GSK's Q2 revenue grows by 11%, driven by HIV medicines, new respiratory products, and vaccines

UK pharma major GlaxoSmithKline (GSK) has issued its second-quarter financial results for 2016. Turnover in this quarter was GBP6.532 billion (USD8.582 billion), corresponding to an 11% year-on-year (y/y) increase on a reported basis, and a 4% rise on a constant exchange rate (CER) basis. For the first half of the year, revenue was GBP12.761 billion, again representing an 11% y/y increase on a reported basis (6% at CER). Growth occurred across all three businesses on a reported basis, with pharmaceuticals growing 10% (2% at CER) to GBP3.9 billion, vaccines 18% (11% at CER) to GBP960 million, and consumer healthcare 12% (7% at CER) to GBP1.7 billion.

Regarding costs, sales costs were increased by 6% y/y on a reported basis (2% at CER), and research and development (R&D) spend was up by 9% (4% at CER), whereas savings of 14% y/y were made on selling, general, and administrative costs (16% at CER), partly because of synergies following restructuring and integration programmes. The R&D expenditure reflects increased investment in the pipeline, particularly HIV products acquired from Bristol-Myers Squibb (BMS, US) in the first quarter.

Although revenues showed a substantial increase, overall GSK had a net loss of GBP492 million, compared with a net profit of GBP115 million for the second quarter of last year. In terms of the first half of 2016, the loss is reduced to GBP140 million, compared with a first-half profit of GBP8.153 billion last year. According to GSK, this net loss was mostly due to the impact of a significant sterling currency adjustment to valuations of liabilities associated with the consumer healthcare and HIV businesses, plus residual restructuring costs relating to the integration of former Novartis Vaccines and Consumer Healthcare businesses following the transaction in 2015. Restructuring and integration costs are expected to reduce to minimal levels after 2017.

The company’s performance in this quarter was given a boost by strong sales of new products, including the HIV medicines Tivicay (dolutegravir) and Triumeq (dolutegravir + abacavir + lamivudine), the novel respiratory products Relvar/Breo Ellipta (fluticasone furoate + vilanterol), Anoro Ellipta (umeclidinium bromide + vilanterol), Incruse Ellipta (umeclidinium inhalation powder), and Nucala (mepolizumab), and the meningitis vaccines Bexsero and Menveo. HIV products overall showed a 44% y/y increase in sales (on a CER basis) to GBP865 million, and respiratory products stayed level at GBP1.585 billion, with the new respiratory products more than offsetting declining sales of the older Seretide/Advair (fluticasone propionate + salmeterol).

Approval and pipeline highlights

Achievements in the second quarter included a successful EU approval for Strimvelis, the first-ever gene therapy for adenosine deaminase-severe combined immunodeficiency (ADA-SCID). GSK has plans to make four additional significant registration filings by the end of the year, namely:

• Closed triple combination therapy (fluticasone furoate + umecliidinium + vilanterol) for chronic obstructive pulmonary disease (COPD).

• Shingrix vaccine for shingles (varicella-zoster virus).

• Subcutaneous Benlysta (belimumab) for systemic lupus erythematosus (SLE).

• Sirukumab for rheumatoid arthritis (RA).

Outlook and implications

GSK’s second-quarter 2016 results were boosted by its HIV, respiratory, and vaccine franchises, particularly novel products Tivicay and Triumeq, plus a new set of respiratory products, which more than offset the falling sales of Advair/Seretide, which is subject to generic competition. Since many of GSK’s costs are in sterling and earnings are mostly overseas, GSK is likely to benefit for the remainder of 2016 from a weak pound, following the UK’s Brexit vote to leave the EU.

GSK now forecasts its EPS to increase at a CAGR of 11–12% on a CER basis in 2016, a slight increase from 10–12% reported previously in the year. On a reported sterling basis, EPS are expected to growth much more, possibly 19% if exchange rates match those at the end of June.