GlaxoSmithKline, one of the world’s largest pharmaceutical firms, beat Wall Street estimates for the fourth quarter Wednesday, capping a successful year. But investors were more interested in what awaits the British company as it becomes increasingly likely that GSK’s best-seller, Advair, will be undercut by a cheaper generic as early as this year.
The company is one of the region’s largest employers, with about 3,400 in the Triangle, including 2,600 in Research Triangle Park. Advair, an asthma inhaler, is manufactured at GSK’s Zebulon facility, which employs 800 people who assemble some of the company’s strongest selling drugs behind Advair.
The U.S. patent on the Advair “Diskus” inhaler technology expired in August, and GSK’s financial modeling includes provisions for a rapid decline in Advair sales if a cheaper generic enters the market.
Company executives said that they expect robust earnings growth, ranging from 5 to 7 percent this year, if a competitor does not introduce an Advair generic. But if a generic materializes by mid-year and in sufficient supply and at a competitive price, it could cut GSK’s annual U.S revenue from Advair from $2.5 billion in 2016 to less than $1.4 billion in 2017, resulting in flat company-wide earnings or even a slight decline.
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GSK has been aggressively developing a new generation of asthma inhalers, as well as HIV treatments, to replace Advair revenue. Outgoing CEO Andrew Witty said Wednesday that the company is well-positioned for its post-Advair era.
“Anybody who’s watched this company for the last decade will know that Advair and the possibility of a generic Advair have been a little bit of an obsession,” Witty told journalists in a conference call.
Witty said flat earnings without Advair sales is a major achievement. He called it “a testament to the strength of the company we’ve built to withstand these kinds of typical events which characterize the pharmaceutical industry.”
GSK’s revenue projections without Advair’s boost mirrored those of Wall Street analysts.
“We have modeled for a long time that generic Advair will launch in the U.S. sometime in 2017,” wrote Sanford C. Bernstein analyst Tim Anderson in an email. “Their guidance around that scenario fits our forecasts.”
Ashtyn Evans, a health care analyst at the Edward Jones firm in St. Louis, Missouri, predicted GSK will adapt by shifting focus to other divisions within the company.
“With generic Advair competition coming, we think the success of new respiratory drugs will be important for Glaxo’s long-term growth,” Evans wrote. “We think the company will focus more strongly on its consumer and vaccine businesses going forward.”
GSK reported fourth quarter sales of $9.7 billion, an increase of 20.7 percent from the fourth quarter of 2015. Operating profit for the quarter was $749 million, down from $1.1 billion a year ago.
Zebulon is one of three sites globally that manufacture Advair, and GSK spokeswoman Frances DeFranco said the company would continue to make the inhaler there as well as shift resources to other products.
The Zebulon site also manufactures GSK’s new breed of asthma inhalers, including Breo Ellipta, which accounted for $269 million in sales in the fourth quarter. Zebulon also makes two HIV drugs – Tivicay and Triumeq – that together delivered more than a $1 billion in fourth-quarter sales.
“As we continue to progress transitioning our respiratory business to the new Ellipta portfolio, we expect to increase the number of Ellipta devices that are manufactured at Zebulon,” GSK said in a statement.
“We don’t know the exact timing of when and if a generic Advair will hit the market but our manufacturing site in Zebulon is flexible to transition depending on the market dynamics and what happens with Advair next year.”
Advair still represents about a fifth of GSK’s total global sales – $4.7 billion from Advair in 2016 out of $21.9 billion total sales, and $1.25 billion from Advair in the fourth quarter out of nearly $5.9 billion total for the three-month period.
GSK’s second-highest seller, Triumeq, is about half as lucrative as Advair. Triumeq generated $685 million in fourth-quarter sales and nearly $2.4 billion in annual sales globally.
Global competition has taken a toll on GSK’s local workforce, which once numbered about 6,000 in the Triangle. In recent years GSK has focused intensely on developing new revenue streams to replace Advair, and a number of the new medications are manufactured in Zebulon.
CEO Witty, who steps down in April, said the company is in good shape in a cutthroat environment “where we see more pressure on pricing, when we see more anxiety about being too dependent on one or two molecules, where the risks of R&D are just as high today as they’ve ever been in terms of potential failure.”