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Pharma giants outperform

GSK and AstraZeneca report decent growth in drug sales
October 31, 2019

FTSE 100 pharma groups GlaxoSmithKline (GSK) and AstraZeneca (AZN) have both raised trading guidance for 2019 after achieving better-than-expected drug sales duringthe third quarter

GSK anticipates that adjusted EPS this year will be flat at constant-currencies, an improvement on the 3-5 per cent decline previously expected. 

The group’s recent consumer healthcare tie-up with Pfizer helped to boost third-quarter revenue by 11 per cent to £9.4bn, beating company-compiled consensus expectations. Revenue from shingles vaccine, Shingrix, surged by more than three-quarters to £535m, driven by strong US sales. 

However, asthma drug Advair has continued to face ongoing pricing pressure from generic versions and higher research and development (R&D) expenditure, which has led to an 8.5 percentage point margin contraction. Yet while there may be short-term pain, this R&D investment is key to laying the groundwork for GSK’s future growth. A focus on the oncology pipeline meant that £2.4bn in pharmaceuticals’ R&D expenditure for the first nine months of the year was 16 per cent higher than the same period last year. 

Net debt was up 30 per cent since the end of 2018, but free cash-flow generation remained strong, having risen by a quarter to £1.9bn. After declaring a 19p quarterly dividend – with an annual payment of 80p guided to by management – the group is continuing to target free cash-flow cover of the annual dividend of between 1.25 and 1.5 times before increasing the payout. 

The figures followed a consensus-beating set of third-quarter figures from AstraZeneca, which revised its full-year sales guidance upwards for the second consecutive quarter. Compared with the 4 per cent seen last year, the pharma giant now anticipates product sales growth in the “low to mid-teens” for 2019, up from its previous “low double-digits” expectations.

The three months to 30 September saw revenue from oncology medications jump by 48 per cent at constant currencies to $2.3bn. Cancer therapies now account for almost two-fifths of product sales, with new drugs Tagrisso and Imfinzi propelling sales growth across all geographical regions.