GSK more upbeat on profits and COVID-19, investors not sure

GlaxoSmithKline (GSK) forecast 2021 earnings at the better end of its guidance range on Wednesday, July 28, buoyed by a recovery in routine visits to doctors and sales of its COVID-19 vaccine booster that helped the drugmaker beat second-quarter profit expectations.

But rising debts, lingering effects of the pandemic, and longer-term worries about the British company’s drugs pipeline saw its shares hand back initial gains.

Despite being the world’s biggest vaccine maker by sales, GSK has fallen behind some rivals in combating COVID-19, focusing on producing an adjuvant to boost the immune response of others’ shots rather than making its own vaccine.

After a project with Sanofi fell short of hopes last year, GSK reported progress in the second quarter, with 258 million pounds ($358 million) in adjuvant sales. The duo’s vaccine is now in late-stage trials and they hope for approvals by the end of the year.

GSK and US partner Vir also announced a deal to supply their antibody-based treatment for COVID-19 to the European Union.

The British company, which is spinning off its consumer health arm to focus on improving its pharmaceuticals business with incoming funds, said it was hopeful of the positive momentum running into the second half, pushing full-year earnings towards the better end of its forecast range.

GSK has said it expects adjusted earnings will decline by a mid- to high-single digit percentage this year, not including any COVID-19-related sales.

But some analysts remained concerned about the challenges ahead, with Hargreaves Lansdown’s Nicholas Hyett pointing to “poor levels of cash generation” and rising debt.

And while Citi analysts noted “upside potential” to full-year earnings guidance, they said their focus remained on GSK’s pipeline of new drugs.

Pressure to show sustainable growth has mounted on Walmsley after years of underperformance at the pharmaceuticals business. GSK has also locked horns with activist investor Elliott over its future after the planned spin-off next year.

GSK shares, which lost a quarter of their value in 2020, were down about 1% at 1,386.2 pence by 1240 GMT, after initially rising as much as 2% on the results.

A 49% jump in vaccine sales to 1.57 billion pounds and growth in newer medicines helped GSK post adjusted quarterly earnings of 28.1 pence per share, blowing past analysts’ estimate of 19.9 pence. Overall sales of 8.1 billion pounds were also ahead of a 7.56-billion-pound consensus.

However, GSK forecast revenues from vaccines over the full year would be broadly flat, even as some markets such as the United States open up to routine vaccinations, because COVID-19 inoculation rates are lagging in other parts of the world. – Rappler.com

$1 = 0.7208 pounds