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Vaccine demand helps GlaxoSmithKline beat forecasts in boost for drugs maker

·4-min read
 (AFP via Getty Images)
(AFP via Getty Images)

Pharmaceutical giant GlaxoSmithKline (GSK) has posted a modest jump in sales and profits for the past three months as the gradual global recovery from the pandemic led to higher sales for its vaccines in key markets.

The west London-based firm revealed turnover has increased by 6% to £8.1 billion for the second quarter of 2021 with operating profits up by 23% to £2.1 billion.

Sales of its meningitis vaccine rose 46%, with shots for hepatitis and diphtheria up 28% as traditional hospital and doctor appointments rebounded from the Covid-19 disruption.

The firm’s vaccine arm saw turnover increase by 39% to £1.57 billion for period.

GSK said it had anticipated some disruption in its vaccine business as the Government prioritised Covid-19 vaccinations over other jabs, but has been “encouraged” by the rate at which these have been deployed in many countries, highlighting the US and UK.

It said this will “provide support for healthcare systems returning to normal” although it also highlighted significant “global differentiation”, with only 13% of the worldwide population currently double-jabbed.

Across the board, GSK’s pharmaceutical business reported a 4% increase in sales while the consumer healthcare business saw a 3% decline.

While it has no Covid-19 vaccine of its own - a source of criticism among some quarters of the City - GSK said it notched up £258 million of sales of its adjuvant, which is used to boost the effectiveness of other coronavirus vaccines.

But it expects revenues from vaccines over the full year will be broadly flat: sales of shingrix, its blockbuster drug for shingles, continue to be dampened by the general hospital stay-away.

Markets welcomed the results as lending weight to CEO Dame Emma Walmsley’s plan to chop the £70billion juggernaut into two.

The pharma side - christened “new GSK” - is pouring millions into revamping its drug pipeline, investing heavily in research and development.

Shares in the FTSE 100 group initially shot up 1.5% to 1425.0p before falling back to around 1399p as investors digested the results. Earnings per share were 28.1p against consensus forecast of 20p.

The group announced a dividend of 19p per share for the quarter and continues to expect full year dividends to hit 80p.

Walmsley, who wants to take the helm at the new vaccines division , said: “GSK delivered an excellent performance in Q2.

“We expect this positive momentum to continue through the second half of the year, driving us towards the better end of our earnings guidance range for 2021, and meaningful performance improvement in 2022.

“We continue to strengthen our pipeline and are advancing well towards separation.

“Our clear priority is to focus on execution, unlocking the value of consumer healthcare and delivering the step-change in growth and performance we now see for GSK.”

The update comes weeks after activist investor Elliott called for a shake-up of the healthcare firm and said it should hire a new board.

Elliott has questioned Walmsley’s role as head of the drugs side of the business following the demerger and has also called on the board to seriously consider any alternative to the proposed plan for separation.

GSK has been pumping out positive updates for products in its pipeline over the past few weeks, and earlier this month announced a plan to build one of Europe’s biggest biotech campuses on part of its complex in Stevenage, creating 5000 UK jobs and attracting £400m of private investment.

The group, which employs 94,000, has had relatively few blockbuster launches of late and relies on its existing portfolio of products, of which 14 will lose their patents in the next decade.

But latest analysis suggests there are more than 20 assets in its late-stage pipeline which could hit the market by 2026.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “The fact AstraZeneca beat GSK to a coronavirus vaccine has been a source of some discontent at the UK’s largest vaccine manufacturer.

“This quarter the group has finally started to put that right. Sales of its vaccine adjuvant, which helps enhance the immune response, are ramping up and a Covid treatment is also hitting pharmacies.

“It’s part of wider good news for GSK, which has seen sales of its newer drugs gather pace this quarter, helped by favourable comparators last year. Those increased sales have fed quickly though to the bottom line, boosting underlying profits.

“However, despite what is definitely progress we think GSK’s long term challenges remain unresolved. There may be more flesh on the bones of the planned Consumer Goods demerger following June’s investor update, but the group is still in limbo waiting for the separation to actually happen.

“More pressing is the still very poor levels of cash generation. Free cash flow in the first half of the year hasn’t come anywhere near covering the dividend, and as a result debt continues to mount.

“A dividend cut after the demerger will ease some of the pressure, as will the sale of some shares in the consumer business, but it’s yet another example of investors being promised jam tomorrow when previous promises have been rather disappointing.”

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