Advair Generic Looms, But GSK Says Growth Will Return Regardless

CEO Andrew Witty reconfirmed that GSK’s respiratory business will return to growth in 2016 and said the company’s five-year outlook does not depend on the timing of a generic Advair. Mylan recently filed what is believed to be the first ANDA for a generic Advair Diskus in the US.

The clock appears to be ticking for GlaxoSmithKline PLC on the time it has left to enjoy exclusivity on its blockbuster asthma medication Advair Diskus in the US, but CEO Andrew Witty insisted during the company’s fourth quarter and year-end financial call Feb. 3 that GSK’s five-year outlook is not contingent on the timing of a generic launch.

“It may come in ’17. It may not come in ’17,” Witty said of the generic threat. “Our framework of what we’ve laid out over the next five years is regardless of whether it’s ’17, ’18 or not,” he added.

GSK provided mid-range guidance to investors last year, vowing that pharmaceutical sales will grow at a compound annual growth rate of low single digits from 2016 to 2020 and that consolidated revenue will grow at CAGR of low-to-mid single digits over the five year period, while earnings will grow faster than sales (Also see "GSK Lays Out Five-Year Growth Strategy, Underpinned By Advair Generics" - Pink Sheet, 6 May, 2015.). The guidance took into account for the first time the possibility of an Advair generic.

GSK said it will hit a goal it set last year – for new pharmaceutical and vaccine launches to achieve £6bn in revenues by 2020 – two years earlier than anticipated, in 2018.

Nonetheless, the threat has become more real because Mylan NV announced Jan. 12 that it filed an ANDA for a generic version of Advair in the US. It is the first ANDA filing for Advair that has been publicly confirmed.

There is no guarantee FDA will approve the application, or how swiftly the agency will act. Although the patents protecting Advair and the Diskus device have expired, the drug presents high barriers to entry for generics because it is a respiratory product delivered to the lungs through a device and it combines two different drugs, the long-acting beta2 agonist salmeterol and the corticosteroid fluticasone.

The application will likely undergo significant scrutiny, although FDA released draft guidance for respiratory drugs in September 2013 outlining the recommendations for generics to demonstrate bioequivalence to Advair and signaling its interest in working with generic sponsors (Also see "Advair Generics Likely Lucrative Product For Few That Can Clear High Bar" - Pink Sheet, 16 Sep, 2013.).

“Will we go through some volatility in the year that there is, if there ever is, a generic Advair? Of course we will,” Witty acknowledged. But he pointed to Advair’s declining revenue as a positive. “Advair now is a third down from its peak,” he said, and the brand’s sales are expected to decline further in 2016, largely due to pricing pressure and the competitive environment. “Whenever [a generic] comes, the impact of that is going to be relatively limited in the group,” he added.

New Launches Accelerate

The drug is still, by far, GSK’s biggest seller, however. Sales of Advair were £3.68bn ($5.38bn) in 2015, down 13% over 2014. US sales were £1.86bn ($2.72bn), a decline of 13%.

Respiratory sales for the year declined 7% to £5.74bn ($8.41bn), with some of the decline from Advair offset by a portfolio of new products including the next-generation once-daily ICS/LABA Breo Ellipta (fluticasone/vilanterol) and Anoro Ellipta, a long-acting muscarinic antagonist (LAMA)/LABA. Breo and Anoro generated £257m ($375.8m) and £79m ($115.5m), respectively, in 2015.

The launch of new respiratory drugs has been slower than the company anticipated, with access to patients being the particular challenge, but growth has started to accelerate more recently, according to GSK. At the end of 2015, GSK also launched another respiratory drug, the interleukin-5 antibody Nucala (mepolizumab), approved to treat severe asthma in patients who have an eosinophilic phenotype (Also see "GSK To Launch Mepolizumab For Severe Asthma By Year-End" - Pink Sheet, 4 Nov, 2015.).

Respiratory sales are forecast to return to growth in 2016 led by the new launches and despite declining Advair sales.

Momentum behind the new products, combined with what GSK believes will be its ability to hold onto a “reasonable proportion” of Advair sales globally, means the company is optimistic about the overall respiratory business, Witty said. However, he noted, “We don’t have particularly rose-tinted glasses on America.”

The company did say it will hit a goal it set last year – for new pharmaceutical and vaccine launches to achieve £6bn in revenues by 2020 – two years earlier than anticipated, in 2018.

The challenging environment for pharmaceuticals, and particularly growing pricing pressure in the US, has been a big driver behind Witty’s strategy to diversify GSK further into vaccines and consumer health care, notably by swapping its oncology assets with Novartis AG’s vaccines business and forming a consumer health care joint venture in a deal that closed last year (Also see "Swapping Assets Now Down To Execution For GSK And Novartis" - Pink Sheet, 2 Mar, 2015.).

Witty stood by the three diversified platforms during the fourth quarter call when pressed by analysts about whether or not the company might consider spinning out the consumer business.

“In certain periods where people believe the US is an unstoppable train and will pay for anything, that is probably a bit less cool than in periods where you think the world is challenging,” he said. “I think as we look forward the world looks quite challenging actually and I think the model looks good.”

That said, he acknowledged that the consumer business has grown dramatically following the joint venture with Novartis and will continue growing.

“It would be disingenuous to say that that doesn’t change the optionality of the group and what you might choose to do with it,” he noted. Any big decision about how to proceed with the business is at least two or three years out, he said.

A bright spot in GSK’s pharmaceutical portfolio in 2015 was HIV and the company’s ViiV Healthcare, the joint venture with Pfizer Inc. and Shionogi & Co. Ltd. in which GSK owns a majority stake. The unit has been growing substantially, fueled by the launch of the once-daily integrase inhibitor Tivicay (dolutegravir) in 2013 and the combination pill Triumeq, which combines dolutegravir with the active ingredients in the nucleoside reverse transcriptase inhibitor Epzicom (abacavir/lamivudine).

HIV sales grew 54% to £2.32bn ($3.39bn) for the year, with US sales up 77%. Triumeq generated £730m ($1.07bn) and Tivicay sales were £588m ($858.7m). In December, ViiV agreed to buy Bristol-Myers Squibb Co.’s HIV pipeline for $350m upfront plus earn outs (Also see "Bristol Offloads HIV Pipeline To ViiV As It Tightens Focus" - Pink Sheet, 18 Dec, 2015.).

GSK’s pharmaceutical sales declined 7% to £11.84bn ($17.28bn), but consolidated revenues increased 4% to £23.92bn ($34.93bn) for the year. Operating profit for the group declined 13% to £5.73bn ($8.36bn). Despite the mixed results and sluggish pharmaceutical sales, investors reacted positively to the financial update because the results were in line with expectations.