Glaxo dodges another Advair punch as second generic attempt crashes; Big Pharma’s plight highlights new world order for competition and innovation

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The News:

GlaxoSmithKline PLC is likely to escape generic competition to its blockbuster lung drug Advair in the US this year, after a second application for a cut-price equivalent form of the medicine was turned down by US regulators last week.

@GSK is likely to escape generic competition to its blockbuster lung drug #Advair Click To Tweet

Industry analysts believe the generic threat has now been pushed back until mid-2018, providing Britain’s biggest drugmaker with a short-term profit boost.

Hikma Pharmaceuticals PLC said on Thursday (May 11, 2017) the Food and Drug Administration had decided not to approve its version of the inhaled treatment for asthma and chronic lung disease at this time, due to “major” issues with the application. The firm said it was unlikely to receive approval this year.

Hikma and its partner Vectura Group PLC are in a race with Mylan Inc. to launch the first US generic copy of Advair that can be substituted for the original product in pharmacies. The FDA has already delayed approval of Mylan’s version.

Hikma and Mylan have received so-called complete response letters (CRL) from the FDA that were categorized as major. Dealing with a major amendment to a generic drug application means a delay of 10 months for an FDA response, according to agency guidelines.

Shares in Hikma fell 11%, and Vectura fell 8% over the week in London.

Hikma said it was in the process of reviewing its response, adding it appeared no material issues were raised to prevent its proposed inhaler device being classified as a substitute. Mylan, whose application for a rival generic was turned down in March, disclosed on Wednesday (May 10, 2017) that the FDA had designated its application as requiring a “major” amendment.

UBS analyst Michael Leuchten said the problems faced by Hikma and Mylan highlighted the challenges of making a generic copy of Advair that was acceptable to the FDA, although such copies were already available in Europe.

Nonetheless, generics are expected in the United States eventually and he noted that GSK was giving a 20% discount on Advair this year in anticipation of their arrival.

Without a generic substitute for Advair in the US market this year, GSK has said it expects adjusted 2017 earnings per share (EPS) to rise by between 5% and 7%, in constant currencies. If they had launched by mid-year, it had forecast EPS would be flat to slightly lower.

Steve’s Take:

Here they go again.

Glaxo rang the cash register last week, but in a manner like in basketball, where one team gets points when the other team tips the ball into the wrong hoop. Okay, it’s not a great (or even good) analogy, but the British drug giant has defied the analysts and dodged another bullet as hungry competitors close in on big-revenue ticket Advair with their generic candidates.

Partners Hikma and Vectura revealed Thursday (May 11, 2017) that the FDA had struck down their knockoff version of the respiratory blockbuster. And given “the nature of the feedback” from FDA officials, the companies now see approval this year as a long shot.

The rejection comes as no surprise to many industry watchers–or to Glaxo itself, says FiercePharma. The company has warned repeatedly that copying Advair, delivered via its proprietary Diskus inhaler, wouldn’t be an easy task. Hikma and Vectura’s FDA “No” follows one given Mylan–the only other company so far to receive a generic Advair decision–in late March, says FP.

Hikma and Vectura said Thursday (May 11, 2017) that the agency’s complete response letter (CRL) turning back their application was classified as “major,” meaning significant work lies ahead before their Advair competitor can make its debut.

It’s a clear win for GSK, which stood to suffer significantly if a generic hit this year. The company has predicted that the midyear arrival of a generic would depress core earnings to flat, best case, or a single-digit percentage decline.

If no copies turn up, the company sees core earnings growing by 5% to 7% for this year. Therefore, the Hikma rejection takes some weight off new CEO Emma Walmsley, who took the Glaxo helm at the end of March.

Although Mylan’s rejection letter was also classified as “major” by regulators, “we have a difference of opinion with the agency on certain items raised in the CRL,” Mylan President Rajiv Malik told investors–and the company thinks talking things out with regulators could “potentially change this designation.”

With that in mind, Mylan says it won’t be ready to update shareholders about the Advair delay until after it meets with regulators–which could “happen any moment or any day,” Malik said.

If the science, regulatory climate and stars all align, therefore, Glaxo may not have a generic-free 2017.

Bottom Line:

Anyone actually heard of Hikma Pharma and Vectura Group before news of their failed Advair generic hit the news wires? Me neither.

But this highlights the new world order where Big Pharma has smaller companies operating below financial markets’ radar–certainly here in the US–snapping at their heels with generic copies of existing money machines, and in the case of startups, developing promising new drugs.

But let’s take a brief look at these two relatively unknown companies who trade on the London exchange.

What do the analysts think?

1) Hikma Pharma

As of May 12, 2017, the consensus forecast among 12 polled investment analysts covering Hikma Pharmaceuticals advises that the company will Outperform the market. This has been the consensus forecast since the sentiment of investment analysts deteriorated on June 30, 2016. The previous consensus forecast advised investors to Buy equity in Hikma.

Recommendations 1yr ago Latest
Buy 4 4
Outperform 7 3
Hold 0 4
Underperform 0 1
Sell 0 0


Share price forecast

According to Broker Forecast, analysts have a consensus forecast of 2410.00 pence for Hikma, representing a 37% increase from its closing price of 1759.00.

2) Vectura Group

As of May 12, 2017, the consensus forecast among 9 polled investment analysts covering Vectura advises that the company will Outperform the market. This has been the consensus forecast since the sentiment of investment analysts deteriorated on April 24, 2017. The previous consensus forecast advised investors to Buy Vectura.

Recommendations 1yr ago Latest
Buy 4 5
Outperform 1 1
Hold 1 2
Underperform 0 1
Sell 0 0


Share price forecast

The 8 analysts offering 12 month price targets for Vectura have a median target of 210.00 pence, with a high estimate of 225.00 pence and a low estimate of 127.00. The median estimate represents a 60.43% increase from the last price of 130.90.

These two relative unknowns (and, again, that reflects my lack of familiarity, not the majority of traders) are quite small compared to their behemoth London neighbor. But they aren’t startups either. They are routinely profitable and have a strategy for the respiratory field.

The analysts who are intimately familiar with them, however, are proponents, and considering their Advair knockoff is going to get FDA approval–in all likelihood next year–their price targets look skimpy.

Steve's Take: I'm putting @HikmaPharma and #Vectura on my upside watchlist Click To Tweet

I’m putting Hikma and Vectura on my watchlist. There’s too much logical upside in their shares to ignore.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. has a disclosure policy.

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