Weak pound shields Glaxo ahead of Q4 flu booster

By Ben Hirschler

LONDON (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 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.