Despite its focus on vaccines, which accounted for 17% of total sales in the first quarter, the pharma giant has remained somewhat on the sidelines of the race to find a COVID-19 jab.
It has provided its adjuvant technology, which enhances the immune response of a formulation, to Medicago, SK Bioscience and Sanofi, although the latter delivered disappointing trial results so it had to be redesigned.
Glaxo is also helping Novavax in manufacturing up to 60mln booked by the UK government.
In terms of treatment, it is working on three monoclonal antibodies, which haven’t been approved yet.
It’s unclear why the FTSE 100 group didn’t advance its own COVID-19 vaccine candidate, but Adam Barker, analyst at Shore Capital, told Proactive that it may not have wanted to distract resources from other parts of the business.
In this sense, sharing the adjuvant component with several other companies may have been a sensible move, he added.
However, governments worldwide have prioritised rollouts of COVID-19 vaccines, which has severely hit GSK’s vaccines business, with a 32% revenue hit to £1.2bn in the first quarter this year.
Shingrix, its new shingles vaccine, was particularly damaged with sales tumbling 47%.
The jab has only been around since 2018 so it suffered a major setback in reaching peak sales, but the firm hopes it will recover in the second half of 2021.
Issues across the pipeline
Nonetheless, the pharma giant remains riddled with issues around the development of several oncology drugs.
Bintrafusp alfa and feladilimab have both had clinical setbacks, while dostarlimab, which is in preregistration, requires a manufacturing site inspection for approval, which hasn’t gone ahead because of travel restrictions during the pandemic.
What’s more, the consumer healthcare division has suffered due to a weak cold/flu season because of efforts to stop viruses from spreading.
Some of these problems will be resolved once the pandemic is over, analysts reckon.
“After the pandemic people are going to want to be vaccinated against shingles, people will start mixing and they’ll start getting coughs and colds again,” Steve Clayton, head of equity Funds at Hargreaves Lansdown, told Proactive.
“The supplies that were absorbed by wholesalers in the first quarter back in 2020 will have the rundown and demand should return to more normal levels.”
In terms of its pipeline, GSK wants to launch several blockbuster drugs over the next five years, but their success will depend on progressing through trials and the market landscape.
It will also have a £3bn hole to fill after the loss of exclusivity of HIV medication dolutegravir in 2028, but Liberum reckons the cabotegravir family of products can “significantly” offset it, as the ViiV business is expected to reach £5bn sales by the end of the decade.
The broker said investors will be concerned but the expiry needs to be seen in context: it is geographically staggered, with the US to see erosion in 2028 and the EU in 2029, while its impact on the bottom line is less than for a typical blockbuster expiry.
As the group plans to split into two companies in 2022, consumer health and biopharma, the outlook for the latter is regarded as the benchmark for the success of the spinoff.
Peter Shapiro, senior director of drugs and business fundamentals at GlobalData, reckons that Elliot Management will push to restructure the pipeline strategy.
The activist fund manager has acquired what was described as a significant stake, it emerged earlier this time, at a time when concerns about its performance and that of chief executive Emma Walmsley have been growing.
“The easiest way to restructure the late-stage pipeline of a company is by the acquisition of smaller more innovative Bio/Pharma companies, or by licencing pipeline programmes from other companies,” Shapiro told Proactive.
“In order to do this GSK will need capital, the easiest way for GSK to generate this capital is to decrease the dividend. Unfortunately, because of the high trading value of Bio/Pharma stocks currently, GSK will have to pay a premium for acquisitions.”
Dividend policy rehaul in sight
There are indeed plans to cut payouts, GSK hinted at on Wednesday, although more details on the new policy will be revealed at the investor update on 23 June.
“While GSK’s dividend is more generous than other large-cap pharmaceutical companies, it is far from alone in granting a dividend. In fact, all of the traditional mega- and large-cap pharmaceutical companies grant a dividend,” Shapiro continued.
“However, the newer large-cap biopharma companies such as Regeneron or Vertex do not grant a dividend as they have been using their surplus profits to finance their growth.”
Shares in GSK were flat at 1,337.8p on Wednesday despite the dire results, but were 21% lower than April 2020.