Morningstar | Glaxo Posts Solid 2Q With Increased R&D Focus on Immune System; Shares Look Undervalued. See Updated Analyst Note from 25 Jul 2018
GlaxoSmithKline reported second-quarter results slightly ahead of our and consensus expectations, but we don't expect any major changes to our fair value estimate. We continue to view the company as undervalued, with the investment community underappreciating the company's entrenched products and developing pipeline.In tandem with the earnings release, Glaxo provided a strategic update shifting the focus of its research and development to the immune system, which should improve the company's pipeline productivity and help support its wide moat. By increasing the utilization of human genetic data in targeting medicines directed at the immune system, the company can increase the probability of success in drug development, in our view. However, we expect it will take some time before meaningful changes in the late-stage pipeline occur. Further, with other drug firms pursuing similar strategies, Glaxo appears to be focused on catching up to the leading drug firms already employing a heavy focus on biomarker and genetic data in drug development.
On the revenue front, strong Shingrix (shingles vaccine) sales helped mitigate pricing pressures on respiratory drug Advair, leading to total sales growth of 4% operationally year over year. We expect this trend will continue until a generic Advair is launched in the United States, which we view as likely by the end of the year. While Sandoz's U.S. generic Advair is not likely until late 2019, we expect Mylan will reach the market in late 2018. Following the launch of generic Advair in the U.S., we expect steep declines in U.S. Advair sales, but the 43% decline in U.S. Advair sales seen this quarter does lessen the eventual blow once generic Advair is launched. Mitigating the Advair headwinds, the solid growth from Shingrix should continue throughout the year, given the vaccine's significant efficacy advantage over Merck's older shingles vaccine, Zostavax.
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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