Join our community of smart investors

Mixed bag in GSK’s third quarter

Positive headline numbers were clouded by difficulties for the newer pharma products
November 5, 2018

On first glance, GlaxoSmithKline’s (GSK) third-quarter numbers look decent. All three divisions reported an uptick in revenues and the continued strength of the respiratory franchise prompted management to narrow its annual guidance to the top of the forecast range. Adjusted EPS is now expected to grow between 8 per cent and 10 per cent in 2018.

IC TIP: Buy at 1503p

But the reason for that improved outlook is less pleasing. Previous forecasts assumed that GSK’s top selling, high margin asthma drug Advair would encounter unbranded competition at some point during the year. But rival companies have struggled to get their drugs off the ground meaning the downturn in Advair sales (21 per cent in the first nine months) is not nearly as bad as previously expected. Meanwhile, sales growth from some of GSK’s newer respiratory medicines – which are considered the main driver of future revenue – was slower than analysts expected. Nucala, Breo and Anora all reported double-digit sales growth in the third quarter, but they still don’t contribute as much to the top line as Advair.

Still, GSK’s broad portfolio has plenty of potential. Its vaccines business reported a 17 per cent increase in revenues to £1.9bn in the third quarter, while its shingles medicine Shingrix beat consensus analyst expectations by more than 40 per cent.