Morningstar | Glaxo Posts 3Q in Line With Our Expectations and Continues to Look Undervalued
GlaxoSmithKline reported third-quarter results largely in line with our expectations and slightly ahead of consensus expectations, but we don't expect any changes to our fair value estimate based on the results. We continue to view the stock as undervalued with the market likely not appreciating Glaxo's accelerating growth following the potential near-term U.S. generic Advair pressure in 2019.New product launches in vaccines are helping mitigate pricing pressures on older respiratory drugs, leading to overall sales growth of 6%, but we expect this growth rate will slow in 2019 as U.S. generic Advair competition should launch in 2019 (or earlier, depending on Food and Drug Administration actions). The generic pressure will likely affect next-generation asthma drug Breo as well given the efficacy similarity for these drugs. Despite the likely generic competition to Advair, we expect new innovative drugs to offset the Advair declines, supporting 3% growth in 2019, followed by accelerating growth in the next two years. Glaxo's ability to offset these generic pressures with innovative drug launches further supports our wide moat rating.
The strong growth from shingles vaccine Shingrix (GBP 286 million) in the quarter should continue over the next several years as supply constraints are the main limiting factor. We expect additional capacity will come on line later in the year and expect total sales in 2019 to exceed GBP 1 billion based on efficacy of almost double the previous standard of care from Merck.
Other innovative products that are tracking well include asthma drug Trelegy and the HIV franchise. We believe Trelegy offers efficacy benefits over Advair and will not be affected by the eventual generic Advair launches. While we expect growth for HIV drugs Tivicay and Triumeq will slow due to competition from Gilead, Glaxo's next-generation HIV drugs (doublets and long-acting integrase inhibitor combinations) should support long-term growth.
GlaxoSmithKline is a global healthcare company. Co.'s segments include: Pharmaceuticals; Vaccines; and Consumer Healthcare. The Pharmaceuticals segment is focused on developing new medicines in respiratory, HIV, oncology and immuno-inflammation, with discovery research exploring these and other areas. The Vaccines segment has a portfolio and pipeline of vaccines to help protect people throughout life. Co. delivers vaccines to people living in over 160 countries. The Consumer Healthcare segment develops and markets consumer-preferred brands in oral health, pain relief, respiratory, nutrition/gastro-intestinal and skin health.
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