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Glaxo (GSK) Beats on Q2 Earnings, Shingrix Sales Strong

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GlaxoSmithKline plc GSK reported second-quarter 2019 adjusted earnings of 78 cents per American depositary share, which beat the Zacks Consensus Estimate of 64 cents. Earnings were up 4% year over year at constant exchange rate (“CER”).

Shares of Glaxo were up almost 0.3% on Jul 24. The stock has gained 8.4% so far this year against the industry’s 0.8% decrease.

Quarterly revenues rose 5% at CER to $10 billion (£7.8 billion), driven by strong performance of the Vaccines segment. The top line beat the Zacks Consensus Estimate of $9.55 billion.                                                         

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

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

Pharmaceuticals Falls, Respiratory Drugs Sales Strong           

The Pharmaceuticals division registered 1% decrease in revenues at CER. Sales in the United States were down 10%. The downside was due to lower sales of HIV segment and Established Pharmaceuticals, partially offset by strong growth of Respiratory segment.

Respiratory sales were up 12% at CER driven by increase in sales of Trelegy Ellipta and Nucala across European and international markets. Sales of Nucala grew 26% and 44% in the United States and Europe, respectively. In the International markets, sales of Nucala increased 53%. Trelegy Ellipta sales more than doubled year over year on the back of label expansion in the United States.

Glaxo stated that Nucala continues to be the leader in terms of total sales in the asthma biologics market.

Sales of Relvar/Breo Ellipta decreased 43% in the United States due to impact of Advair generic and competitive pricing pressure. Advair generic is unfavorably impacting the price of drugs in inhaled corticosteroid (“ICS”)/long-acting beta-agonist (“LABA”) market in the United States. However, sales of Relvar/Breo Ellipta increased 15% and 21% in European and international markets, respectively.

HIV sales decreased 2% at CER as three-drug regimens, Triumeq and Tivicay, saw decline in market share. However, the company’s newest HIV drugs, Juluca and Dovato (launched in April), witnessed growth, which partially offset decline in sales of three-drug regimen drugs. Juluca and Dovato generated sales of £89 million, compared with £70 million generated by Juluca alone in the first quarter. Juluca is marketed in collaboration with J&J JNJ.

While U.S. and European sales of HIV products were down 6% and 1%, respectively, international sales increased 19% at CER. Sales of dolutegravir products fell 6% in the United States while it grew 2% and 29% in European and international markets, respectively. Sales of other HIV drugs tumbled 21% at CER due to severe generic competition and transition to new regimens.

Sales of Established Pharmaceuticals declined 7% due to lower sales of Advair, partially offset by strong uptake of authorized generic version of Ventolin. In its first full quarter of generic competition, Seretide/Advair lost 61% of sales year over year. The drug’s sales were down 15% and 1% in Europe and international regions, respectively. Glaxo moved Advair to its Established Pharmaceuticals portfolio starting first quarter of 2019. Sales of Ventolin were up 35% during the quarter.

We remind investors that Mylan MYL launched the first generic version of Advair – Wixela Inhub – in the United States in February. The steep decline in sales of Advair is expected to continue in 2019.

Immuno-inflammation drugs like Benlysta rose 25% in the quarter. In April, Benlysta’s label was expanded to include children with lupus aged five years or older.

Oncology sales were £57 million, driven by the recently added PARP inhibitor, Zejula, with acquisition of TESARO.

Consumer Healthcare Sales Up

Sales in the Consumer Healthcare segment increased 4% at CER as growth in Oral health Wellness and Nutrition was partly offset by decline in the Skin health category. International and U.S. markets drove sales of the segment higher. Divestment of certain brands and phasing out of low-margin products impacted sales negatively by approximately 1%.

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 shortly.

Vaccines Segment Growth Continues

Sales from the Vaccines segment were impressive, up 23% at CER, primarily driven by strong growth of new shingles vaccine, Shingrix and impressive performance of meningitis products. Recovery in growth of meningitis vaccines, Bexsero and Menveo, continued during the quarter as evident from sales increase of 24% and 22%, respectively. Shingrix sales more than doubled to £386 million in the reported quarter driven by strong uptake in the United States.

Operating Expenses Up

Selling, general and administration (SG&A) costs increased 2% year over year to £2.4 billion. The rise in SG&A costs was driven by increased commercial activities to support launches and costs related to the acquisition of TESARO, partly offset by cost-saving initiatives.

Research and development (R&D) expenses were up 16% to £1 billion, reflecting increased investments to support progress of clinical studies, especially Zejula. This increase was partly offset by lower clinical activity related to Trelegy Ellipta and benefits of pipeline re-prioritization.

2019 View

Glaxo currently expects earnings to decline 3-5% at CER in 2019. The company had guided earnings decline of 5-9% on its first-quarter earnings call. The new guidance reflects improvement in operating performance, lower interest expense and one-time benefit in profit sharing with associates.

Our Take

Glaxo beats on earnings and sales in the second quarter. The company’s new products from every segment performed well in the reported quarter, especially Shingrix. This prompted the company to lower its expectation for earnings decline for the year.

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, 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 offset slowdown in businesses. However, loss of Advair sales due to generic competition and competitive pricing will continue to hamper revenues.

GlaxoSmithKline plc Price, Consensus and EPS Surprise


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

GlaxoSmithKline plc price-consensus-eps-surprise-chart | 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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