ii view: Covid shines a light on Glaxo's vaccines

Prevention is better than cure. Vaccine sales again lead the way at this British drug maker.

First-quarter results

• Revenue up 19% to £9.1 billion
• Adjusted operating profit up 24% to £2.67 billion 
• Adjusted earnings per share (EPS) up 25% to 37.7p per share
• Dividend payment flat at 19p per share

Guidance:

• 2020 Adjusted EPS expected to decline between -1% and -4% on constant currency basis
• Maintaining adjusted EPS guidance for the full-year

Chief executive Emma Walmsley said:

"Responding to the Covid-19 pandemic is at the heart of our purpose as a company and GSK's portfolio is both highly relevant and needed.  We have mobilised efforts across the company and I want to thank all the GSK teams for their outstanding work to make sure our vital medicines, vaccines and everyday health products continue to be available to the people who need them. Our primary aim is to develop multiple adjuvanted Covid-19 vaccines, and we are working with companies and institutions across the world to do so.

"Our business performed strongly in the quarter with growth in sales and earnings reflecting good underlying performance and increased demand, including stock-building, for many of our products.  Looking ahead, we clearly face a period of considerable uncertainty, but we remain confident in the resilience and sustainability of GSK's business and our ability to deliver on our long-term priorities of Innovation, Performance and Trust."

ii round-up:

Ongoing strong demand for the drug makers shingles vaccine helped GlaxoSmithKline (LSE:GSK) deliver double-digit growth in both sales and earnings in these latest results. 

Sales for its Shingrix shingles vaccine grow by 81% to £647 million in the quarter. Vaccine sales account for just under half of total group revenues, with GSK actively collaborating with other drug makers such as Sanofi (EURONEXT:SAN) in pursuit of a Covid-19 vaccine. 

Like rival AstraZeneca (LSE:AZN), demand from hospitals to top-up their store cupboards in order to battle other conditions which can aid corona virus also played its part. Pharmaceutical revenues, which account for just over a quarter of total group sales, rose by 6% with respiratory sales jumping by 38% to £871 million. 

GlaxoSmithKline shares were marginally higher in mid-afternoon UK trading, having gained by nearly 20% over 2019.

First announced at the end of 2018, GSK is currently pursuing a plan to split the company into separate pharma and vaccines and consumer healthcare businesses.

Previous guidance for earnings to fall by as much as 4% over 2020 came in the wake of increased investments in research and product launches as the drug maker looks to revitalise its pipeline.

GSK shares are up by less than 40% over the last 10 years, compared to gains of more than 180% for both AstraZeneca and Hikma Pharmaceuticals (LSE:HIK). 

ii view:

Investor calls for a potential value enhancing separation of GlaxoSmithKline’s pharma and vaccine businesses from its Consumer Healthcare division have finally been heard. Eventual independence should inject greater management focus. 

A 6%-plus gain for Gaxo shares over the last year compared to an 18% fall for the wider FTSE 100 index suggests that management is making some progress. 

Now, Covid-19 is both elevating near-term demand for its products and shining a light on its vaccine business. 

That said, pressure on the Pharma business to replace drug patent expiries with new blockbusters persists. Established pharmaceuticals sales declined by 7% to just over £2 billion in this latest quarter. Despite big changes and an attractive dividend yield of over 4.5%, drug discovery is still key.  

Positives

• R&D pipeline contains 37 new medicines in development and 15 vaccines
• Defensive qualities. Consumers need medicines even in a recession

Negatives

• Established pharmaceuticals sales declined 7%
• 2020 dividend payment is expected to remain unchanged from 2019

The average rating of stock market analysts:

Strong hold