ii view: GlaxoSmithKline raises full-year estimates

Prevention is better than cure. Vaccine sales outpace pharmaceutical sales at GSK. 

Third-quarter results

• Revenue up 16% to £9.4 billion
• Adjusted operating profit up 3% to £2.14 billion 
• Adjusted earnings per share up 1% to 38.6p per share
• Dividend payment flat at 19p per share - continue to expect 80p for full year 2019

Chief executive Emma Walmsley commented:

"GSK has made further good progress in Q3, with sales growth across all three businesses, and we have today upgraded our full-year EPS guidance. This quarter we have continued to strengthen our pipeline and have advanced assets in Respiratory, HIV and, notably, Oncology, where we are on track to file three innovative medicines by year end, following positive pivotal trial data.

"We also achieved a significant milestone with the completion of our new Consumer Healthcare Joint Venture with Pfizer, to create a new world leading consumer healthcare business."

ii round-up:

Drugs maker GlaxoSmithKline (LSE:GSK) raised its full-year earnings estimate for the second time this year. 

Against prior management expectations for earnings per share to be down between 5% and 9% and then 3% to 5%, a flat performance compared to 2018 is now expected. 

Strong sales of its shingles vaccine Shingrix, up 76% in the third-quarter, helped underpin the upgrade. Sales growth across all three business arenas of vaccines, pharmaceuticals and consumer healthcare contributed to progress. 

Vaccine turnover grew by 15% on a currency adjusted basis, pharmaceutical sales up 3% and consumer healthcare sales up 25%, aided by acquired Pfizer (NYSE:PFE) legacy brands. The healthcare business has been combined with that of Pfizer's, with GSK holdings a controlling equity stake. 

Following a period of transition and cost savings, management intends to separate the joint venture via a demerger and a listing of GSK Consumer Healthcare on the UK stock market.

Progress to strengthen and advance the group's R&D pipeline was flagged. A total of 41 new medicines are under development along with 17 new potential vaccines.  

To strengthen its pharmaceutical oncology business, GSK previously bought US company TESARO for approximately $5.1 billion and entered into an alliance with rival Merck (NYSE:MRK). 

The share price rose by just under 1% in UK afternoon trading. 

ii view:

Investor calls for a potential value enhancing separation of the Consumer Healthcare business have finally now been heard.  Eventual independence for Pharma and Healthcare should provide more management focus. 

A 10% outperformance of the GSK share price against the wider FTSE-100 index over the last year suggests that management are making progress. 

However, pressure on the Pharma business to replace drug patent expiries with new blockbusters remains. Despite big changes and an attractive dividend yield of over 4.5%, drug discovery is still key. 

Positives

• R&D pipeline contains 41 new medicines in development and 17 vaccines
• Defensive qualities. Consumers need medicines even in a recession

Negatives

• Established pharmaceuticals sales declined 4%
• The total 2019 dividend payment is expected to see no increase on last year

The average rating of stock market analysts:

Strong hold