Glaxo’s breath quickens after assault on several fronts

Coming into 2014 sellside expectations around GlaxoSmithKline made AstraZeneca look like its poor UK cousin. But seven months on it is the former whose stock has been hammered, while the latter basks in the glow of an attempted takeover by Pfizer.

Glaxo stock is off 12% year to date, including a horrific 5% fall on July 23, while Astra’s is up 21%. Most worrying is that Glaxo’s mighty respiratory portfolio suddenly looks vulnerable, prompting one bank to turn to the investigational anti-IL-5 antibody Bosatria as a possible saviour of this franchise (see table below).

It is not only in the respiratory portfolio where things have gone wrong for Glaxo. The group was having a so-so 2014, but matters came to a head last week when second-quarter sales and earnings missed forecasts and the group cut its full-year outlook on issues including exchange rate volatility and generic competition to Lovaza, as well as the distraction of a corruption probe in China.

Analyst concerns

But it is respiratory drugs that have caused the biggest concerns among analysts, and the most obvious casualty is Glaxo’s flagship product Seretide/Advair.

Though this has yet to face generic competition in the US, its second-quarter sales there slumped 19% to £528m ($896m) on pricing pressure and contract losses. Even worse is that the pressure is hitting not only Seretide/Advair but also the newer products Breo/Relvar and Anoro, the first of which is priced in line with it.

For an indication of the problem look no further than EvaluatePharma’s historic forecasts for Breo/Relvar, which reveal that consensus for 2018 revenue has fallen from $2.0bn in January to $1.4bn last month. Anoro forecasts had fared better – until the Q2 report, that is, which is prompting a fresh round of consensus cuts for both drugs.

This is due to the new products’ miserable US launches. In the second quarter Breo/Relvar sold £11m while Anoro did £5m, both well short of expectations and indicating a slow ramp-up since their introductions in October and January respectively.

Among the downgrades that followed JP Morgan Cazenove’s was typical. The analysts cut their 2018 numbers for Seretide/Advair by 14% to £2.6bn, for Anoro to £1.4bn (also 14% lower than previously) and for Breo/Relvar to just £697m (–22%).

So, drastic corporate finance activity aside, what might come to Glaxo’s aid? Bank of America Merrill Lynch, which cut its recommendation Glaxo from “buy” to “neutral”, reckons a key product to watch is Bosatria, which is due to be filed for severe asthma in the second half.

Indeed, it is only thanks to Bosatria, which the analysts see generating £630m of sales in 2018 and £945m in 2020, that Glaxo’s respiratory franchise returns to growth in the medium term. The expectations are well above EvaluatePharma consensus, which sees $578m and $980m in these respective years.

New BoAML forecasts for Glaxo's respiratory products
Sales (£m)
Product 2014e 2016e 2018e 2020e
Seretide/Advair 4,260 3,294 2,532 2,301
Breo/Relvar 55 418 841 1,152
Anoro 25 320 900 1,294
Bosatria 0 210 630 945
Advair+Breo+Anoro 4,340 4,032 4,273 4,747
Total respiratory franchise 4,340 4,242 4,903 5,692

Earlier this year Glaxo reported that Bosatria had met the primary endpoint in a pivotal trial, with both doses cutting the frequency of severe eosinophilic asthma exacerbations in a statistically significant manner. In a second phase III trial Bosatria led to reduced oral corticosteroid use while maintaining asthma control.

Behind Bosatria three other anti-IL-5 antibodies, Teva's Cinquil, AstraZeneca’s benralizumab and Roche’s lebrikizumab, are also in phase III asthma studies (Astra makes quiet progress with respiratory pipeline, June 19, 2014).

If Glaxo’s small-molecule respiratory products continue to come under fire expect Bosatria, and its first-mover advantage, to become increasingly important for the company and analysts alike.

To contact the writers of this story email Jacob Plieth or Jonathan Gardner in London at [email protected] or follow @JacobEPVantage or @JonEPVantage on Twitter

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