Glaxo (GSK) Beats Q3 Earnings Estimates, Keeps 2016 View

GlaxoSmithKline plc (NYSE:GSK) reported third-quarter 2016 core earnings of 85 cents per American Depositary Share (ADS), beating the Zacks Consensus Estimate of 77 cents. Core earnings were also up 12% year over year at constant exchange rates (CER).

Quarterly revenues were up 8% at CER to £7.5 billion driven by a strong performance at all of the business segments. The top line was primarily backed by sales growth of new pharmaceutical and vaccine products, as well as broader vaccines portfolio, especially seasonal flu vaccines.

All growth rates mentioned below are on a year-on-year basis and at CER.

Quarterly Highlights

Glaxo reports results under three segments: Pharmaceuticals, Vaccines and Consumer Healthcare.

While revenues at the Pharmaceuticals and Consumer Healthcare segments were up 6% and 5%, respectively, Vaccines sales witnessed a 20% surge.

New Pharmaceutical and Vaccine products – Relvar/Breo Ellipta, Incruse, Bexsero and others – registered sales of £1.21 billion in the reported quarter, up 79%. Glaxo expects these products to contribute at least £6 billion to annual revenues by 2018.

Within Pharmaceuticals, sales were down 2% in International Pharmaceuticals. Sales in Emerging Markets were up 4%, in the reported quarter.

The segment also saw a 3% growth in the U.S. sales primarily on the back of the respiratory portfolio. Strong performance of new respiratory drugs – Breo Ellipta, Anoro Ellipta, Incruse and Nucala – offset the impact of declining sales of Advair/Seretide. In Europe, however, sales were down 2% mainly due to a 9% decline in Respiratory sales.

Meanwhile, robust sales of Tivicay (£250 million) and Triumeq (£468 million) resulted in a 32% upside in HIV sales in the reported quarter.

At the Consumer Healthcare division, sales witnessed an increase in the U.S. (2%), Europe (5%) and International markets (5%). Growth was primarily driven by contributions from the Wellness and Oral health brands such as Otrivin, Voltaren and Sensodyne.

The Vaccines segment benefited from continued uptake of meningitis vaccine, Bexsero, in the U.S. Sales also benefited from increased demand for Fluarix/Flulaval in the U.S.

Outlook

Glaxo has reiterated its outlook for 2016. The core earnings percentage growth rate is expected in the range of 11–12%.

Pipeline Update

Glaxo continues to progress with the candidates in its pipeline. In Oct 2016, the company filed a regulatory application for Shingrix vaccine for the prevention of shingles in the U.S. In addition, the company has filed regulatory applications for the subcutaneous formulation of Benlysta for systemic lupus erythematosus and sirukumab for rheumatoid arthritis in both the U.S. and the EU.

Moreover, the company expects to file an application for Closed Triple for chronic obstructive pulmonary disease in both the U.S. and the EU in the fourth quarter.

Our Take

Glaxo’s third-quarter 2016 results were impressive with the company beating earnings expectations. Moreover, revenues were up on a year-over-year basis driven by contributions from each of its business segments. We are also positive on the performance of the new pharmaceutical and vaccine products. These should help support the top line in the future and ease the impact of generic erosion of Advair. Further, we are encouraged by Glaxo’s efforts on developing its pipeline candidates.

Going forward, we expect investors to remain focused on the regulatory front as well as top- line growth.

Zacks Rank & Key Picks

Glaxo currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare sector include Innoviva, Inc. (NASDAQ:INVA) , BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) and Geron Corporation (NASDAQ:GERN) . Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BioMarin’s loss estimates have narrowed from 28 cents to 25 cents for 2016 and from $1.16 to $1.11 for 2017 over the last 60 days.

Innoviva’s estimates have increased from 60 cents to 62 cents for 2016 and from $1.14 to $1.15 for 2017 over the last 60 days.

Geron has posted a positive earnings surprise in each of the four trailing quarters, bringing the average beat to 20.78%.

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