Changing currency exchange rates boosted sales by 7% during Q2 FY16
British drug maker GlaxoSmithKline PLC (NYSE: GSK) announced its Q2 FY16 financial results on July 27th, 2016. The Brentford, U.K.-based Company is engaged in the discovery, development, manufacture, and marketing of pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products. GlaxoSmithKline’s principal pharmaceutical products include medicines in respiratory, antivirals, central nervous system, cardiovascular and urogenital, metabolic, antibacterials, dermatology, rare diseases, immunoinflammation, and human immunodeficiency virus (HIV) therapeutic areas. GlaxoSmithKline’s operates under three segments: Pharmaceuticals, Vaccines, and Consumer Healthcare. Read more about GlaxoSmithKline’s financial results below.
Q2 FY16 financial highlights
GlaxoSmithKline’s Q2 FY16 sales got a boost from the post-Brexit decline of the British pound and the new drug portfolio that will soon replace expiring blockbuster medications. A weaker pound helps GlaxoSmithKline’s earnings because most of the Company’s costs are in pounds, while most of its sales are made in the U.S. Britain accounts for nearly half of GlaxoSmithKline’s worldwide R&D and a third of its manufacturing. Q2 FY16 sales, in sterling terms, rose 11% to £6.53 billion ($8.55 billion); on a constant currency basis, sales grew by 4% during the quarter.
Changing currency exchange rates between the British pound and U.S. dollar boosted sales by 7% and added 2.6% value to GlaxoSmithKline’s core earnings. GSK posted an operating loss of £151 million, or (£0.09) per share, which reflects the impact of sterling currency adjustment to valuations of liabilities associated with the Consumer Healthcare and HIV businesses. However, core operating profit amounted to £1.83 billion, or £0.24 per share, during the reporting quarter.
GlaxoSmithKline’s Pharmaceuticals segment sales grew 2% to £3.9 billion during the reporting quarter; Vaccines segment sales jumped 11% to £960 million; and the Consumer Healthcare segment sales rose 7% to £1.7 billion. New drug sales accounted for 23% of GSK’s total pharmaceutical sales during Q2 FY16, as compared to 11% in Q2 FY15. New product sales (shown alongside) jumped to £1.05 billion as compared to £446 million in Q2 2015 and £821 million in Q1 FY16, driven by HIV (Tivicay, Triumeq), Respiratory (Relvar/Breo, Anoro, Incruse, Nucala) and Meningitis vaccines (Bexsero, Menveo). For the first time, sales growth of new respiratory products more than offset decline in sales of Advair, GSK’s best-selling medication, during the quarter under review.
GlaxoSmithKline’s global sales for respiratory drugs Relvar/Breo amounted to £146 million in the reporting quarter, Anoro Ellipta sales amounted to £46 million, Incruse Ellipta sales amounted to £28 million, while Nucala sales was £20 million. Global sales of Eperzan/Tanzeum amounted to £29 million, while HIV drugs Tivicay and Triumeq bought in £225 million and £409 million, respectively, during the reporting quarter. Vaccines Bexsero and Menveo bought in £97 million and £47 million, respectively, during Q2 FY16.
Advair’s U.S. patent expired in 2010, but the Diskus inhaler apparatus is protected through 2016. A generic version of the drug is expected next year, and GlaxoSmithKline has been preparing a new generation of asthma inhalers to sustain sales growth if a cheaper generic version of Advair hits the market.
Respiratory medicine is GlaxoSmithKline’s most important pharmaceutical business. GlaxoSmithKline’s recently launched Nucala, its first injectable biological asthma drug, targeted at asthma patients who suffer from severe disease that is not well controlled by traditional inhalers. However, Nucala helps around a fifth of them, leaving a considerable unmet need and a potentially large market. Hence, GSK is developing a new medicine, CNTO 7160, which is in Phase I clinical development.
In a related development, GlaxoSmithKline has bought the global rights to an experimental drug from Johnson & Johnson (NYSE: JNJ) for up to £175 million pounds ($230 million). Janssen R&D is developing CNTO 7160, an intravenously administered therapeutic for asthma and atopic dermatitis. CNTO 7160 is a novel anti-IL33R monoclonal antibody for severe asthma. GlaxoSmithKline is expected to commence Phase 2 trials in 2017. The medicine is unlikely to reach the market before 2023.
GlaxoSmithKline’s restructuring plan to deliver savings of £5 billion in total by 2017 is progressing as scheduled, and £3.2 billion has been expensed as of June 2016.
CEO Sir Andrew Witty, who has faced flak from investors since 2013 as profits have lagged, is set to retire in March 2017, after nearly 10 years at the helm of the Company. The Company is now scouting for a new CEO to replace Sir Witty.
GlaxoSmithKline is investing £275 million ($361 million) at three drug manufacturing sites in Britain to increase production of next-generation respiratory drugs and biotech medicines, most of which will be exported.
GlaxoSmithKline made no share repurchases during the reporting quarter. However, the company issued 1.6 million shares under employee share schemes amounting to £18 million (Q2 FY15: £5 million).
Pipeline and R&D updates
GlaxoSmithKline is making progress with its R&D pipeline development in core therapy areas. During Q2 FY16, the Company received EU approval for Strimvelis first gene-therapy for adenosine deaminase severe combined immunodeficiency (ADA-SCID). The drug maker is also expected to prepare for four significant filings in H2 FY16: Closed Triple for chronic obstructive pulmonary disease (COPD), Shingrix vaccine for shingles; Benlysta subcutaneous for lupus; and sirukumab for rheumatoid arthritis. GSK’s first-in-class inducible co-stimulator molecule (ICOS) agonist Oncology antibody has entered the clinical development phase.
GlaxoSmithKline is currently conducting R&D for around 40 new potential medicines and vaccines in the areas of HIV & Infectious diseases, Respiratory, Vaccines, Immuno-Inflammation, Oncology and Rare Diseases. The potential outcome for these medicines is expected to support the Company’s outlook for growth until 2020 and beyond.
Guidance for full year FY16
The drugmaker is set for big gains in H2 FY16 thanks to a weak pound against a basket of other currencies. Hence, GSK increased its forecast for full-year FY16, as per which core EPS growth at constant currencies is estimated to range between 11% and 12%, from 10% to 12% as earlier predicted. In sterling, however, earnings are likely to grow further due to the favorable exchange rates scenario. If the exchange rates were to hold at the end-June rates, there would be a positive impact of 19% on core EPS.
GlaxoSmithKline’s stock stood at $45.25, gaining up 0.40%, at the close on Monday, August 1st, 2016, having vacillated between an intraday high of $45.43 and a low of $44.89 during the session. The stock’s trading volume was at 2,964,236 for the day. The Company’s market cap was at $109.91 billion as of Monday’s close.