PREVIEW-Weak pound shields Glaxo ahead of Q4 flu booster

* Glaxo Q2 results, July 22, 1100 GMT

* Reported EPS seen up 10 percent, sales up 14 percent

* Currency benefits to mask heavy generic erosion

* Pandemic flu vaccine sales, lower costs to help in H2

By Ben Hirschler

LONDON, July 15 (Reuters) - Weak sterling will let
GlaxoSmithKline (GSK.L) post higher earnings next week, in spite
of heavy generic erosion for key drugs, as it awaits a better
second half fuelled by windfall sales of pandemic flu vaccine.

The three months to end June were always going to be tough,
given the loss of patent protection on a raft of central nervous
system medicines, including Lamictal, Imitrex, Wellbutrin XL and
Paxil CR.

Still, industry analysts predict earnings per share (EPS)
will get a boost of around 20 percent from currency effects,
turning a "down" quarter in constant currency terms into a
positive one at the reported level.

Because the world's second biggest drugmaker sells the vast
majority of its products abroad, it has gained substantially
from the pound's decline. It also benefits from having a large
sterling-denominated cost base.

A 340 million pounds ($557 million) gain from the sale of
Wellbutrin XL to Biovail (BVF.TO) will also flatter the numbers.

Group sales for the second quarter are seen up 14 percent
with EPS rising 10 percent, according to consensus forecasts,
but in constant currency terms EPS may fall more than 10
percent.

Underlying profit margins will be down, reflecting a shift
in Glaxo's sales mix to lower-margin consumer health, and
investors will be looking anxiously for any signs of consumers
switching to cheaper private label non-prescription remedies.

The group no longer provides specific short-term numerical
earnings guidance, so analysts will be watching for any
indications on future margin development to gauge prospects.

Looking ahead to the rest of the year, the signs are better
with cost pressures easing in the second half, year-on-year
comparisons for generic erosion improving and vaccines likely to
do well.

"One source of financial upside for GSK -- at least
temporarily -- relates to governmental orders for swine flu
vaccine. Swine flu sales are currently not included in our
forecasts," said Sanford Bernstein analyst Tim Anderson.

Analysts expect windfall orders for the company's H1N1 swine
flu vaccine, which is now in development, to be booked in the
fourth quarter.

Relenza, an inhaled flu treatment, is also set to benefit
from extra demand due to the current flu pandemic. Glaxo sold
most of its existing stock in the first quarter but is now
ramping up production and should increase sales again in the
second half.

The table below shows analyst forecasts for Glaxo's sales
and EPS before major restructuring charges:
Q2 SALES EPS

(million pounds) (pence)
Mean 6,714 29.9
Median 6,743 30.0
High 6,898 35.0
Low 6,495 26.0
Sample size 10 10
Year ago 5,874 27.2