EUR 850.00 For Business Accounts Only

Morningstar | GSK Updated Forecasts and Estimates from 11 Feb 2019

GlaxoSmithKline reported fourth-quarter results slightly ahead of both our and consensus expectations, but we don't expect any major changes to our fair value estimate. We continue to view the stock as undervalued with the firm reaching an important inflection point, moving beyond generic launch of respiratory drug Advair in 2019 to a solid position in HIV, vaccines, and consumer along with a significantly improving pipeline with an increased focus in oncology. This strengthening outlook post-Advair declines also reaffirms our wide moat rating.

While the magnitude of lost Advair sales is uncertain, as Mylan recently gained U.S. approval for a generic Advair, we expect U.S. Advair sales will decline by more than 60% in 2019. With the drug representing close to 8% of total sales, the generic headwinds are likely the main reason for the 5%-9% decline in projected 2019 earnings by the company (in line with our expectations). Also, we expect some carryover impact to Glaxo's next-generation Advair drug, Breo, which only offers a slight dosing advantage (once daily versus twice daily). We project U.S. Breo sales to fall 15% in 2019.

As the uncertainty around the timing of generic Advair is removed, the company is well positioned is several other areas. In HIV, current sales posted 6% growth, and we expect next-generation doublets and long-acting drugs to help support steady long-term growth. Within vaccines, Shingrix is well positioned to become a major blockbuster due to leading efficacy. Also, in consumer, the recently announced joint venture with Pfizer should create a powerhouse with leading scale in marketing and distribution.

In the pipeline, we are impressed with the ongoing shifts toward areas of unmet medical need, which is critical in the current payer environment. Instead of working toward slight enhancements of currently marketed drugs, Glaxo's shift back to oncology with Zejula, BCMA, and M7824 support an important strategic shift in drug development.

For a complete review of Glaxo's pipeline and currently marketed portfolio, please see our annual pipeline report, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."