BIG PHARMA

GSK tops forecasts as consumer health spin-off nears

The company is also pressing ahead with plans to spin off its large consumer healthcare business

In Summary
  • Shares of the British company, which also reiterated its 2022 financial forecasts, were up about 1.7 per cent.
  • Mid this month, it bought U.S. drug developer Sierra Oncology
GlaxoSmithKline (GSK) Kenya Pharma has appointed George Onyango as the new General Manager effective July 1.
GlaxoSmithKline (GSK) Kenya Pharma has appointed George Onyango as the new General Manager effective July 1.
Image: COURTESY

GSK beat first-quarter sales and earnings forecasts on Wednesday, helped by demand for its Covid-19 therapy and shingles vaccine, as the drugmaker moves towards the July separation of its consumer health business.

Shares of the British company, which also reiterated its 2022 financial forecasts, were up about 1.7 per cent.

The spin-off of the consumer health arm, home to Sensodyne toothpaste and Advil painkillers, has increased focus on GSK's drugs business, with CEO Emma Walmsley facing pressure from activist investor Elliot to beef up its pipeline of treatments.

This month, GSK agreed to buy Sierra Oncology for $1.9 billion. In a media call on Wednesday, Walmsley indicated the group continued to have an appetite for deals.

Turnover in the three months to March 31 was boosted by 1.3 billion pounds ($1.6 billion) in sales from Covid-19 antibody treatment Xevudy, developed with Vir Biotechnology Sales of the drug - known chemically as sotrovimab - beat analysts' expectations of 1.1 billion pounds and was in line with what the therapy brought in over the course of 2021.

However, recent data suggested the therapy was unlikely to be effective against the BA.2 subvariant dominant in the top buyers in the United States. As a result, U.S. regulators have pulled the therapy off the market in the region.

GSK is continuing discussions with governments outside the United States where it remains authorised, Walmsley said.

Sales of Xevudy and other Covid-related products are not included in the company's 2022 guidance. GSK continues to forecast underlying revenue growth of 5-7 per cent and underlying operating profit growth of 12-14 per cent for this year.

The waning of the pandemic has helped GSK as it has seen some under-loved parts of its portfolio start to recover, Hargreaves Lansdown analyst Laura Hoy said.

For instance, Shingrix, GSK's top-selling vaccine, saw a resurgence in demand in the quarter, following disruption to adult immunisations during much of the pandemic. "We're seeing definite underlying demand return," Walmsley said.

The shingles vaccine generated 698 million pounds in quarterly sales, beating analyst estimates of 528 million.

"Key revenue driver Shingrix's performance was encouraging ... although recent data points to prescription levels still significantly below pre-pandemic volumes. Longer-term, mRNA vaccines pose a threat," Third Bridge analyst Sebastian Skeet said.

Overall, the quarterly results show the company bouncing back from a fall in demand for some products last year, but there are no guarantees this outperformance will be repeated in the quarters to come, AlphaValue analyst Amandeep Goyal said.

GSK is pressing on with the spin-off of the consumer health business, now called Haleon, even though many companies have delayed or abandoned listing plans amid market jitters over the Ukraine crisis.

The company, whose business in Russia and Ukraine accounts for less than one per cent of sales, saw an increase in costs in the quarter, partly due to provisions it set aside for the crisis. GSK did not offer a breakdown of those provisions.

The London-listed company has very limited clinical trial activity in Ukraine and has pressed pause on any new clinical activity in Russia.

"We're trying to maintain continuity wherever possible," said Walmsley, adding that GSK was not anticipating any significant impact on development programmes as a result of the crisis.

Mid this month, it bought U.S. drug developer Sierra Oncology in a $1.9 billion deal as sought to bolster its cancer business in the latest move to fend off pressure from activist shareholder Elliott.

GSK has been facing mounting calls to shore up its drug pipeline since Elliott built up a significant stake in the company last year.

The company is also pressing ahead with plans to spin off its large consumer healthcare business, which includes brands such as Sensodyne toothpaste and Advil painkillers in July.

Shareholders in Sierra, a cancer drug developer, will receive $55 per share of common stock in cash, which is a 39 per cent premium to the company's trading price. 

The deal’s price tag doesn't look unreasonable given it is roughly three times consensus peak sales expectations of $630 million for Sierra’s lead experimental drug, momelotinib, J.P.Morgan analysts wrote in a note.