GlaxoSmithKline plc (GSK - Free Report) reported second-quarter 2020 adjusted earnings of 48 cents per American depositary share, which missed the Zacks Consensus Estimate of 49 cents. Adjusted earnings were down 37% year over year on a reported basis and 38% at constant exchange rate (“CER”).
Shares of Glaxo have declined 13.6% so far this year against the industry’s 1.1% increase.
Quarterly revenues declined 2% on a reported basis and 3% at CER to $9.53 billion (£7.6 billion) due to disruption caused by COVID-19, particularly in the Vaccines business. The top line missed the Zacks Consensus Estimate of $9.6 billion.
Glaxo reports financial figures under three segments: Pharmaceuticals, Vaccines and Consumer Healthcare.
Reversal of Stockbuilding Hurts Pharmaceuticals Sales
Pharmaceuticals sales were down 5% at CER due to destocking in the quarter, following COVID-19 driven stockpiling in the first quarter. Sales decline at Established Pharmaceuticals segment was partially offset by higher sales in respiratory segment. The company stated that customer stockbuilding in the first quarter due to COVID-19 that predominantly benefited Europe and the United States was broadly reversed. Moreover, sales were also hurt by reduced market demand for allergy and antibiotic products in International markets and pressure on net prices in the U.S. market.
Sales in the United States were down 1% as continued growth of Nucala, Trelegy, Benlysta and the HIV two-drug regimens was more than offset by the decline in sales and COVID-19 destocking in Tivicay, Triumeq and Established Pharmaceuticals. Sales in European markets were down 11% at CER and 7% in international markets.
Respiratory sales were up 16% at CER despite the impact of the reversal of customer stockbuilding in the first quarter, mainly driven by increase in sales of Trelegy Ellipta, and Nucala across all markets. Nucala sales were up 21% at CER during the quarter. Sales of Nucala grew 26% and 6% in the United States and Europe, respectively. In the International markets, sales of Nucala increased 31%. Trelegy Ellipta sales surged 58% year over year driven by strong growth in all regions.
Relvar/Breo Ellipta registered growth of 2% in sales during the second quarter as growth in Europe and International markets was partially offset by lower U.S. sales. Sales of Relvar/Breo Ellipta decreased 12% in the United Statesreflecting competitive pricing pressure and the impact of generic Advair. Sales of Relvar/Breo Ellipta increased 9% and 12% in European and international markets, respectively.
HIV sales were down 3% year over year at CER due to reversal of customer stock building. Sales of dolutegravir franchise were down 2%, while sales from remaining drugs, comprising 4% of HIV portfolio, declined 32% at CER.
The dolutegravir franchise comprises two three-drug regimens — Triumeq and Tivicay — and two two-drug regimens — Juluca and Dovato. Dovato was launched in the United States and Europe in 2019. The growth in sales of Juluca and Dovato in the second quarter was more than offset by the decline in sales of Triumeq and Tivicay due to COVID-19 related destocking.
Sales of the dolutegravir franchise were down 2% in the U.S. market and down 5% in Europe. In international markets, sales were up 4% at CER mainly driven by Tivicay. Please note that Glaxo markets Juluca in collaboration with J&J (JNJ - Free Report) .
Sales of Established Pharmaceuticals declined 17%, reflecting generic competition for Ventolin in the United States, impact of COVID-19-related destocking in Europe and contraction of allergy market in Japan.
However, Advair sales surged 34% year over year in the United States to $143 million,reflecting a spike in the ICS/LABA class during April and May. Seretide sales were down 13% and 6% in Europe and International markets, respectively, due to generic competition in Europe and COVID-19 related destocking. Sales of Ventolin were down 39% during the quarter.
We remind investors that several generic versions of Advair are available in the market including Mylan’s (MYL - Free Report) Wixela Inhub.
Immuno-inflammation drugs like Benlysta rose 15% in the quarter, with U.S. sales growing 14%.
Oncology sales, comprising sales of PARP inhibitor, Zejula, were £77 million, up 32% year over year.
Consumer Healthcare Sales Up
Glaxo revised the category structure for this segment’s report from the first quarter of 2020. It now reports under five categories — Pain relief; Oral health; Respiratory health; Vitamins, minerals and supplements; and Digestive health and other.
Sales in the Consumer Healthcare segment increased 25% at CER, primarily driven by Pfizer’s (PFE - Free Report) legacy brands. Glaxo formed a new joint venture (“JV”) with Pfizer in August 2019 to create the world’s largest Consumer Healthcare business. Sales of Pain relief and Respiratory health categories increased 38% and 8%, respectively, in the quarter. Sales of Vitamins, minerals and supplements category more than doubled in the second quarter. Digestive health and other category’s sales were up 22%. However, sales of Oral health declined 1%.
On a pro-forma basis, sales in the Consumer Health segment declined 6%. We note that the impact of COVID-19 was mixed for this segment. Sales in the United States and Europe were hurt due to destocking while sales in China returned to growth as government-mandated retailer shutdowns were lifted.
Vaccines Segment Down
Sales from the Vaccines segment were dismal, down 29% at CER, primarily driven by the adverse impact of the COVID-19 pandemic and divestment of Rabipur and Encepur. Shingrix sales declined 19% in the reported quarter, primarily impacted byCOVID-19 pandemic stay-at-home directives in the United States, which led to lower vaccination rates.
Bexsero and Menveo sales decreased 30% and 39%, respectively, reflecting lower demand across all regions following de-prioritization of vaccination during the COVID-19 pandemic. However, market share for Bexsero remained same while it grew for Menveo in the United States.
Sales of influenza vaccine Fluarix were down 6%. Sales of Established vaccines were down 43% year over year.
Operating Expenses Up
Selling, general and administration (SG&A) costs increased almost 4% year over year to £2.53 billion. The rise in SG&A costs was driven by increased restructuring costs, partly offset by lower significant legal and transaction costs.
Research and development (R&D) expenses were up 12.6% to £1.1 billion, reflecting increased investments to support progress of clinical studies, especially those on Zejula. Glaxo has 37 new medicines, including 15 vaccines, in different development stages.
2020 Guidance Maintained
Based on its current assessment of the COVID-19 impact, Glaxo maintained its previous adjusted earnings growth guidance of a decline in the range of 1% to 4% at CER year over year in 2020. However, the current situation remains uncertain due to the pandemic and the company plans to update its view later, if needed.
Glaxo and Sanofi have collaborated to develop a vaccine for COVID-19 using their innovative technologies. Glaxo has also collaborated with Clover Biopharmaceuticals and Medicago to develop a vaccine against COVID-19. As part of these deals, Glaxo is leveraging its adjuvant technology in combination with partners’ vaccine candidates.
Meanwhile, Sanofi and Glaxo have signed an agreement with the government of the United Kingdom to supply 60 million doses of the vaccine candidate that they are developing
Glaxo missed on earnings and sales in the second quarter primarily due to reversal of COVID-19 customer stockpiling benefits of the first quarter. However, the company’s new products in the Respiratory and Oncology segment, and two-drug HIV regimens performed well in the reported quarter. Meanwhile, sales of the company’s established drugs continued to decline.
Moreover, restructuring initiatives in the Consumer Health segment should help the company to offset the slowdown in sales of legacy drugs. However, loss of Advair sales due to generic competition and competitive pricing will continue to hamper revenues.
Glaxo currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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