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Asthma drug rejection rocks UK pharma

The quest to launch the first generic version of GSK's top-selling asthma drug continues
May 12, 2017

Hikma (HIK) and Vectura's (VEC) joint effort to launch the first unbranded version of GlaxoSmithKline's (GSK) top-selling asthma drug, Advair, has hit a roadblock. The two companies - which filed their drug with the US Food and Drug Administration (FDA) in 2016 - have had their initial application rejected, meaning they no longer expect to launch this year.

Although both groups were forced to stomach big share price declines on the day of the announcement, the response has not come as a massive surprise to industry experts. Since Advair lost its patent in 2010, global pharma companies have struggled to launch a generic version due to the hefty intellectual property protection on the device used to inhale the drug.

Challenges were exacerbated in October last year when Sandoz (which has its own competitive drug in the early stages of development) filed a citizens petition proposing that any generic should be more consistent in dosing than the original drug. Following that, US pharma giant Mylan (US: MYL) had its own initial application rejected and has since hinted that the FDA may be looking for a generic to achieve different results than it requested initially. "So everyone has been aiming at a moving target," according to Panmure Gordon analyst David Cox.

Like Mylan, Hikma and Vectura have not received a complete rejection from the FDA and are likely to gain approval after a few tweaks. While the extent of the changes required remains unknown, Numis analyst Paul Cuddon doesn't expect launch for another 12 months, which could affect full-year results for both companies.

Management at Hikma had suggested that a generic version of Advair would be the primary contributor to new drug revenue in 2017, which was expected to deliver 5 per cent to the top line. Numis therefore now thinks consensus earnings forecasts of 130¢ (101p) per share are a bit steep. For smaller player Vectura - which was due to receive royalty payments on sales of the drug - the near-term setback is more severe. Numis has downgraded 2017 revenues and pre-tax profits by 10 per cent and 30 per cent, respectively.

As for GSK, the rejection has sweetened the outlook. At its peak Advair made $8bn annually and continues to be a top seller for the pharma giant. Chief executive Emma Walmsley had previously warned that a generic launch in the first half of 2017 would send sales down by $1bn and stunt earnings growth. Now, with generic launch looking unlikely before 2018, Deutsche Bank has raised its 2017 EPS forecast by 4 per cent.