Glaxo (GSK) Up 1.6% Since Last Earnings Report: Can This Continue?

It has been about a month since GSK (GSK) last reported its earnings. Shares rose about 1.6% in that time, underperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or will Glaxo face a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Beats Q1 Earnings and Sales Estimates, 2024 Growth Forecasts

GSK reported first-quarter 2024 core earnings of $1.09 per American depositary share (“ADS”), beating the Zacks Consensus Estimate of 94 cents. Core earnings increased 16% year-over-year on a reported basis and 28% at constant exchange rates (CER) due to higher profits and lower finance costs, partially offset by higher non-controlling interests and a higher tax rate.

Quarterly revenues rose 6% on a reported basis and 10% for CER to $9.34 billion (7.36 billion pounds), beating the Zacks Consensus Estimate of $8.98 billion.

Excluding sales of COVID-related products, total sales increased 13% at CER thanks to gains from newly launched products Arexva, Ojjaara and Jemperla.

Sales in the United States increased 14%. Sales in Europe decreased by 3%, while in international markets they increased by 16% at CER.

All growth rates listed below are reported year-over-year and by CER.

Quarterly highlights

GSK reports in three segments: Specialty Medicines, Vaccines and General Medicines. Specialty drugs, vaccines and general medicines are combined into commercial activities.

Specialized drugs

Sales in the specialty medicines segment increased by 17%. After excluding sales of Xevudy, revenues in the specialty drugs segment increased by 19%.

Sales increased in the HIV, Immunology/Respiratory and Oncology segments.

HIV sales increased 14%, driven by strong demand and increased market share of oral dual-drug regimens, Dovato and Juluca, and long-acting regimens, such as Cabenuva and Apretude.

GSK generates most of its HIV sales from its dolutegravir franchise, which includes three-drug regimens – Triumeq and Tivicay – and two-drug regimens – Dovato and Juluca. The introduction of two-drug regimens reduces sales and market share of three-drug regimens once they are introduced to the market. Sales of the dolutegravir franchise increased 6% in the quarter. While sales of the dolutegravir franchise increased by 5% in the US market, they increased by 3% in Europe. In international markets, sales increased by 14%.

Triumeq sales fell 14% in the quarter, while Tivicay sales increased 4%. Juluca was up 8% this quarter and Dovato was up 27%. Rukobia sales increased 36% this quarter. New long-acting medicines Cabenuva and Apretude contributed £213m and £54m respectively to revenue, compared with £223m and £52m respectively in the previous quarter. The development of these products results from high patient demand.

In 2024, HIV sales are expected to increase from the high single digits to the low double digits.

Oncology sales more than doubled in the quarter, led by a strong launch of Ojjaara in the U.S. and patient drive for Jemperli and Zejula. This increase was partially offset by sales of Blenrep, which generated no sales in the quarter following the drug’s withdrawal from the U.S. market in 2022.

Zejula sales increased 27% in the CER quarter, driven by increased patient demand and higher volumes driven by new tablet formulations as well as new launches in international markets. Jemperli increased revenue by 80 million pounds in the first quarter compared to 60 million pounds in the fourth quarter of 2023. Ojjaara generated product sales of 52 million pounds in the quarter compared to 29 million pounds in the fourth quarter of 2023. The FDA approved the drug in September to treat patients with myelofibrosis and anemia, while the drug was approved in the EU in January 2024. GSK launched the drug in the UK and Germany.

Sales of respiratory/immunology and other products increased 11% in the first quarter. Sales of respiratory drug Nucala increased 13% at CER, driven by rising demand in European and international markets, which was partially offset by continued growth in the United States. Sales of immune inflammation drug Benlysta increased 8% in the quarter on strong demand and volume growth in European and international markets.

Xevudy generated sales of £1 million in the first quarter, compared to £13 million in the fourth quarter of 2023.

Management expects specialty pharmaceuticals segment sales to grow by a low double-digit percentage in CER in 2024.

General medicines

Sales of general medicines increased 1% in the quarter. This growth was driven by solid sales growth of the Trelegy Ellipta asthma inhaler in all regions and increased demand for antibiotics in the international market. This increase was offset by a decline in the overall respiratory established drug portfolio following the adverse impact on U.S. Medicaid drug prices from the removal of the Average Manufacturer Price (AMP) cap.

In the general medicines segment, sales of respiratory medicines increased by 2% in CER, while sales of other general medicines decreased by 2%.

Trelegy Ellipta sales increased 33% in the quarter, driven by strong growth across all regions, driven by strong patient demand and increased market share. Anoro Ellipta sales increased by 3%. Sales of key established drugs Advair/Seretide fell 13%, while sales of Revlar/Breo Ellipta rose 4%.

In the general medicines segment, GSK expects sales to decline in the mid-single digit range in 2024.

Vaccinations

GSK’s vaccine sales in the first quarter increased 16%, driven by demand for Arexvy’s RSV vaccine in the United States and strong demand for its Shingrix vaccine in ex-U.S. markets. GSK reported no sales of its COVID-19 booster vaccine developed with Sanofi during the quarter.

Arexvy generated £182 million in the quarter, reflecting strong consumer interest. Per management, Arexvy maintained about two-thirds of its retail vaccine share in the quarter. While sales were down significantly compared to Q4 2023 sales of £529 million, the decline was in line with expected seasonality patterns.

GSK expects that in 2024, the majority of Arexva’s sales will come from the US market. Sales are expected to be carried over to the second half in preparation for the 2024/25 RSV season.

Shingrix sales increased 18% in the quarter, driven by strong expansion of public financing in markets outside the U.S. and early deliveries to new partner Zhifei in China. Shingrix is ​​currently available in 39 countries outside the United States, with sales outside the United States accounting for more than 50% of global sales.

In the United States, Shingrix sales declined 4% due to a difficult comparison to the year-ago quarter (which benefited from the elimination of the Medicare copay for adults 65 and older) and prioritization of other adult respiratory viral seasons for the vaccine.

In the case of meningitis vaccines, sales of the Bexsero vaccine increased by 3%, while sales of the Menveo vaccine increased by 41%. Sales of Fluarix flu vaccine increased by 8%. Sales of established vaccines increased by 7% year-on-year.

Vaccine sales are expected to grow at high single-digit to low double-digit rates in CER in 2024.

The story continues

Talk about profits

Adjusted operating profit increased 27% at CER to £2.44 billion, supported by strong sales across all segments, favorable product mix and SG&A leverage, partially offset by the impact of the loss of Gardasil royalties.

Adjusted selling, general and administrative (SG&A) expenses decreased 2% to £1.98 billion due to improved operating leverage and a one-off benefit from the successful Zejula royalties dispute.

Adjusted research and development (R&D) spend increased 14% to £1.36 billion, driven by continued investment in late-stage candidates in the vaccine, respiratory and infectious disease segments.

Guidelines 2024

GSK increased its forecasts for 2024. The management board expects that sales growth will be near the upper limit of previously announced forecasts at the level of 5-7% (in CER).

Management expects higher revenue growth in the first half of 2024 compared to the second half due to the difficult comparison with the second half of 2023. Sales in the second half of 2023 benefited from newly launched vaccines and drugs. The majority of Shingrix sales in China are also expected to occur in the first half of 2024.

The company expects adjusted operating profit to grow in the CER range of 9% to 11% (previously up 7-10%). GSK also raised its headline EPS growth guidance from a range of 6-9% to 8-10%, reflecting higher operating profit and improved net finance costs. The increase in forecasts was due to the expectation of slightly higher royalty income following the successful appeal of the Zejula royalties dispute. Royalty revenues are expected to be slightly higher at between £550 and £600 million in 2024.

In 2024, GSK expects to achieve any sales or operating profit related to the Covid-19 pandemic. In 2024, this is expected to reduce GSK’s sales growth by 1% and operating profit growth by 2%.

The currency is expected to hurt 2024 revenues by 3% and adjusted operating earnings by 5%.

SG&A expenses are expected to grow at a low single-digit rate in 2024, down from the double-digit growth recorded in 2023. Research and development is expected to grow at a rate similar to sales. The adjusted tax rate is expected to be around 17%, up from 14% in 2023.

How have estimates changed since then?

Investors have witnessed a downward trend in estimate revisions over the past month.

VGM results

At this point, Glaxo’s average Growth Score is C, although it lags slightly behind its Momentum Score of D. However, the stock is rated an A on the value side, putting it in the top quintile of this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show a downward trend, and the scale of this correction indicates a downward shift. Notably, Glaxo carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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