GlaxoSmithKline had several years to prepare for the U.S. generic assault on its respiratory blockbuster Advair, offering discounts and rolling out new therapies to stay in the game. And now that the day has finally come, while sales are expected to decline, attention has clearly shifted to rebuilding an interest in oncology.

After the $5.1 billion acquisition of Tesaro and a just-announced immuno-oncology deal with Merck KGaA that could be worth €3.7 billion ($4.2 billion), GSK has doubled its clinical oncology programs to 16, according to CEO Emma Walmsley.

"In innovation, we will be focused on strengthening the pipeline further, particularly our growing portfolio of assets in oncology," Walmsley said Wednesday on the company’s fourth-quarter earnings call. During 2019, the drugmaker expects to receive pivotal data on three new cancer drugs, and it expects to launch them in the next two years, she said in a statement.

With the Tesaro transaction, executives are betting on the potential of Zejula as a member of the "undervalued" PARP inhibitor class. On Wednesday’s call, GSK R&D chief Hal Barron explained why the Merck deal is also a "smart risk" for GSK.

Despite existing successful PD-1/L1 therapies, about 70% of cancer patients either don’t benefit or will relapse, Barron said. M7824 (bintrafusp alfa), the centerpiece of the Merck deal, targets both PD-L1 and a protein called TGF-beta that has recently attracted the likes of Gilead Sciences.

Barron called M7824’s preclinical data "compelling" in terms of "TGF-beta playing a role in tumor progression and particularly PD-1/L1 resistance at the tumor level." Moreover, phase 1 data especially in second-line lung cancer "did appear to be superior to those historically seen with PD-1s," he said.

GSK has doubled its efforts in oncology as its respiratory franchise faces growing competition. Total respiratory sales in 2018 were dragged down by a sharp decline for Advair, which saw sales plummet 21% at unchanged exchange rates to £2.42 billion ($3.14 billion). In the U.S., volume concession to newer medicines took a 9% toll on Advair, and it took an additional 21% hit from price discounts.

And as Mylan has just earned an FDA approval for its copycat after two failed attempts, the situation is only going to get worse—so much so that GSK is now predicting a "slight sales decline" in the overall pharma business in 2019 due to the generic Advair launch, retiring CFO Simon Dingemans said on the call. But as Evercore ISI’s Umer Raffat noted in a recent memo to clients, GSK has been "aggressively discounting" to lock in market share before the generic kicks in, so the impact has basically been watered down.

Luckily for GSK, other drugs in its respiratory portfolio are growing steadily. Trelegy achieved sales of £156 million in its first full year, and execs expect a regulatory filing for use in asthma later this year.

Nucala sales in the fourth quarter shot up 38% to £173 million. According to Walmsley, the asthma biologic held its ground in key markets including the U.S., Germany and Japan in terms of total market and new patients, despite the recent introduction of Sanofi and Regeneron's Dupixent and AstraZeneca’s Fasenra.

"In 2019, we do expect competition to intensify, but we believe the market opportunity is still significant with less than 25% of suitable patients receiving therapies today," Walmsley said, adding that the company expects the convenience of an auto-injector, once approved, will pad its case.

HIV continues to be a key growth driver in GSK’s pharma sector. Dolutegravir-based regimens—Triumeq, Tivicay and Juluca—contributed £4.4 billion to the drugmaker’s top line in 2018, representing a 16% increase at stable exchange rates.

In the U.S., Triumeq and Tivicay sales have stayed flat, according to chief strategy officer and ViiV Healthcare Chairman David Redfern. That performance can be largely attributed to Gilead’s meteoric launch of Biktarvy. As one analyst noted on the call, GSK’s HIV new-to-brand prescriptions in the U.S. have dropped 20% to 30% since Biktarvy arrived.

But executives pegged hopes for the business to the potential of two-drug regimens. For the first full-year on the market, Juluca raked in £133 million, and GSK is looking to a dolutegravir-lamivudine approval in previously untreated patients in the second quarter as a "key growth driver" moving forward, according to Redfern.

Elsewhere, Shingrix crossed blockbuster mark in its first year on the market with sales of £784 million ($1.02 billion), exceeding GSK’s own expectations despite ongoing shortages from unexpected interest in the shingles vaccine. GSK expects annual dose capacity in the high teens of millions over the next couple of years. Dingemans said GSK has in place a detailed plan to meet that target, but he didn’t provide details.

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