Markets

4 Can't-Miss Numbers From GlaxoSmithKline's Fourth-Quarter Results

This may have been a pretty lackluster report based on the headline numbers, but the announcement from GSK that it's ahead of schedule on new products (defined as products brought to market over the past three years) hitting 6 billion pounds in sales (about $8.8 billion) might be the best news from GSK in years! Originally, GSK had been forecasting that its new products would hit this benchmark by 2020, so to shift that time frame forward by two full years is pretty incredible.

Image source: GlaxoSmithKline.

1. 6 billion British pounds in new product sales by 2018

What caused this shift? While GSK didn't get too much into the specifics, it seems to be driven by growth in its HIV franchise, meningitis vaccines, and next-generation respiratory products, such as Breo Ellipta, which generated $145 million in Q4 sales. Based on the roughly 2 billion pounds generated by new products in 2015, GSK sees sales tripling in these products, as a whole, over the next three years.

2. $676 million in HIV sales

Among new products, all the glory recently has gone to GSK's HIV franchise, comprised of Tivicay and next-generation HIV product Triumeq. In the fourth quarter, the two therapies combined for $676 million in sales, and they totaled $2.5 billion for the full-year. Both drugs were actually developed by ViiV Healthcare, which GSK has a majority stake in.

Image source: GlaxoSmithKline.

What really makes Triumeq stand out as a potential HIV-treatment giant is its combination of efficacy and safety. As one of only four once-daily HIV regimens on pharmacy shelves, Triumeq went head-to-head with Gilead Sciences ' Atripla (another once-daily HIV therapy) and outperformed it in terms of efficacy and patient drop-outs in the SINGLE study. Also, Triumeq doesn't use a booster component in its formulation, unlike Gilead's blockbuster Stribild, which does use cobicstat to elevate blood levels of elvitegravir. Elvitegravir has a number of adverse drug interactions, meaning Triumeq could become the clear once-daily choice among physicians for the treatment of HIV.

3. Core operating margin in Q4 of 21.6%

Everyone knew that GSK's operating margins were going to drop, with a greater emphasis being placed on vaccines and consumer healthcare, but I'm not sure a seven percentage point drop from the prior-year quarter was expected. Even on a constant currency basis we're still talking about a 6.2% decline in operating margins on a year-over-year basis.

The cause for this plunge in operating margin stems from GSK's asset-swap with Novartis . This deal sent GSK's oncology product portfolio and small-molecule pipeline to Novartis in exchange for Novartis' vaccine business (minus influenza) and about $9 billion in cash. The two companies also formed a joint venture for their consumer healthcare segments. Ridding itself of its higher margin and faster growing oncology segment and taking on a lower margin and volume-dependent segment like vaccines set GSK up for substantial margin contraction in the year following the deal's completion.

On the bright side, operating margins are likely to rise from here, but for now they remain a brutal eyesore for shareholders.

4. Q4 respiratory sales down 3%

Finally, we also learned that respiratory sales are still shrinking.

Image source: GlaxoSmithKline.

To some extent this shouldn't be a surprise considering the pricing pressure inhaled COPD and asthma therapy Advair/Seretide is dealing with. This pressure is only expected to get worse throughout the latter half of the decade, with a generic version of Advair expected to be introduced over the next one to three years.

However, the real disappointment has been the slow start for Anoro Ellipta and Incruse Ellipta. Although Anoro managed to generate about $44 million in Q4 sales, and $115 million for the full-year, its launch has been considerably weaker than expected. The problem, as GSK's management has stated previously, is that physicians aren't aware that Anoro is a new once-daily bronchodilator option to replace Spiriva or Advair. It's going to take time for Anoro to really penetrate this market, which means respiratory sales declines may continue into 2016.

What's next for GlaxoSmithKline?

Investors actually learned a lot about where GSK is headed based on its Q4 report. We learned that HIV sales are going to play a big role in pushing new products sales higher over the coming three years. We also know that, based on GSK's guidance, we can expect adjusted EPS growth to return in 2016.

On the flipside, investors can likely expect more weakness in GSK's respiratory franchise as Anoro continues to underwhelm. Additionally, there's the real possibility that growth could be tempered as GSK and investors adjust to its new, lower operating margin.

As a whole, GSK does offer a superior dividend to the broader market, and its new product growth certainly implies that it could soon be delivering for investors. However, without respiratory growth or margin stabilization, I, personally, have a hard time getting behind GSK. For now it's a company I'd suggest investors monitor from the sidelines.

The next billion-dollar iSecret

The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article 4 Can't-Miss Numbers From GlaxoSmithKline's Fourth-Quarter Results originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of and recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

GILD GSK

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More