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Glaxo (GSK) Q4 Earnings Lag Estimates, Shingrix Back on Track

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Zacks Equity Research
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GlaxoSmithKline plc GSK reported fourth-quarter 2020 adjusted earnings of 62 cents per American depositary share (“ADS”), which missed the Zacks Consensus Estimate of 70 cents. Moreover, adjusted earnings were down 6% year over year on a reported basis and 5% at constant exchange rate (“CER”) due to higher research and development expenses.

Quarterly revenues declined 2% on a reported basis and 1% at CER to $11.62 billion (£8.74 billion), beating the Zacks Consensus Estimate of $11.25 billion

Shares of Glaxo were down 5.8% on Feb 3 following the earnings release. In fact, the company’s shares have declined 24.6% in the past year against the industry’s 3.1% increase.

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

Respiratory Business Remains Strong

Pharmaceuticals sales were down 3% at CER as higher sales of newer drugs were more than offset by decline in Established Pharmaceuticals segment. Excluding the impact of Established Pharmaceuticals segment, Pharmaceuticals sales grew 10% year over year. However, Glaxo’s business continued to reflect the negative impact of COVID-19 pandemic. New patient prescriptions in the United States and Europe were lower and demand for allergy and antibiotic products in International markets was tepid. The pandemic also affected pricing of drugs in the U.S. market.

Sales in the United States were up 3%. Sales in European and International markets were down 3% and 12%, respectively, at CER.

Respiratory sales were up 15% at CER mainly driven by an increase in sales of Trelegy, and Nucala across all markets. Nucala sales were up 34% at CER during the quarter. Trelegy Ellipta sales surged 40% year over year driven by strong growth in all regions.

Relvar/Breo Ellipta registered growth of 2% in sales during the fourth quarter.

HIV sales increased 2% year over year at CER driven by growth in dolutegravir franchise. Sales of dolutegravir franchise were up 2%, while sales from remaining drugs, comprising 3% of HIV portfolio, declined 6% at CER.

The dolutegravir franchise comprises two three-drug regimens — Triumeq and Tivicay — and two two-drug regimens — Juluca and Dovato. The growth in sales of two-drug regimens in the fourth quarter was partially offset by decline in sales of three-drug regimens.

Sales of the dolutegravir franchise were up 4% at CER in the U.S. market and 8% in Europe. In International markets, sales were down 19% at CER. Please note that Glaxo markets Juluca in collaboration with J&J JNJ.

Sales of Established Pharmaceuticals declined 18%, reflecting generic competition in Japan and pricing pressure for Flovent in the U.S. market. Advair/ Seretide sales declined 15% year over year due to generic competition in all markets.

Sales of immuno-inflammation drugs like Benlysta rose 23% in the quarter. Sales of the sub-cutaneous formulation of Benlysta rose 35% at CER and generated more than half of total sales of the drug. During the quarter, the FDA approved the drug as the first medicine for treating active lupus nephritis in adult patients.

Oncology sales, comprising sales of PARP inhibitor, Zejula, were £89 million, up 35% year over year.

Consumer Healthcare Sales Down

Sales in the Consumer Healthcare segment decreased 7% at CER due to loss of sales from divested brands and weaker sales of Respiratory health segment. Glaxo formed a new joint venture (“JV”) with Pfizer PFE in August 2019 to create the world’s largest Consumer Healthcare business. On a pro-forma basis, sales in the Consumer Health segment declined 6%.

Sales of Pain relief and Oral health categories increased 10% and 6%, respectively, in the quarter. Sales of Vitamins, minerals and supplements category were up 17% in the fourth quarter. Digestive health and other category’s sales were down 7%. Sales of Respiratory health declined 24%.

We note that the impact of COVID-19 was mixed for this segment. Vitamins, minerals and supplements brands continue to benefit from strong demand as consumers increasingly focus on health and wellness amid COVID-19. However, social distancing measures and lower cold and flu season hurt Respiratory health brands.

Shingrix Returns to Growth

Sales from the Vaccines segment were up 16% at CER, driven by strong recovery in demand for Shingrix along with strong demand across all regions for Influenza vaccine. Moreover, favorable CDC demand in the United States benefitted sales of Meningitis vaccines.

Shingrix sales rose 23% in the reported quarter, driven by strong demand in Europe, seasonal flu vaccination in the United States and launch in China. However, wellness visits declined in the United States towards the end of fourth-quarter 2020 due to resurgence of COVID-19 cases.

In Meningitis vaccines, Bexsero sales increased 44% while sales of Menveo were up 27%. Sales of influenza vaccine Fluarix were up 85%, reflecting strong demand across all regions. Sales of Established vaccines were down 3% year over year.

Operating Expenses

Selling, general and administration (SG&A) costs decreased 4% at CER year over year to £2.92 billion. The decline in SG&A costs was led by benefits from restructuring and reduced variable spending due to COVID-19 related restrictions

Research and development (R&D) expenses gained 12% at CER to £1.3 billion, reflecting higher clinical activity in the oncology and COVID-19 therapy programs.

Full-Year Results

Glaxo reported revenues of $44 billion (£34.1 billion), down 2% year over year at CER. The company’s adjusted earnings for 2020 were $2.99 per ADS, up 18.1% from the year-ago period.

2021 Guidance

Based on its current assessment of the COVID-19 impact, Glaxo expects its adjusted earnings to decline in 2021 by mid to high-single digit percentage at CER.

The company expects normalcy to return in the second half of 2021. It anticipates full-year sales for the Pharmaceutical segment to remain flat or to up in low-single digit percentage. Sales of Consumer Healthcare segment is expected to increase by low to mid-single digits, excluding brands divested/under review.

Meanwhile, the company expect disruption in the vaccine segment to continue in the first half of 2021 due to prioritization of COVID-19 vaccination programs and the resurgence of the pandemic in late 2020. For the full-year, the company expects sales of the vaccine segment to remain flat to up in low-single digit percentage, on the back of anticipated strong growth of Shingrix in the second half.

Our Take

Glaxo misses on fourth-quarter earnings while beating sales estimates, reflecting generic competition for its largest drug, Advair. Loss of Advair sales due to generic competition and competitive pricing will continue to hamper revenues. However, the company’s new products in the Respiratory and Oncology segment, and two-drug HIV regimens continued to perform well in the reported quarter. Meanwhile, sales of the company’s established drugs continued to decline. Moreover, immunization rates seem to have been improving in the United States, especially for Shingrix. However, normalcy in Vaccine business is expected in the second half of 2021.

Meanwhile, the company remains on track with its plan to separate itself into two separate companies — one focusing on Biopharma and another on Consumer Health — by 2022 to deliversustainable growth and returns to shareholders.

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 & Key Pick

Glaxo currently carries a Zacks Rank #3 (Hold).

Moderna, Inc. MRNA is a better-ranked big biotech stock, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Moderna’s earnings per share estimates have moved north from $9.45 to $12.72 for 2021 in the past 30 days. Share price of the company has increased 694.8% in the past year.

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