Glaxo starts singing different tune on generic Advair threat

[LONDON] GlaxoSmithKline Plc signaled today that a generic competitor to its top-selling drug may be a more realistic threat in the US, changing its tune from a more skeptical pitch.

Glaxo now plans to return less money to shareholders, in part because of "uncertainties, including the possible introduction of generic Advair in the US," the London-based company said as it reported first-quarter earnings.

Chief Executive Officer Andrew Witty had repeatedly cited the difficulty of copying the inhaler that delivers the lung drug as a high hurdle for generic challengers. While rights on the medicine expired in 2010 in the US, Glaxo loses patent protection on its Diskus device next year. Mylan NV said on Tuesday it plans to file its generic Advair to US regulators by the end of the year.

"We see management's first real acknowledgment of the risk of Advair generics during this timeframe as significant given their prior stance," Jeffrey Holford, an analyst at Jefferies LLC, wrote in a note to investors.

Glaxo's change in tone was also heard by Tim Anderson, an analyst at Sanford C. Bernstein & Co.

"The company is acknowledging it has a higher chance of launching," he wrote in a note. "This has NOT been the language of the past, and it is NOT what consensus models, but it IS what we model."

Glaxo said Wednesday it will cut the amount it will return to shareholders following a transaction with Novartis AG to 1 billion pounds (US$1.53 billion) from an original plan to give back 4 billion pounds. That will help the company maintain its ordinary dividend in the face of pricing pressure on Advair and unanticipated expenses, Glaxo said.

"It's been such a big issue for our shareholders," Mr Witty told reporters in London, referring to the threat of copycat drugs. "Making sure there is a reliable, steady dividend is very important. We want to be able to cover the dividend in a year of generic Advair."

Mr Witty said Wednesday the company expects that US Advair sales will drop to less than 300 million pounds in 2020, compared with 2 billion pounds in 2014. As the drug for smokers' cough and asthma slips, Glaxo said it will maintain its ordinary dividend at 80 pence a share for the three years through 2017.

"I want you to start thinking about this company without thinking about American Advair first," the CEO told investors.

Glaxo has introduced two new lung drugs, Breo and Anoro, which will help replace lost revenue from Advair. Breo, which is used to treat chronic obstructive pulmonary disease, was cleared last week in the US to also address asthma in adults.

"With only the COPD indication, Breo could only address 50 percent of the Advair marketplace," Mr Witty said Wednesday. "Now, with the asthma indication, we can go after all of it." Successfully selling a generic version of Advair remains "very difficult and I don't know if any company can make it happen," he said. The chance there will be a copycat by 2016 in the US is "vanishingly small," he said.

Advair copies are already available in Europe and elsewhere. Novartis and Vectura Group Plc's version, called AirFluSal, has been introduced in about a dozen European countries as well as South Korea and Mexico. In the US, Advair has been losing market share to competing lung drugs such as AstraZeneca Plc's Symbicort and Merck & Co.'s Dulera.

Teva Pharmaceutical Industries Ltd. and Actavis Plc are also developing Advair copies, according to Bloomberg Intelligence analyst Sam Fazeli. While it's unclear who will get to market first, "Mylan has been the most vocal," he said.

BLOOMBERG