GSK delivers improvements in sales, margins and cash flow in Q2 2018

GSK delivers improvements in sales (at CER), margins and cash flow in Q2 2018

Total EPS 9.0p, >100% AER, >100% CER; Adjusted EPS 28.1p, +3% AER, +10% CER

GSK sets out new approach to Research and Development and upgrades 2018 EPS guidance

Financial highlights

Group sales: £7.3 billion, flat AER, +4% CER. Pharmaceuticals sales £4.2 billion, -3% AER, +1% CER; Vaccines £1.3 billion, +13% AER, +16% CER; Consumer Healthcare £1.8 billion, -1% AER, +3% CER

Adjusted Group operating margin: 28.8%, +0.3 percentage points AER, +0.8 percentage points CER. Pharmaceuticals: 35.3%, Vaccines 28.5%, Consumer Healthcare 19.3%

Adjusted R&D £868 million, -18% AER, -15% CER reflecting benefits of prioritisation, comparison with utilisation of Priority Review Voucher in Q2 2017 and phasing of new investments

Total EPS: 9.0p (Q2 2017: loss per share 3.7p) reflecting reduced impairments and lower charges for restructuring and changes in valuations of Consumer Healthcare and HIV businesses

Adjusted EPS growth +3% AER, +10% CER driven by operating leverage, continued financial efficiencies and reduction in minorities following completion of Consumer Healthcare buyout on 1 June 2018

H1 2018 free cash flow £0.8 billion (H1 2017: £0.4 billion)

19p dividend declared for quarter. Continue to expect 80p for FY 2018

New major restructuring programme expected to deliver annual cost savings of £400 million by 2021. Charges expected to be £0.8 billion cash and £0.9 billion non-cash over next 3 years

Now expect 2018 Adjusted EPS growth of 7 to 10% at CER if no substitutable generic competitor to Advair introduced in US in 2018. If a substitutable generic competitor to Advair is introduced in the US from 1 October, expect 2018 Adjusted EPS growth of 4 to 7% at CER

Product and pipeline highlights

Sales of Ellipta products, including Trelegy, £509 million +20% AER, +26% CER. Nucala sales £141 million +93% AER, +>100% CER

Tivicay and Triumeq sales of £1.1 billion +10% AER, +15% CER. New launch Juluca £24 million

Positive results of GEMINI study of new 2-drug regimen dolutegravir+lamivudine supports use in treatment naïve patients

Shingrix sales £167 million. Now expect 2018 sales of £600-650 million

R&D update

New approach to R&D announced focusing on science related to the immune system, the use of genetics and investments in advanced technologies

Strategic collaboration with 23andMe announced to take advantage of novel genetic insights to enhance selection of drug targets and clinical development of new medicines

GSK currently has over 40 NMEs in its pharmaceutical pipeline with significant data readouts 2018-2020

Several assets expected to launch 2018-20 including two treatments for HIV: dolutegravir+lamivudine and cabotegravir+ripilvirine; and GSK’s most advanced new oncology treatment 2857916 (BCMA antibody-drug conjugate)

916 pivotal studies started for 4L use. Initial 2L study, for use in combination with standard of care, to start H2 2018

US FDA approval received for Krintafel (tafenoquine), a radical cure of P. vivax malaria

Emma Walmsley, Chief Executive Officer, GSK said:

“GSK has delivered encouraging results across the company this quarter with CER sales growth in each of our three global businesses, an improved Group operating margin, Adjusted EPS growth of 10% (CER) and stronger free cash flow.

“Sales growth reflected strong commercial execution of the three new launches we have prioritised: Trelegy Ellipta which provides three medicines in a single inhaler to treat COPD; Juluca, the first 2-drug regimen, once-daily, single pill for HIV, helping to reduce the amount of medicines needed, and Shingrix, which represents a new standard for the prevention of shingles. We are increasing our expectations for sales of Shingrix in 2018 to £600-650 million.

“Focused improvements in operating performance have helped deliver increases in earnings and cash flow. Free cash flow for the year to date was £0.8 billion and we are announcing a dividend of 19p for the quarter. We continue to expect to pay a dividend of 80p for 2018.

“With the recent new product launches, development of the new R&D approach and the successful buyout of the Consumer business, we have evaluated the Group’s cost base and what is required to deliver competitive long-term growth and performance in each of the Group’s three businesses. As a result, we are today announcing a new major restructuring programme, which aims to significantly improve the competitiveness and efficiency of the Group’s cost base with savings delivered primarily through supply chain optimisation and reductions in administrative costs.

“We are today upgrading our guidance for CER growth in Adjusted earnings per share for 2018. This reflects increased sales expectations for Shingrix, the positive effect of the completed Consumer Healthcare buyout as well as the delay of a potential generic version of Advair in the US, partly offset by the continuing pricing pressures in Respiratory. We remain increasingly confident in our ability to deliver mid to high single digit growth in Adjusted EPS CAGR 2016-2020 (at 2015 CER).”

Thomas Willemsen, General Manager, GSK China Pharmaceuticals and Vaccines, said:

“In the first half of 2018, GSK China's Pharmaceutical and Vaccines business delivered 18% growth, exceeding industry average. This growth was driven by the launch of several innovative products, including: Triumeq, the first Single Tablet Regimen (STR) for HIV treatment, and Flixotide Nebules for acute exacerbations of childhood asthma in mainland China, as well as the continuous acceleration of our flagship brands Seretide and Viread.

The age limit of our HPV vaccine Cervarix has been approved to extend to 45 years, becoming currently the only vaccine for cervical cancer prevention in female population aged 9-45 years in mainland China.

“We have been improving patient experience and healthcare professional engagement in modern ways. We are partnering with China’s largest retailer to drive “Internet + Healthcare” to improve patient experience and access to healthcare, and piloted “JD Now”, a smart Internet of Things (IoT) healthcare project integrating online hospitals and IoT application for patients with pulmonary arterial hypertension (PAH). We are also evolving our digital platforms that make communications with HCPs easier, faster, and more efficient.

“With confidence in the future, we will introduce more breakthrough medicines and innovative, end-to-end solutions support HCPs and benefit more patients and people in the coming months.”