Morningstar | Glaxo Posts Solid 1Q Lifted by Strong Shingrix Sales as Shares Look Undervalued
GlaxoSmithKline reported first-quarter results slightly ahead of both our and consensus expectations, partly driven by strong sales from shingles vaccine Shingrix, but we don't expect any major changes to our fair value estimate based on the minor outperformance. We continue to view the company as undervalued, with the investment community likely not appreciating the company's strong platform of currently marketed drugs and vaccines. This strong platform and new pipeline drugs are well positioned to offset generic competition, including the recent launch of a U.S. generic version of respiratory drug Advair, supporting our wide moat rating for the firm.In the quarter, strong vaccine sales (up 20%) helped mitigate the slow sales in the drug group (up 2%) and consumer (up 1%), leading to overall sales growth of 5%, likely representing trends Glaxo will show over the next several quarters. The strong growth of Shingrix should continue based on significant improvement in efficacy of 97% versus 50% for Merck's older vaccine. While manufacturing constraints will likely prevent production from meeting full global demand, we expect well over GBP 1 billion in sales for full-year 2019 as the company focuses on delivering the vaccine to the highest margin market of the U.S., which should be additive to overall company margins.
Turning to Glaxo's largest segment of pharmaceuticals, recent drug launches are helping mitigate competitive branded pressures in HIV and generic competition in the respiratory business. The recent launch of respiratory drug Trelegy is progressing well, and its unique triple mechanism of action should enable strong gains despite the genericization of Advair (double mechanism of action). In HIV, competition from Gilead's Biktarvy is causing growth to Glaxo's Tivicay franchise to decelerate to 7%, but we expect the recent launch of the doublet Dovato to gain traction due to potentially fewer side effects.
In the pipeline, Glaxo continues to make strides. We view the most important upcoming events as the pivotal data of Trelegy in asthma (second quarter of 2019), belantamab mafodotin in refractory multiple myeloma (second half of 2019), and Zejula in first-line ovarian cancer (second half of 2019). 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."
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