Glaxo Stock Up This Year So Far: Will the Rally Continue?
So far this year, GlaxoSmithKline plc’s GSK shares have outperformed the industry, rising 16.5% compared with a 5.6% increase for the industry.
Meanwhile, estimates for 2018 and 2019 rose 3.5% and 2.7%, respectively in the last 30 days.
Its strong quarterly results and positive pipeline and regulatory updates have all contributed to the upside.
Strong Quarterly Results
Glaxo’s total revenues rose 4% at constant exchange rate in the first half of 2018 led by sales growth in each of its three global businesses - Pharmaceuticals, Vaccines and Consumer Healthcare segments. While adjusted earnings rose 11%, operating profit rose 8%, supported by aggressive cost savings and operating improvements.
Following an encouraging performance in the first half of 2018, on the second-quarter conference call, Glaxo raised its earnings growth outlook for the full year backed by increased sales expectations for Shingrix, benefit from full ownership of the Consumer Healthcare business and delay in generic entry of top-selling product Advair in the United States.
Pipeline & Regulatory Successes
In 2017, Glaxo received approvals for three key new drugs, Shingrix vaccine for shingles, which enjoys preferential recommendation from ACIP; Trelegy Ellipta, which provides three medicines in a single inhaler to treat COPD and Juluca (dolutegravir and rilpivirine), first 2-drug regimen, once-daily, single pill for HIV. All the three products have seen encouraging starts in 2018, particularly Shingrix.
Juluca has been developed by Glaxo and partner Pfizer, Inc.’s PFE HIV-focused company, ViiV Healthcare, in partnership with Johnson & Johnson JNJ.
Glaxo has also made significant progress with its late-stage pipeline this year. It announced successful data from late-stage studies evaluating its new dual therapy treatments for HIV, dolutegravir+lamivudine and cabotegravir+ripilvirine. Key regulatory approvals this year included Juluca in EU, Shingrix in EU and Japan, an expanded label for Trelegy Ellipta in the United States and Relvar Ellipta and Fluarix Tetra in EU.
In June, Glaxo bought Novartis’ NVS 36.5% stake in their Consumer HealthCare JV for $13 billion. With the acquisition of Novartis’ stake, Glaxo now has 100% ownership of its Consumer Healthcare unit, which includes products such as Sensodyne and Flonase. The deal has strengthened Glaxo’s competitive position in the market and was given a heads up by the investor community.
What to Expect in the Second Half?
While Glaxo’s new respiratory and HIV drugs and vaccines like Shingrix will continue to support the top line, its aggressive cost savings efforts should support the bottom line.
Glaxo’s new products like Nucala (severe eosinophilic asthma), the inhaled Ellipta portfolio (chronic obstructive pulmonary disorder/COPD and asthma), Tivicay and Triumeq (HIV) and Menveo, Bexsero (meningitis vaccines) are all doing well and represent significant commercial opportunity. These new products generated 22% of Glaxo’s Pharmaceuticals and Vaccine sales in 2016 and 30% in 2017 and continue to boost revenues in 2018.
Meanwhile, data from several of the phase III programs are expected in 2018-2020 period. Glaxo expects to launch several products in the 20118-2020 timeframe including the two-drug regimes of dolutegravir+lamivudine and cabotegravir+ripilvirine as well as its most advanced new oncology treatment, 2857916 (BCMA antibody-drug conjugate), for the treatment of multiple myeloma.
However, Glaxo’s older inhaled respiratory products, particularly Seretide/Advair, are facing competitive and continued pricing pressure, which are hurting sales. This is expected to continue through rest of 2018. Also, continued transition to newer products is hurting sales of Advair. Meanwhile, Advair is also expected to face generic competition in the United States this year, which will further hurt sales.
It is noteworthy here, however, that three companies Mylan, Hikma Pharmaceuticals and Novartis, which are trying to bring a generic version of Advair, have received a complete response letter (CRL) from the FDA, thereby delaying the entry of generics in the U.S. market.
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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