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* CEO says benefits of Novartis asset swap becoming evident
* Q3 core EPS 23.0 pence vs consensus 19.3p; shares up 3 pct (Adds further CEO and analyst comments)
By Ben Hirschler
LONDON, Oct 28 (Reuters) - GlaxoSmithKline reportedbetter-than-expected earnings on Wednesday, helped by strongdemand for HIV drugs and flu vaccines, which offset a furtherslide in sales of respiratory medicine, sending its shares 3percent higher.
Profits were also boosted by tight cost control, resultingin what Bernstein analyst Tim Anderson described as "the firstgreen shoots of margin recovery".
Third quarter sales, in sterling terms, rose 9 percent to6.13 billion pounds ($9.4 billion), although profits were stilldown, reflecting a short-term hit after GSK's recently completed$20 billion asset swap with Novartis.
Core earnings per share (EPS), which exclude certain items,fell 18 percent at 23.0 pence. Analysts on average had forecastEPS of 19.3p and sales of 6.08 billion pounds, according toThomson Reuters.
Shares in Britain's biggest drugmaker has underperformed theEuropean drugs sector by nearly 40 percent in the past fiveyears, following past profit disappointments and a damagingcorruption scandal in China.
But Chief Executive Andrew Witty said the Novartis swap,which has raised exposure to consumer healthcare at the expenseof pharmaceuticals, was now benefiting sales and earnings,keeping GSK on track for a return to earnings growth in 2016.
The consumer portfolio includes over-the-counter remediessuch as allergy nasal spray Flonase, which was recently switchedfrom a prescription-only product, as well as painkillers andtoothpaste.
The consumer business has significantly lower profitabilitythan prescription drugs, although there was a notableimprovement in the latest quarter, with margins rising to 13.3percent from 7.2 percent in the preceding three months.
Among pharmaceuticals, new HIV drugs Tivicay and Triumeqgrew strongly, while flu vaccines benefited from higher U.S.demand and a shift to four-in-one shots.
But GSK's mainstay lung drug business was weak, due topricing pressure on its ageing Advair inhaler in the UnitedStates and generic competition in Europe.
New inhalers Breo and Anoro have so far failed to make upthe difference and a recent disappointing clinical trial withBreo has not helped.
GSK hopes its respiratory franchise will get a boost fromNucala, a new injection for severe asthma, which could win U.S.regulatory approval by Nov. 4 and Witty told reporters hecontinued to expect lung drug sales to return to growth in 2016.
Nucala is one of several drugs GSK will highlight at apresentation about its research and development on Nov. 3, thefirst such briefing in a decade. It also has high hopes for anew shingles vaccine.
Witty said the event would show off a pipeline of new drugsand vaccines "which we believe has significant potential todrive long-term performance". ($1 = 0.6543 pounds) (Editing by Louise Ireland)
