment, is also set to benefit from extra demand due to the current flu pandemic. Glaxo sold most of its existing stock in the first quarter but is now ramping up production and should increase sales again in the second half.
 The table below shows analyst forecasts for Glaxo’s sales and EPS before major restructuring charges:  Q2         SALES               EPS
      (million pounds)      (pence)  Mean        6,714              29.9  Median      6,743              30.0  High        6,898              35.0  Low         6,495              26.0  Sample size 10                 10  Year ago    5,874              27.2    

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