A month has gone by since the last earnings report for GSK (GSK). Shares have lost about 6.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Glaxo due for a breakout? 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 important catalysts.
Q3 Earnings Beat, Sales Miss
GSK reported core earnings of $1.27 per American depositary share (ADS) for third-quarter 2024, which beat the Zacks Consensus Estimate of $1.16. Core earnings declined 1% year over year on a reported basis but rose 5% at a constant exchange rate (CER).
Quarterly revenues fell 2% on a reported basis to $10.42 billion (£8.01 billion), mainly due to lower than anticipated vaccine demand and a tough comparator. On a CER basis, sales rose 2%. The top line missed the Zacks Consensus Estimate of $10.65 billion. Sales in the Specialty Medicines segment remained strong and the General Medicines segment continued to perform better than expected.
Sales in the United States declined 1%. Sales in Europe rose 6%, while that in International markets rose 8% at CER.
All growth rates mentioned below are on a year-on-year basis and at CER.
Quarterly Highlights
GSK reports under three segments: Specialty Medicines, Vaccines and General Medicines. Specialty Medicines, Vaccines and General Medicines are clubbed as commercial operations.
Specialty Medicines
Sales in the Specialty Medicines segment rose 19%. Sales grew in double digits in HIV, Immunology/Respiratory as well as Oncology segments.
HIV sales rose 12%, driven by strong demand and increased market share for oral two-drug regimens, Dovato and Juluca, and long-acting regimens like Cabenuva and Apretude. Favorable pricing dynamics also benefited sales growth.
GSK generates the majority of its HIV sales from its dolutegravir franchise, comprising three-drug regimens — Triumeq and Tivicay — and two-drug regimens — Dovato and Juluca.
Sales from its dolutegravir franchise rose 6% in the quarter. While sales of the dolutegravir franchise were up 4% each in the United States and Europe, the same rose 15% in International markets.
While Triumeq sales declined 10%, sales of Tivicay rose 2% during the quarter.
Juluca declined 1% while Dovato was up 23% in the quarter. Dovato sales partly benefited from favorable head-to-head data announced in July comparing Dovato against the 3-drug regimen, Biktarvy.
Rukobia sales rose 37% in the quarter.
Sales of new long-acting medicines, Cabenuva and Apretude, rose 40% and 95%, respectively in the quarter. The growth of these products comes from strong patient demand. These two long-acting medicines contributed more than 50% of the total HIV growth and now account for 18% of HIV sales.
Oncology sales rose 94% during the quarter, driven by strong patient growth for Zejula, Jemperli and Ojjaara.
Sales of Zejula rose 6% at CER in the quarter, driven by U.S. pricing effects and higher demand outside U.S. markets. Jemperli added £130 million to GSK’s top line compared with £108 million in second-quarter 2024. The uptick was driven by new patient starts in the United States.
Ojjaara/Omjjara generated £98 million in product sales compared with £85 million in the previous quarter, driven by strong launch uptake.
Respiratory/Immunology and Other sales were up 14% in the third quarter. Sales of the respiratory drug Nucala were up 12% at CER, driven by strong patient demand in Europe and International regions. Sales of the immuno-inflammation drug, Benlysta, were up 16% in the quarter, driven by strong demand and volume growth in all regions. Benlysta sales benefited from biopenetration growth from earlier intervention in SLE and lupus nephritis.
GSK did not generate any sales from Xevudy during the quarter.
Sales in the Specialty Medicines segment are expected to increase in high teens percentage at CER in 2024, up from the previous expectation of mid-to-high teens percentage growth.
General Medicines
Sales of General Medicines were up 7% during the quarter. This upside was driven by solid sales growth of the asthma inhaler Trelegy Ellipta across all regions, reflecting patient demand. The adverse impact of removing the Average Manufacturer Price (AMP) cap on Medicaid drug prices in the United States was offset by the use of authorized generic versions of Advair and Flovent.
In General Medicines, Respiratory sales rose 11% at CER, while Other General Medicines sales were flat.
Trelegy Ellipta sales surged 16% during the quarter, owing to strong growth in all regions. Sales of Anoro Ellipta rose 6%. Key established drug Advair/Seretide sales rose 13%, while sales on Revlar/Breo Ellipta were up 5%. Ventolin sales rose 5%.
In General Medicines, GSK expects sales to increase in a mid-single digit percentage range versus the prior expectation of an increase in the low-to-mid single digit percentage range in 2024.
Vaccines
GSK’s third-quarter Vaccine sales declined 15% due to lower sales of its RSV vaccine Arexvy and shingles vaccine, Shingrix.
Arexvy generated £188 million during the quarter, down 72% year over year due to changes in ACIP guidelines. Revised recommendations for RSV vaccinations issued in June 2024 by the US Advisory Committee on Immunization Practices (ACIP) hurt sales of Arexvy. In June, the ACIP recommended the use of Arexvy for all adults aged 75 and above. However, for adults aged 60-74, the ACIP recommended the vaccine only for those who are at increased risk of severe RSV disease. The prioritization of COVID vaccines in the United States and lower channel inventory versus significant launch stocking in the prior year quarter also hurt sales.
Shingrix sales fell 7% during the quarter as sales declined in the United States as well as Europe. U.S. sales of the vaccine declined 23% in the quarter due to lower demand, driven by challenges activating harder-to-reach consumers. Sales declined 1% in Europe due to lower demand in Germany. In International markets, sales rose 35%.
Presently, Shingrix is available across 48 countries outside the United States and ex U.S. sales represented 58% of global sales.
In Meningitis vaccines, sales of Bexsero and Menveo rose 30% and 7%, respectively. Sales of the influenza vaccine, Fluarix, were down 22%. Sales of Established vaccines improved 10%.
During the quarter, GSK did not record any sales from the COVID-19 booster vaccine co-developed in partnership with Sanofi.
Vaccine sales are expected to decline by a low single-digit percentage at CER in 2024, significantly lower than the prior expectation of growing in a low to mid-single digit percentage.
Profit Discussion
Adjusted operating profit rose 5% at CER to £2.76 billion, driven by continued leverage from strong sales and favorable product and regional mix, partly offset by higher R&D costs and loss of Gardasil royalties.
Adjusted selling, general and administration (SG&A) costs fell 2% to £2.07 billion due to cost control and annualization of prior-year launch investments. Adjusted research and development (R&D) expenses rose 3% to £1.43 billion.
2024 Guidance
GSK maintained its 2024 guidance for revenue growth. The company expects sales to increase 7-9% at CER for the full year. GSK expects improved sales performances in Specialty and General Medicines to be partially offset by lower Vaccines sales.
GSK maintained its core operating profit growth guidance between 11% and 13% at CER. Gross margin is expected to be slightly higher in 2024 than 2023 levels. In the fourth quarter, gross margin is expected to decline year over year.
Core EPS growth guidance was maintained in a range of 10-12%. Royalty income is expected to be around £600 million in 2024.
The loss of Gardasil royalties is expected to reduce the profit growth by 6 percentage points in 2024.
The 2024 guidance excludes the impact of COVID-19 solutions.
SG&A is expected to grow at a low single-digit rate in 2024. R&D is expected to increase at a rate slightly below sales growth. The adjusted tax rate is expected to be around 17%, which is higher than 14% in 2023.
In 2025, GSK expects a negative sales impact of £400-500 million due to pressure from the implementation of the US Inflation Reduction Act legislation.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -18.84% due to these changes.
VGM Scores
At this time, Glaxo has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Glaxo has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Glaxo belongs to the Zacks Medical - Biomedical and Genetics industry. Another stock from the same industry, Alkermes (ALKS), has gained 14.1% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Alkermes reported revenues of $378.14 million in the last reported quarter, representing a year-over-year change of -0.7%. EPS of $0.73 for the same period compares with $0.64 a year ago.
Alkermes is expected to post earnings of $0.82 per share for the current quarter, representing a year-over-year change of +70.8%. Over the last 30 days, the Zacks Consensus Estimate has changed +6.3%.
Alkermes has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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