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Glaxo (GSK) Beats on Q1 Earnings & Sales, Shingrix Impresses

Zacks Equity Research

GlaxoSmithKline plc GSK reported adjusted earnings of 79 cents per American depositary share (“ADS”) for the first quarter of 2019, which beat the Zacks Consensus Estimate of 66 cents. Earnings were up 18% year over year at constant exchange rate (“CER”).

Shares of Glaxo were down almost 1.8% on May 1 despite the strong results. The stock has gained 5.8% so far this year against the industry’s 0.1% decrease.

Quarterly revenues rose 5% at CER to $10.1 billion (£7.7 billion), driven by growth in all the three business segments, especially strong performance at the Vaccines segment. The top line beat the Zacks Consensus Estimate of $9.86 billion.                                                         

All growth rates mentioned below are on a year-over-year basis and at CER.

Quarterly Highlights

Glaxo reports financial figures under three segments: Pharmaceuticals, Vaccines and Consumer Healthcare.

The Pharmaceuticals division registered 2% increase in revenues at CER. Sales in the United States were up 1%. The upside was driven by HIV drugs and new respiratory disease drugs, Nucala and Trelegy. Glaxo has stated that Nucala continues to be the leader in terms of total sales in the asthma biologics market.

Sales of Established Pharmaceuticals declined 6% due to lower sales of Advair, partly offset by launch of authorized generic version of Advair and Ventolin.

Glaxo moved Advair to its Established Pharmaceuticals portfolio starting this quarter. The launch of Mylan’s MYL generic version of Advair – Wixela Inhub – the first Advair generic in the United States, in February resulted in 27% decline in Advair sales. The steep decline in sales of Advair is expected to continue in 2019.

HIV sales increased 4% at CER on the back of 7% growth in combined sales of Triumeq, Tivicay and Juluca, which partly ofset lower sales of other drugs in the portfolio. While U.S. sales were up 3%, international sales increased 29% at CER. However, sales of dolutegravir products fell 2% in Europe. The company held 26.5% of the HIV vaccine market in the United States during the first quarter. Sales of other HIV drugs tumbled 35% at CER due to severe generic competition and transition to new regimens.

Notably, the company’s latest product from the HIV portfolio is Juluca (dolutegravir + rilpivirine), the first two-drug regimen, once-daily, single pill for HIV. The drug was approved in the United States in November 2017. Please note that rilpivirine is marketed by Janssen, a subsidiary of J&J JNJ, as Eudrant. Juluca generated sales of £70 million, reflecting sequential growth of 12.9%. In April, Glaxo’s another single tablet, two-drug regimen, Dovato (dolutegravir + lamivudine), was approved in the United States for newly diagnosed patients with HIV-1.

Respiratory sales were up 25% at CER. The sales increase from the Ellipta portfolio and Nucala across all regions drove the growth. Sales of new respiratory drugs grew 19% and 33% in the United States and Europe, respectively. In the International markets, sales of new respiratory drugs increased 30%.

Immuno-inflammation drugs like Benlysta rose 15% in the quarter under discussion. In April, Benlysta’s label was expanded to include children with lupus aged five years or older.

Oncology sales were $43 million, driven by the recently added PARP inhibitor, Zejula, with acquisition of TESARO.

Sales in the Consumer Healthcare segment increased 1% at CER as growth in Oral health and Nutrition was partly offset by decline in the Wellness and Skin health category. International markets drove sales of the segment higher. However, the company is facing increased competition in Europe.

Divestment of Horlicks and MaxiNutrition along with other smaller brands in the United Kingdom unfavorably impacted overall sales by a percentage point.

Late last year, Glaxo announced a joint venture with Pfizer PFE to create the world’s largest Consumer Healthcare business. The deal is expected to close in the second half of 2019.

Sales from the Vaccines segment were impressive, up 20% at CER, primarily driven by strong growth of new shingles vaccine, Shingrix and impressive performance of influenza products. Meningitis vaccines Bexsero and Menveo returned to growth during the quarter as evident from sales increase of 14% and 11%, respectively. Shingrix sales more than doubled to £357 million in the reported quarter driven by market expansion in new patient population. Sales were up more than 60% sequentially.

Selling, general and administration (SG&A) costs increased 4% year over year to £2.4 billion due to increased commercial activities to support launches and costs related to the acquisition of TESARO.

Research and development (R&D) expenses were up 6% to 971 million, reflecting developmental activities following acquisition of TESARO and increased investments to support progress of clinical studies, especially oncology. This increase was partly offset by lower clinical activity related to HIV products.

2019 View

Glaxo still expects its earnings to decline 5-9% at CER in 2019, including the impact of Advair generic and costs related to the acquisition of TESARO. The guidance assumes the closure of the joint venture with Pfizer for Consumer Healthcare business and divestment of certain nutrition brands in India/Bangladesh in 2019

Our Take

Glaxo had stated on its fourth quarter earnings call that the company will be back on growth track in 2019. The company started 2019 on a strong note with significant earnings growth. New products from every segment performed encouragingly, especially Shingrix.

We are encouraged by Glaxo’s restructuring initiatives to focus on strengthening its pharmaceutical portfolio. The company boosted its oncology portfolio with the acquisition of TESARO in January and a collaboration agreement with Germany-based Merck KgaA, announced in February. Following these two transactions, the company has 16 oncology pipeline candidates including in-house candidates.

These transactions along with restructuring initiatives related to the Consumer Health segment will help the company to get rid of slowing businesses.

GlaxoSmithKline plc Price, Consensus and EPS Surprise

 

GlaxoSmithKline plc Price, Consensus and EPS Surprise | GlaxoSmithKline plc Quote

Zacks Rank

Glaxo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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