GlaxoSmithKline beats forecasts as weak pound provides windfall

By Ben Hirschler

LONDON (Reuters) - GlaxoSmithKline beat quarterly sales and profit expectations and said it expected even bigger gains in 2016 thanks to a weak pound, which has continued to fall after Britain's vote in June to leave the European Union.

The drugmaker, which is in the middle of a CEO handover that will see consumer health head Emma Walmsley take change in 2017, now sees the currency's slide pumping up full-year earnings per share by 21 percent, against 19 percent seen three months ago.

The group generates more than 95 percent of its sales outside Britain while many of its costs are in pounds, making it a big winner from sterling's tumble.

Chief executive Andrew Witty, who retires in March, said GSK's large UK manufacturing base meant it did not have to raise sterling prices for products, including toothpaste and over-the-counter remedies, unlike some other consumer goods firms.

"We manufacture inside the UK many of our products, particularly in the consumer business," he told reporters. "That gives us a very good position in terms of being able to absorb some of the changes in the currency without being forced to increase price."

Stripping out the currency tailwind, GSK said on Wednesday that demand for new medicines grew briskly in the third quarter, helping offset falling sales of its ageing blockbuster Advair, which faces increased competition in the respiratory market.

"These results demonstrate how the pharma business is turning around," said Trinity Delta analyst Mick Cooper.

HIV drugs were again a bright spot, as they have been in recent quarters, but the star performer was the vaccines business, boosted by demand for seasonal flu shots. For the future, GSK has high hopes for a new shingles vaccine that could reach the market next year.

Overall quarterly sales, in sterling terms, rose 23 percent to 7.54 billion pounds ($9.21 billion), generating core earnings per share (EPS) up 39 percent at 32.0 pence.

Analysts, on average, had forecast sales of 7.28 billion pounds and core EPS, which excludes certain items, of 29.6p, according to Thomson Reuters.

In constant currencies, pharmaceutical sales rose 6 percent, vaccines 20 percent and consumer healthcare 5 percent.

Witty, who has struggled in the past with flagging profits and a bribery scandal in China, argues GSK is now well on the road to recovery and he reiterated a forecast for growth in core EPS at constant currencies of 11 to 12 percent in 2016.

The latest results, he said, reflected "the sustained progress we have made over the course of 2016 to deliver sales growth of new products, maintain effective cost control and execute on our restructuring and integration plans".

($1 = 0.8190 pounds)

(Reporting by Ben Hirschler; Editing by Martinne Geller and Alexandra Hudson)