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GlaxoSmithKline sees better signs for lung drugs after tough 2014

By Ben Hirschler

LONDON (Reuters) - GlaxoSmithKline has begun rebuilding market share in respiratory medicine, its chief executive said, after weak demand for lung drug Advair hurt fourth-quarter sales and capped a rough year for Britain's top drugmaker.

GSK is also banking on an asset swap with Novartis to help to revive its fortunes and is looking to unlock value by listing its HIV unit ViiV Healthcare. It has hired three banks to advise on ViiV options, according to sources familiar with the matter.

Chief Executive Andrew Witty is under pressure after failing to deliver on earlier promises to return the drugmaker to growth.

The company expects a challenging first half of the year, including tough market conditions in the United States, but a stronger performance in the second half, it said on Wednesday.

Witty said GSK is already gaining market share among new respiratory patients in Japan and the United States, where 15-year-old Advair and new lung drugs Breo and Anoro are available.

"I am not saying to you on this call (that) I hope to see market share increase for respiratory, I am telling you the market shares have begun to go up in the last few weeks," Witty told reporters. "What I am not guaranteeing is exactly how that is going to play out for the rest of the year."

SUSTAINABLE GROWTH?

The company did not give 2015 financial forecasts but promised to brief investors once it closed the $20 billion Novartis deal.

GSK is buying vaccines, selling cancer drugs and forming a consumer health joint venture with Novartis in a transaction designed to ensure more stable and predictable long-term growth. The deal is due to close in the first half of this year.

Sales in the final quarter of 2014 were 6.19 billion pounds ($9.42 billion), down 8 percent year on year, while core earnings per share (EPS), the measure followed most closely by investors, fell 6 percent to 27.3 pence.

The average forecast from analysts had been sales of 6.2 billion pounds and core EPS, which excludes certain items, of 25.9 pence, according to Thomson Reuters data.

The better than expected earnings, helped by cost cuts and a lower tax rate, and the upbeat comments on respiratory sales helped to lift the company's shares 1.5 percent by 1430 GMT.

"If the respiratory franchise can stabilise this year, the 2016-plus horizon should see a return to growth," said analysts at Bernenberg Bank, which rates the stock a "hold".

As well as refocusing the business, the Novartis deal also gives GSK potential flexibility to spin off some operations.

The drugmaker first announced plans in October for an initial public offering (IPO) of a minority stake in ViiV Healthcare, and Witty told Reuters this month that this could serve as a model for future moves.

Analysts have pencilled in the IPO for 2016, which may help to underpin the dividend next year. GSK's flagging growth means its dividend is stretched, though the company has already said it will be held at the 2014 level of 80p in 2015.

(Editing by Elaine Hardcastle and David Goodman)