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Are Glaxo's Successful New Drugs Enough to Drive Growth?

GlaxoSmithKline plc GSK enjoys a diversified base and presence in different geographical areas. GlaxoSmithKline reshaped its business following the Mar 2015 completion of the three-part, inter-conditional transaction with Novartis AG NVS. Under the deal, Glaxo sold its oncology assets to Novartis and acquired Novartis’ Vaccines business (excluding influenza vaccines). Following the completion of the deal, Glaxo now intends to focus on its three core businesses – Pharmaceuticals, Vaccines and Consumer Healthcare.

The Pharmaceuticals and Vaccines business units of this Brentford, United Kingdom based pharma and consumer giant have performed significantly well, a trend which is likely to continue in the second half of the year.

Importantly, new products Tivicay and Triumeq (both HIV), Relvar/Breo, Anoro, Incruse, Nucala (all respiratory) and Menveo, Bexsero (meningitis vaccines) are all doing well and should continue to perform well and boost revenues significantly. These new products generated 22% of Glaxo’s Pharmaceuticals and Vaccine sales in 2016 and 29% in the first half of 2017.

Going ahead, Glaxo expects new pharmaceutical and vaccine products including contributions from the yet-to-be approved Shingrix to deliver sales of £6 billion per annum by 2018. Glaxo is also working on expanding the label of marketed products like Nucala.

Despite the success of new products, Glaxo believes that its overall performance has been weaker than it would have liked due to some slow starts or missed launches, insufficient R&D progress, stiff competition, genericization of some key drugs and pricing pressure along with slowing growth in emerging markets. In particular, pricing dynamics and competitive pressure are hurting sales of its top-selling drug, Advair. Meanwhile, Advair is expected to face generic competition in the United States next year, which will further hurt sales.

Glaxo’s shares have underperformed the industry this year so far. Glaxo’s shares are up 5.5% during this period, comparing unfavorably with an increase of 6.4% for the industry.

To improve its performance, at the second quarter conference call held last month, Glaxo laid out plans to overhaul its R&D efforts. New CEO, Emma Walmsley discussed plans to reallocate spending to high priority areas. By 2020, the company plans to terminate, partner or divest about 30 pre-clinical and clinical programs and allocate 80% of capital to priority programs in two current areas - Respiratory and HIV/infectious - and two potential areas - Oncology and Immuno-inflammation.

Glaxo’s promising pipeline candidates, at present, in late-stage development or under regulatory review include Shingrix (prevention of shingles – regulatory application filed in both the U.S. and the EU), Closed Triple therapy (COPD - regulatory application filed in both the U.S. and the EU; asthma – phase III), two drug dolutegravir + rilpivirine regimen (HIV infections - under review in U.S. and EU), dolutegravir + lamivudine (HIV infections – phase III) and cabotegravir (HIV prevention [monotherapy] – phase III and HIV infection [in two drug regimen with rilpivirine] – phase III).

Glaxo announced renewed cost savings initiatives. It intends to focus on new business priorities, improve supply chain efficiency, simplify operations, improve procurement savings and reduce administrative costs. The company’s extended cost-reduction initiatives are expected to lead to additional £1 billion annual cost savings by 2020. The costs saved will be invested to support new product launches, strengthen the R&D pipeline and to help mitigate pricing pressure on margins.

Glaxo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Better-ranked stocks include Gilead Sciences, Inc. GILD and Regeneron Pharmaceuticals, Inc. REGN. While Regeneron sports a Zacks Rank #1 (Strong Buy), Gilead has a Zacks Rank #2 (Buy).

Regeneron’s shares are up 30.4% this year so far. Estimates have risen by 15.2% for 2017 while that for 2018 have gone up by 6.8% over the past 30 days.

Shares of Gilead have risen 4% so far this year while estimates for 2017 and 2018 have risen by almost 7% and 0.9%, respectively, over the past 30 days.

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Novartis AG (NVS) : Free Stock Analysis Report
 
GlaxoSmithKline PLC (GSK) : Free Stock Analysis Report
 
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