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* Investors unhappy after bribery scandal, poor U.S. sales
* New drugs fail to plug gap left by Advair's decline
* Some investors demand new chairman, CEO faces criticism
* GSK says chairman succession planning "well under way"
By Ben Hirschler and Simon Jessop
LONDON, Sept 22 (Reuters) - GlaxoSmithKline may haveclosed one chapter in a saga of corruption allegations byaccepting a $489 million fine in China, but the drugmaker hasits work cut out to win back sceptical investors.
That means continued pressure on Chief Executive AndrewWitty, seen not so long ago as one of the sector's starmanagers, who is under fire for allowing the erosion of GSK'sall-important U.S. business just as much as for the woes inChina.
"I think GSK is a buy when the CEO of that business goes,"said John Bennett, a director of European equities at HendersonGlobal Investors, which has a holding in the drugmaker.
Other disgruntled shareholders believe an accelerated changeof chairman would be an important signal that the company isacting to address their concerns and working to improvefinancial returns.
The current chairman, one-time Vodafone chief Chris Gent, isdue to step down by the end of 2015 but some argue the handovershould now be brought forward.
"A new chairman must be overdue. Someone needs to look atthe strategic direction of the business with a fresh pair ofeyes," said one top-50 shareholder.
Commenting on plans to find a successor, a GSK spokesmansaid: "Succession planning for the chairman is well under way."
Replacing the chairman early rather than ditching CEO Witty,who has been in the job since 2008, is seen as a potentialcompromise to reassure disenchanted investors.
SHARES PRICE SAGS
The root of investor unhappiness is not hard to find. Whilethe European healthcare sector has been a roll so farthis year, rising more than 20 percent on optimism over newdrugs, GSK shares have lost 10 percent as forecasts for itssales and earnings have fallen.
GSK unveiled a far-reaching asset swap deal with Novartis in April that will refocus its business by building upits strengths in vaccines and consumer health, in exchange forexiting the hot area of cancer medicine.
In the long term, that transaction should deliversustainable growth from more stable and lower-risk businesses.
But the Novartis deal will not close until next year andwill take time to bed down -- and even when it does, thenew-look GSK is still likely to grow below its peers, accordingto Goldman Sachs analysts, who believe further meaningful changeis needed.
"A new chairman could potentially kick-start this changeprocess," they wrote in a note on Monday, while upgrading thestock to "buy" from "neutral" on hopes for an overhaul. "Webelieve that status-quo at GSK is unlikely to continue forlong."
Potential actions by GSK to address poor investor returnscould include further cost-cutting and allocating more capitalto acquisitions of promising new drugs, rather than buying backshares. A longer-term option might be to sell off the vaccinesor consumer health operations to unlock value.
DIVIDEND UNDER STRAIN
Friday's news that 15 months of Chinese investigations hadbeen resolved brought some relief as the fine, while a recordfor China, was less than some investors had feared. GSK's formerChina head also escaped without going to jail.
But the episode will have a long tail, with the pledgesgiven by GSK to ensure flexible prices and increase investmentin local Chinese production likely to drag on profits in thecountry.
What's more, the group still faces further probes andpotential fines in the United States and Britain, as well asbribery allegations in Poland, Syria, Iraq, Jordan and Lebanon.
More fundamentally, investors are fed up that profit growthhas been delayed year after year and alarmed at the precipitatefall in sales of its 15-year-old respiratory medicine Advair,particularly in the United States where price pressure is acute.
Witty has been banking on new respiratory drugs Breo andAnoro to make up the slack but sales to date have been slow.
Frustration boiled over when the company cut its 2014earnings outlook in July, triggering the biggest daily shareprice fall since 2008.
"People have come full circle and the glass is very muchhalf-empty now," said Deutsche Bank analyst Mark Clark, whobelieves U.S. sales of GSK's top-seller Advair are likely tofall by more than 20 percent both this year and next.
Adding to anxiety is concern about the firm's fat dividend,which at an expected 81 pence per share in 2014 offers a 5.6percent yield.
The dividend is already equivalent to approximately 85percent of earnings and that figure could climb to more than 90percent in 2015 once GSK divests older drugs with annual salesof around 1 billion pounds ($1.6 billion).
Ditching these so-called established products makeslong-term sense, since their sales are declining, but theyremain extremely profitable, so a sale looks set to diluteearnings per share, tightening dividend cover further.
While most analysts see GSK scraping by without cuttingpayouts, yield investors are doing the sums carefully. (1 US dollar = 0.6122 British pound) (Editing by Keith Weir)
