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* 2014 sales seen up 2 percent, EPS to grow 4-8 percent
* Expects to stay respiratory market leader post 2020
* Q4 sales 6.91 billion pounds vs consensus 6.84 billion
* Q4 core earnings 30.1 pence vs consensus 30.2p
* Shares gain 3 percent on upbeat outlook
By Ben Hirschler
LONDON, Feb 5 (Reuters) - GlaxoSmithKline haspredicted a pick-up in sales growth to around 2 percent thisyear as productivity in its drug research labs improves andpressure on sales in China moderates following a damagingbribery scandal.
Britain's biggest drugmaker also said on Wednesday that itwould stay market leader in the respiratory medicine market - acategory it has dominated since the launch of Ventolin in 1969 -despite generic threats to its top-selling Advair drug.
Like many of its rivals GSK has suffered from a lengthyperiod of patent expiries and increased pricing pressure and isslowly returning to growth.
Chief Executive Andrew Witty said the expected improvementin 2014 reflected the roll-out of new products, which wouldoffset further potential competition from generics to olderproducts such as the heart drug Lovaza.
He expects 2014 sales to increase by around 2 percent on anex-divestment basis, at constant exchange rates, after a 1percent rise in 2013. Earnings per share (EPS) are forecast torise by 4 to 8 percent.
"The outlook for 2014 looks promising with more productsbeing launched and the benefits of restructuring programmescoming through," said Edison analyst Mick Cooper.
Shares in the group were up 2 percent at 1586 pence by 1340GMT, having traded up to 1609 pence earlier in the session. TheStoxx Europe 600 healthcare sector index was up 0.6percent.
Witty has been focusing the company in recent quarters byspinning off non-core assets like the Lucozade and Ribena drinksbrands, together with certain older drugs, as he prepares forthe introduction of new respiratory, cancer and HIV medicines.
Last year, GSK topped the industry league table by winningU.S. approval for five new drugs and the group said it plannedto launch late-stage clinical trial on around 10 new drugs inthe next two years.
While there have also been setbacks - a cancer vaccine andan experimental heart drug both failed clinical tests late lastyear - the company's overall returns on research and development(R&D) are improving.
GSK, which is the only major drugmaker to report itsinternal rate of return on R&D investment, said that returns hadnow reached 13 percent, up from 12 percent in 2012 and 11percent in 2010. It has set a target of reaching 14 percent.
ADVAIR WORRIES
A big concern for GSK investors is its reliance on theinhaled lung drug Advair, which makes up a fifth of sales. Italready faces competition from copycat versions in Europe, withgenerics in the United States perhaps a couple of years away.
Despite this - and the risk of new-drug competition fromrivals like Novartis - Witty said GSK would remainmarket leader, thanks to the launch of new lung drugs such asBreo and Anoro and backed up by a strong pipeline of otherproducts.
"A bit like Mark Twain, I think the demise of GSKrespiratory has been often exaggerated," he told reporters in aconference call. "The Advair franchise continues to be extremelystrong."
There would be some impact "on the margins" from generics inEurope, while U.S. generic competition was still "several yearsaway, if ever", he said.
GSK's forecasts for the year ahead do not take into accountthe negative impact of a strengthening pound and volatility inemerging market currencies, which made themselves felt in thefinal quarter of 2013.
Reported sales in the fourth quarter rose 2 percent to 6.91billion pounds ($11.3 billion), generating "core" EPS down 7percent at 30.1 pence.
Analysts on average had forecast sales of 6.84 billionpounds and core EPS, which excludes certain items, of 30.2pence, according to Thomson Reuters data.
EMERGING MARKETS
Witty, who has made investment in emerging markets a bigpriority, said his enthusiasm for developing economies remained undimmed, despite the recent upheaval and the company's specificproblems in China.
GSK's sales in China continued to fall in the latestquarter, although the decline of 29 percent was less than the 61percent slump recorded in the third quarter of 2013.
Sales have been hit hard by Chinese police allegations inJuly that the British group funnelled up to 3 billion yuan ($495million) to travel agencies to facilitate bribes to doctors andofficials.
That disrupted its ability to market products and alsodeterred doctors from seeing sales representatives for fear ofbeing caught up in the widening scandal. GSK is still awaiting aresolution of the affair, which could result in fines or othersanctions.
