Glaxo (GSK) Beats on Q3 Earnings & Sales, Raises '18 View

GlaxoSmithKline plcGSK reported core earnings of 93 cents per American depositary share in the third quarter of 2018, which beat the Zacks Consensus Estimate of 86 cents. Earnings were up 14% at constant exchange rate ("CER") from the year-ago figure.

Shares of Glaxo were down almost 1.4% on Oct 31. However, the stock has gained 10.1% so far this year compared with the industry 's 3.9% rise.

Quarterly revenues rose 6% at CER to $10.6 billion (£8.1 billion), driven by strong performance at the Vaccines segment and higher sales of new respiratory products. The top line beat the Zacks Consensus Estimate of $10.55 billion.

All growth rates mentioned below are on a year-over-year basis and at CER.

Quarterly Highlights

Sales were up 13% in the United States and 4% in the International markets. On the flip side, sales in Europe declined 2% year over year due to generic competition for Epzicom and lower sales of meningitis vaccine, Bexsero, due to lower vaccination requirement.

Glaxo reports financial figures under three segments: Pharmaceuticals, Vaccines and Consumer Healthcare.

The Pharmaceuticals division registered 3% increase in revenues at CER. The upside was driven by HIV drugs and new respiratory disease drugs, namely Nucala and the Ellipta portfolio partly offset by a decline in sales of older respiratory products, including Seretide/Advair and Established Pharmaceuticals.

Notably, in April, Nucala gained approval for an expanded indication in Europe. The new indication was for the add-on treatment of pediatric patients with severe refractory eosinophilic asthma. However, a regulatory application seeking label expansion of Nucala as maintenance treatment for COPD received complete response letter from the FDA.

HIV sales increased 12% at CER on the back of 12% and 34% growth in the United States and International markets, respectively. European sales were also up 1% at CER. These encouraging numbers were driven by continued market share growth for both Triumeq and Tivicay. However, sales of another HIV drug named Epzicom/Kivexa tumbled 47% at CER, due to severe generic competition, particularly affecting the European market.

Notably, the company's latest product from the HIV portfolio is Juluca (dolutegravir + rilpivirine), the first two-drug regimen, once-daily, single pill for HIV. The drug was approved in the United States last November and generated sales of £37 million, higher than £29 million registered in the first half of 2018.

Respiratory sales were also up 5% at CER. In the International markets, sales increased 6% and it grew 4% in Europe, the metric rose 5% in the United States during the quarter under review. The sales increase from the Ellipta portfolio and Nucala were partly offset by a fall in sales of older products like Seretide/Advair.

Sales of new respiratory portfolio grew 40%, including £42 million quarterly contribution (up 61.5% sequentially) from the newly launched Trelegy Ellipta (only once-daily single inhaler triple therapy for COPD).

Immuno-inflammation drugs like Benlysta rose 29% in the quarter under discussion.

The new grouping of Established Pharmaceuticals comprises the previous Established Products, Cardiovascular, metabolic and urology plus other Pharma products. Established Pharmaceuticals sales decreased 9% in the quarter.

Sales in the Consumer Healthcare segment nudged up 3% at CER, as strong performances in Oral health, Wellness and Nutrition were partly offset by decline in the Skin health category. Although the segment performed well in the United States, it is facing increased competition in Europe.

Sales from the Vaccines segment were impressive, having increased 17% at CER, primarily driven by higher sales of new shingles vaccine Shingrix and meningitis vaccine Bexsero in the United States. Shingrix recorded sales of £286 million in the reported quarter compared with £167 million in the second quarter, driven by market expansion and share gains.

Moreover, the company stated that it is rapidly building a coverage for Shingrix vaccine. Presently, nearly 99% patients have access to Shingrix vaccine via both Medicare and commercial channels.

Sales of Bexsero, increased 24% in the United States, while Menveo sales were up 8% at CER. Growth of Menveo sales in the United States were partially offset by lower sales due to supply constraints in European and International markets. Influenza vaccine, Fluarix, grew 7% as stronger European sales were partly offset by lower U.S. sales due to increased price competition.

Selling, general and administration (SG&A) costs increased 1.4% year over year to £2.3 billion due to increased commercial activities to support launches partly offset by cost control initiatives.

Research and development (R&D) expenses were up 7% to £961 million reflecting benefits of re-prioritization of the R&D portfolio which was completely offset by increased investments to support progress of clinical studies, especially oncology.

2018 Outlook

Glaxo raised its outlook for 2018. The company increased the lower end of EPS growth expectation from 7-10%% to 8-10% at CER in 2018, irrespective of whether any Advair generics are launched this year or not. Previously, the company had issued a separate guidance based on Advair generic launch.

The three companies, Mylan MYL , Hikma Pharmaceuticals and Novartis NVS , trying to bring a generic version of Advair to the market, have received a complete response letter (CRL) from the FDA. While Mylan and Hikma got a CRL last year, Novartis received the same this year, delaying the entry of generics in the U.S. market.

The company now expects sales of Shingrix in the range of £700-750 million. The company anticipates currency movement to have an unfavorable impact of around 3% and 6% based on September-end rates and 2017 rates, respectively.

GlaxoSmithKline plc Price, Consensus and EPS Surprise

GlaxoSmithKline plc Price, Consensus and EPS Surprise | GlaxoSmithKline plc Quote

Zacks Rank and Stock to Consider

Glaxo currently carries a Zacks Rank #3 (Hold).

A better-ranked stock from the same space is Eli Lilly and Company LLY , carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Lilly's earnings estimates for 2018 and 2019 have risen from $5.42 to $5.47 and from $5.69 to $5.78, respectively over the past 60 days. The stock has gained 28.4% this year so far.

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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.

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