Glaxo (GSK) Down 3.9% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for GSK (GSK). Shares have lost about 3.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Glaxo due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Beats on Q2 Earnings & Sales, Raises 2023 Guidance
GSK reported second-quarter 2023 adjusted earnings of 97 cents per American depositary share (“ADS”) which beat the Zacks Consensus Estimate of 85 cents. Adjusted earnings rose 12% year over year on a reported basis and 16% at a constant exchange rate (CER).
Quarterly revenues rose 4% on a reported basis as well as on a CER basis to $8.97 billion (£7.18 billion), beating the Zacks Consensus Estimate of $8.49 billion. The sales increase was driven by rising HIV and Vaccine sales, which made up for lower COVID-19 solutions sales.
Excluding sales from COVID products, total sales were up 11% at CER.
Sales in the United States rose 7%. Sales in Europe rose 4% while that in International markets declined 7% at CER.
All growth rates mentioned below are on a year-on-year basis and at CER.
Quarterly Highlights
GSK reports under three segments: Specialty Medicines, Vaccines and General Medicines. Specialty Medicines, Vaccines and General Medicines are clubbed as commercial operations.
Specialty Medicines Sales Decline
Sales in the Specialty Medicines segment fell 7% at CER due to no sales of Xevudy in the quarter compared to strong sales in the year-ago quarter. Excluding Xevudy sales, revenues from the Specialty Medicines segment were up 12% at CER. Sales grew in HIV, Immunology/Respiratory and Other segments.
HIV sales increased 12% at CER, driven by strong demand for oral two-drug regimens, Dovato and Juluca, and long-acting regimens like Cabenuva and Apretude and a favorable pricing mix in the United States.
Overall, sales of the oral two-drug regimens and long-acting regimens comprised 51% of the total HIV portfolio in the second quarter.
GSK generates the majority of its HIV sales from its dolutegravir franchise, comprising three-drug regimens — Triumeq and Tivicay — and two-drug regimens — Dovato and Juluca. The launch of the two-drug regimens has been eroding sales and market share of the three-drug regimens following their launch.
While sales of the dolutegravir franchise were up 5% at CER in the U.S. market, they were flat in Europe. In International markets, sales were up 6% at CER.
Sales of Triumeq declined 16% at CER, while Tivicay sales remained flat.
Juluca was up 6% while Dovato was up 33% in the first quarter.
New medicines, Cabenuva and Apretude, contributed £176 million and £36 million, respectively to revenues compared with £127 million and £24 million, respectively in the previous quarter.
GSK expects sales from its new long-acting regimens of around £2 billion by 2026.
Oncology sales declined 3% year over year due to lower Blenrep sales. Sales of Zejula fell 2% at CER in the quarter. Zejula sales benefitted from growth in first-line use, partially offset by lower second-line use following an update to the drug’s label in fourth quarter of 2022. Sales growth was strong in both Europe and International markets.
New drug Jemperli added £25 million to the top line in the first quarter compared with £11 million in the previous quarter due to higher new patient starts in the United States. Blenrep sales declined 73% during the quarter since the drug was withdrawn from the U.S. market last November.
Immuno inflammation, respiratory and others sales were up 16% in the second quarter. Sales of the respiratory drug, Nucala, were up 15% at CER during the quarter, driven by strong demand trends and approvals/launch of additional indications globally. Sales of the immuno-inflammation drug, Benlysta, were up 19% in the quarter, reflecting strong underlying demand in the United States and Europe and higher volumes in Japan and China.
GSK did not record any Xevudy sales during the second quarter compared with £31 million in first-quarter 2023.
Management expects sales of Specialty Medicines to increase at a high single-digit percentage compared to a mid-to-high single-digit percentage at CER in 2023.
General Medicines
Sales of General Medicines were up 8% at CER during the quarter, driven primarily by Trelegy.
In General Medicines, Respiratory sales were up 9% at CER, while Other General Medicines sales rose 82%.
Trelegy Ellipta sales surged 30% year over year, owing to strong growth in all regions. Sales of Anoro Ellipta were up 19% at CER during the second quarter. Advair/Seretide sales rose 26% year over year. Sales on Revlar/Breo Ellipta were down 6% at CER year over year.
In General Medicines, GSK expects sales to increase at a single-digit percentage compared to its previous expectation of broadly flat to down slightly in 2023.
Vaccine Sales Rise
GSK’s second-quarter vaccine sales increased 18% at CER. GSK also recorded sales of £41 million from COVID vaccines sales, its share of contracted European volumes of COVID-19 booster vaccine co-developed in partnership with Sanofi. In Vaccines, sales rose 15%, excluding COVID-19 solutions driven by Shingrix and meningitis vaccines.
Shingrix sales rose 20% at CER during the quarter due to geographic expansions and increased demand in ex-U.S. markets. In the United States, Shingrix sales declined 10% due to an unfavorable wholesaler inventory destocking and lower non-retail demand which offset strong growth in the retail segment. Presently, Shingrix is available across 33 countries.
In Meningitis vaccines, Bexsero sales were up 18%, while sales of Menveo fell 4%. Sales of the influenza vaccine, Fluarix, were down 28% at CER. Sales of Established vaccines were up 13% year over year.
In 2023, Vaccine sales are still expected to grow in the mid-teens percentage at CER, excluding pandemic adjuvant sales.
Profit Discussion
Adjusted operating profit rose 11% at CER driven by strong sales across all segments and higher royalty income, which was partially offset by higher R&D costs and investments behind new product launches.
Adjusted operating profit rose 12%, excluding COVID-19 solutions. Adjusted operating margin rose 200 basis points in the quarter at CER to 30.2%.
Adjusted selling, general and administration (SG&A) costs increased 11% year over year at CER to £2.19 billion. The upside in SG&A costs was due to launch of products in the Specialty Medicines and Vaccines segments
Research and development (R&D) expenses rose 13% year over year at CER to £1.32 billion due to continued investment behind both early and late-stage pipeline programs.
Ups 2023 Guidance
GSK raised its guidance for 2023 backed by a better-than-expected performance in the first half of the year.
The company now expects sales to increase 8-10% in 2023 compared with previous expectations of 6-8%
GSK expects adjusted operating profit growth to increase between 11% and 13% at CER (previously: 10% to 12%). The company also raised the guidance for its adjusted EPS, which is anticipated to grow in the range of 14-17%, a two-percentage point rise from the previously-issued guidance of 12-15%.
The above guidance excludes any revenues from its COVID-related products. Management does not expect significant COVID-19 related sales in 2023.
The COVID-related products are expected to hurt sales growth by approximately 8% (previously 9%) and adjusted operating profit growth by 4% to 5% (previously 5% to 6%) in 2023.
SG&A is expected to grow at a rate similar to sales, reflecting investment to support recent and anticipated launches. R&D is expected to increase at a rate lower than sales. Adjusted tax rate is expected to be around 15%.
As regards turnover, GSK expects lower growth in second-half 2023, particularly in the HIV and General Medicines segments, reflecting a tough comparison with the second half of 2022. Sales growth is expected to be slightly higher in the third quarter relative to the fourth quarter.
Management also expects adjusted operating profit growth in second-half 2023 to be higher than the first half.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
Currently, Glaxo has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Glaxo has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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