GlaxoSmithKline Reports Robust 1Q22 Earnings; Beats Street Estimates

- Advertisement -


- Advertisement -

On April 27, 2022, GlaxoSmithKline
GSK
plc (NYSE: GSK, $45.44, Market Capitalization: $115.5 billion) reported 1Q22 results.
GSK delivered a stellar result for 1Q22, with turnover increasing ~32% YOY (+32% YOY constant exchange rate or CER) to £9.8 billion (+10.5% vs. consensus). The performance was largely driven by 100% jump in revenues of Shingrix vaccines to £698 million. Within segments, the growth was driven by Commercial Operations at +40% (CER: +40%) and Consumer Healthcare 13.9% (CER: +14%). The commercial operations include specialty medicines, vaccines, and general medicines. Adjusted Gross profit grew 21.7% YOY to £6.3 billion, while the corresponding margin contracted ~535 bps to 64.5% (Consensus: 66.5%). Adjusted operating profit increased 38.9% YOY (CER: +39%) to £2.6 billion (+15.5% vs. consensus), while the corresponding margin reached to 26.7% (1Q21: 25.4%). Adjusted profit before tax grew 41.2% YOY (CER: +41%) to £2.4 billion (+15.3% vs. consensus), while the corresponding margin expanded ~163 bps to 24.6%. Adjusted Profit attributable to shareholders increased 44.0% YOY (CER: +44%) to £1.6 billion (+13.9% vs. consensus), while the corresponding margin widened by 142 bps to 16.8%. Adjusted EPS for the quarter stood at 32.8p (1Q21: 22.9p, CER: +43%).

GSK reaffirmed its FY22 guidance and expects revenues to grow 5-7% at CER. The Specialty Medicine segment is expected to grow by ~10% at CER, General Medicines to show marginal degrowth, and Vaccines sales to grow at a low-teen percentage. Adjusted operating profit is projected to grow by 12-14% (CER). The guidance excludes contributions from the Covid-19 solutions. The revenue from the Covid-19 solutions will be similar to FY21. For Haleon, organic revenue growth is expected to be in the range of 4% to 6%, and sustainable moderate expansion of adjusted operating margin over the medium term at CER.

On June 23, 2021, GSK announced plans to spin-off its Consumer Healthcare division into a separately listed company. On February 22, 2022, GSK announced that its Consumer Healthcare business will be named as “Haleon” post spin-off. Post separation, New GSK (Stub unit) will operate as a Biopharma Company focused on specialty medicines and vaccines, while Haleon will be a 100% Consumer Healthcare Company focused on category-leading power brands.

GSK intends to structure the transaction in a tax efficient manner for both the UK and US shareholders, subject to approval from the relevant tax authorities. The transaction will be executed through demerger of at least 80% of GSK’s 68% holding in the Consumer Healthcare business to GSK shareholders, subject to shareholder approval (the Consumer Healthcare business is a Joint Venture (JV) between GSK and Pfizer
PFE
, with GSK holding a majority controlling interest of 68% and Pfizer holding 32%). The stub entity will retain up to 20% holding in the spin entity as a short-term investment and monetize the same at an opportunity moment to strengthen the balance sheet and finance pension liabilities. Prior to the transaction, New GSK is expected to receive more than £7 billion as a dividend from the Consumer Healthcare unit. Pfizer will receive a dividend of more than £3 billion and will retain its 32% stake post the demerger. In 2022, GSK shareholders will receive dividends from both New GSK and Haleon as the separation is expected to happen by July 2022. The dividend from Haleon is expected to be at the lower end of 30-50% pay-out ratio range and is subject to Haelon’s board approval. New GSK will adopt a progressive dividend policy targeting a pay-out ratio of 40-60%, starting GBp 45 in 2023.

We maintain a price target of $50.00 per share (£18.00 per share) on GSK (Consolidated) with a Buy rating, which is based on our SOTP based equity valuation for New GSK and Haleon (Spin-off) at $70.1 billion (£55.9) billion) and $45.8 billion (£36.5 billion), respectively. The premium valuation of Haleon reflects the company’s ability to deliver sustainable growth in the long term based on a strong growth profile.

Key highlights of the conference call (1Q22)

GlaxoSmithKline plc (GSK) reported robust performance in 1Q22, driven by growth across all the segments and regions with continued R&D investments and a strengthening pipeline.

Haleon (Spin-off)

• Significant progress has been made and the separation of the Consumer Healthcare division (Haleon) is at the final stages. During 1Q22, Haleon hosted the first Capital Market Day, appointed a board of directors, established debt facilities, raised debt across various maturities, and completed the technology systems cut over. Haleon is planning to publish a prospectus in June 2022, which will be followed by a shareholder vote in July 2022. Management expects completion of spin-off in July 2022.

• Haleon’s revenue increased ~14% YOY (+16% organic growth) which was driven by broad based growth in all the categories and regions. The organic revenue growth split includes +3% from prices, and +13% from volume and mix. Like its peers, the company also witnessed inflationary cost pressure. However, operating leverage and pricing coupled with the delivery of the Pfizer synergies enabled the company to improve its operating margin by ~230bps at CER to 24.7%. The company also increased investment in A&P and R&D.

• Going forward, management does not expect macroeconomic pressure to increase in FY22E and 2H22E and is confident to deliver FY22E sales in line with the medium term organic annual revenue guidance of 4% to 6%.

GSK (Consolidated)

• In 1Q22, GSK delivered a 32% YOY increase in revenue, driven by commercial execution and strong demand across the portfolio. Biopharma sales grew by 40%; +15% excluding Xevudy, Specialty medicines by +97%, Vaccines by +36%, General Medicines by +3%, and Consumer healthcare by +14%.

• The GSK R&D pipeline has several specialty medicines, including Cabenuva, approved by FDA. It is the first FDA-approved injectable, complete regimen for HIV-1 infected adults that is administered once a month. HIV sales doubled QoQ, delivering over ~6,000 people living with HIV. The US FDA also approved Triumeq pediatric the first dispersible single tablet regimen containing a once daily treatment for children living with HIV, and in immunology. Benlysta was approved by China for active lupus nephritis.

• On April 13, 2022, GSK announced that it has entered into an agreement with Sierra, according to which GSK will acquire Sierra Oncology, a late-stage biopharmaceutical company based in a California US, for a total consideration of ~$1.9 billion (£ 1.5 billion). The deal is expected to contribute to FY23E sales with adjusted EPS growth in FY24E.

• In 2Q22E, GSK expects the results for RSV (Respiratory syncytial virus) Older Adults vaccine with an expected regulatory submission before the end of the FY22E, to be included in FY23E. RSV infection accounted for ~180,000 hospitalization each year and ~14,000 deaths in the US, which represents significant unmet medication needs that the company can capture.

• In 2H22E, GSK has several late-stage readouts, which includes the DREAMM-3 trial for Blenrep in patients, with myeloma and phase 2B data, patients with chronic Hep B infection.

• In 1Q22, GSK delivered 15% growth in Specialty medicines excluding COVID-19 solutions, reflecting 18% YOY growth from Benlysta, 15% in Oncology and 100% in Duvroq. Shingrix sales grew more than 100% YOY to £698 million, driven by sound demand, large retail purchases and channel inventory build. Management does not expect similar traction in 2Q22E. For FY22E, GSK is on track to deliver double-digit revenue growth for Shingrix, which is well positioned to achieve a doubling in revenue by FY26E.

• HIV sales grew 14% YOY in 1Q22, driven by new HIV products. GSK is expecting to be the innovation leader in HIV and expecting mid-single digit self-care by FY26E. Management is expecting to deliver mid-single-digit growth for FY22E.

• Selling and general administrative expenses increased due to investment in Specialty Medicines (particularly HIV), Vaccines, and increased Consumer Healthcare brand investment. These expenses are benefited from the legal settings of ~£60 million in 1Q22.

• The company delivered £1.7 billion of free cash flow in 1Q22 and £2.8 billion of cash generated from operations. The company has declared a dividend of 0.14p in 1Q22.

• There was favorable phasing in 1Q22, such as the timing of international tender and HIV and in US vaccine ordering patterns. Considering this and the previous year’s performance, management expects 2Q22E and 3Q22E to deliver lower sales with 4Q22E to be favorable. Expecting 1H22E to be slightly ahead of annual guidance and 2H22E to be influenced by strong 3Q21 and favorable 4Q21.

• For FY22E new GSK, management is expecting revenue to grow between 5% to 7% CER, and adjusted profit is expected to be between 12% to 14% CER. The CER guidance provided excluding the commercial benefit of COVID-19 solutions.

Overall Results

1Q22 Results

GSK delivered a stellar result for 1Q22, with turnover increasing ~32% YOY (+32% YOY constant exchange rate or CER) to £9.8 billion (+10.5% vs. consensus). The performance was largely driven by 100% jump in revenues of Shingrix vaccines to £698 million. Within segments, the growth was driven by Commercial Operations at +40% (CER: +40%) and Consumer Healthcare 13.9% (CER: +14%). The commercial operations include specialty medicines, vaccines, and general medicines.

Adjusted Gross profit grew 21.7% YOY to £6.3 billion, while corresponding margin contracted ~535 bps…

,

Credit: www.forbes.com /

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox