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Glaxo Underperforms Industry in a Year: What's in Store?
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GlaxoSmithKline plc’s (GSK - Free Report) shares have underperformed the industry in the past year. The stock has risen 6% compared with 9.2% increase for its industry in the said time frame.
Its Pharma unit sales were flat in 2019 as higher sales of the new drugs was offset by lower sales of Established Pharmaceuticals business due to generic erosion of several drugs. Importantly, a generic version of its top-selling drug Advair was launched in 2019, which significantly eroded the drug’s sales and hurt the topline. In 2020, sales in the Pharma unit are expected to decline slightly.
Meanwhile, in the Respiratory drugs unit, though sales of relatively newer drugs like Trelegy Ellipta and Nucala rose, those of Relvar/Breo Ellipta declined 13% in 2019 due to lower sales in the United States. Persistent competitive and pricing pressure, particularly for ICS/LABA class of medicines hurt U.S. sales of Relvar/Breo Ellipta, which declined 37% in the year. The competitive pressure on the ICS/LABA class of medicines in the United States has intensified with the launch of generic Advair. The pricing pressure is expected to continue in 2020.
Also, competitive pressure on Glaxo’s HIV drugs has risen. Increase in competitive pressure coupled with shift within its portfolio toward two-drug regimens is hurting sales of Glaxo’s HIV business. Sales rose only 1% in 2019 and are expected to be broadly flat in 2020.
However, not everything is going wrong for Glaxo. Despite the impact of generic Advair, Glaxo’s sales rose 8% in constant exchange rate (CER) in 2019 mainly due to strong performance of its Vaccines unit and new drugs/vaccines.
In 2017, Glaxo received approvals for its three key new drugs, namely Shingrix vaccine for shingles; Trelegy Ellipta, which provides three medicines in a single inhaler to treat COPD, and Juluca (dolutegravir and rilpivirine), the first two-drug regimen, once-daily, single pill for HIV. All three products did well in 2018 and 2019 particularly Shingrix.
Juluca has been developed by Glaxo HIV-focused company, ViiV Healthcare in partnership with Johnson & Johnson (JNJ - Free Report) . Other relatively newer products like Nucala (severe eosinophilic asthma) and Bexsero (meningitis vaccine) are also doing well and contributing to the topline.
In fact, these new products coupled with the restructuring in the Consumer Health unit strengthened Glaxo’s competitive position.
In June 2018, Glaxo bought Novartis’ (NVS - Free Report) 36.5% stake in their Consumer Healthcare joint venture (JV) for $13 billion (£9.2 billion). In December 2018, Glaxo and Pfizer (PFE - Free Report) announced an agreement, stating that both will merge their consumer healthcare units into a new joint venture (JV). Glaxo owns a controlling stake of 68% in the JV. The transaction closed on Aug 1, 2019.
Meanwhile, Glaxo plans to split itself into two standalone companies. The new Glaxo will be a biopharma company focusing on developing new treatments. Glaxo intends to separate its Consumer Healthcare segment into a standalone company in 2022.The separation program is expected to generate £700 million of annual savings by 2022.
Glaxo has also made significant progress with its late-stage pipeline in 2019. In the year, its four new pipeline candidates progressed to pivotal studies, including otilimab for patients with rheumatoid arthritis, bintrafusp alfa for patients with biliary tract cancer, gepotidacin for patients with uncomplicated urinary tract infections and gonorrhoea, and ICOS agonist for patients with head and neck squamous cell cancer.
Meanwhile, proof-of-concept readouts on several key pipeline assets are scheduled for 2020. Glaxo expects at least six potential approvals in oncology, HIV, specialty and respiratory in 2020. The potential approvals include Zejula in front-line ovarian cancer; belantamab mafatotin in fourth-line multiple myeloma; dostarlimab in second-line endometrial cancer; fostemsavir for heavily pre-treated HIV; Trelegy for asthma; daprodustat for anemia from chronic kidney disease; and cabotegravir plus rilpivirine, its long-acting combination treatment for HIV.
In 2019, Glaxo made significant progress in its oncology portfolio achieved through advancement of internal programs as well as targeted business development including the January 2019 acquisition of Tesaro and the February 2019 global alliance with Merck KGaA (to co-develop bintrafusp alfa, a promising new oncology medicine).
Conclusion
In 2020, though Glaxo sales will continue to be hurt by stiff competition, genericization and pricing pressure on key drugs in the Pharma segment, higher sales of new products, pipeline success and accretive deals are expected to provide support.
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Glaxo Underperforms Industry in a Year: What's in Store?
GlaxoSmithKline plc’s (GSK - Free Report) shares have underperformed the industry in the past year. The stock has risen 6% compared with 9.2% increase for its industry in the said time frame.
Its Pharma unit sales were flat in 2019 as higher sales of the new drugs was offset by lower sales of Established Pharmaceuticals business due to generic erosion of several drugs. Importantly, a generic version of its top-selling drug Advair was launched in 2019, which significantly eroded the drug’s sales and hurt the topline. In 2020, sales in the Pharma unit are expected to decline slightly.
Meanwhile, in the Respiratory drugs unit, though sales of relatively newer drugs like Trelegy Ellipta and Nucala rose, those of Relvar/Breo Ellipta declined 13% in 2019 due to lower sales in the United States. Persistent competitive and pricing pressure, particularly for ICS/LABA class of medicines hurt U.S. sales of Relvar/Breo Ellipta, which declined 37% in the year. The competitive pressure on the ICS/LABA class of medicines in the United States has intensified with the launch of generic Advair. The pricing pressure is expected to continue in 2020.
Also, competitive pressure on Glaxo’s HIV drugs has risen. Increase in competitive pressure coupled with shift within its portfolio toward two-drug regimens is hurting sales of Glaxo’s HIV business. Sales rose only 1% in 2019 and are expected to be broadly flat in 2020.
However, not everything is going wrong for Glaxo. Despite the impact of generic Advair, Glaxo’s sales rose 8% in constant exchange rate (CER) in 2019 mainly due to strong performance of its Vaccines unit and new drugs/vaccines.
In 2017, Glaxo received approvals for its three key new drugs, namely Shingrix vaccine for shingles; Trelegy Ellipta, which provides three medicines in a single inhaler to treat COPD, and Juluca (dolutegravir and rilpivirine), the first two-drug regimen, once-daily, single pill for HIV. All three products did well in 2018 and 2019 particularly Shingrix.
Juluca has been developed by Glaxo HIV-focused company, ViiV Healthcare in partnership with Johnson & Johnson (JNJ - Free Report) . Other relatively newer products like Nucala (severe eosinophilic asthma) and Bexsero (meningitis vaccine) are also doing well and contributing to the topline.
In fact, these new products coupled with the restructuring in the Consumer Health unit strengthened Glaxo’s competitive position.
In June 2018, Glaxo bought Novartis’ (NVS - Free Report) 36.5% stake in their Consumer Healthcare joint venture (JV) for $13 billion (£9.2 billion). In December 2018, Glaxo and Pfizer (PFE - Free Report) announced an agreement, stating that both will merge their consumer healthcare units into a new joint venture (JV). Glaxo owns a controlling stake of 68% in the JV. The transaction closed on Aug 1, 2019.
Meanwhile, Glaxo plans to split itself into two standalone companies. The new Glaxo will be a biopharma company focusing on developing new treatments. Glaxo intends to separate its Consumer Healthcare segment into a standalone company in 2022.The separation program is expected to generate £700 million of annual savings by 2022.
Glaxo has also made significant progress with its late-stage pipeline in 2019. In the year, its four new pipeline candidates progressed to pivotal studies, including otilimab for patients with rheumatoid arthritis, bintrafusp alfa for patients with biliary tract cancer, gepotidacin for patients with uncomplicated urinary tract infections and gonorrhoea, and ICOS agonist for patients with head and neck squamous cell cancer.
Meanwhile, proof-of-concept readouts on several key pipeline assets are scheduled for 2020. Glaxo expects at least six potential approvals in oncology, HIV, specialty and respiratory in 2020. The potential approvals include Zejula in front-line ovarian cancer; belantamab mafatotin in fourth-line multiple myeloma; dostarlimab in second-line endometrial cancer; fostemsavir for heavily pre-treated HIV; Trelegy for asthma; daprodustat for anemia from chronic kidney disease; and cabotegravir plus rilpivirine, its long-acting combination treatment for HIV.
In 2019, Glaxo made significant progress in its oncology portfolio achieved through advancement of internal programs as well as targeted business development including the January 2019 acquisition of Tesaro and the February 2019 global alliance with Merck KGaA (to co-develop bintrafusp alfa, a promising new oncology medicine).
Conclusion
In 2020, though Glaxo sales will continue to be hurt by stiff competition, genericization and pricing pressure on key drugs in the Pharma segment, higher sales of new products, pipeline success and accretive deals are expected to provide support.
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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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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