GlaxoSmithKline Plc (LON: GSK): Collaboration with CureVac to manufacture 100 million doses of Covid-19 vaccine.

GlaxoSmithKline Plc is an FTSE 100 listed company, focused on the research, development and manufacturing of innovative medicines, vaccines, and consumer healthcare products. The Company operates across three broad business divisions under Pharmaceuticals, Vaccines and Consumer Healthcare. The Pharmaceuticals business encapsulates portfolio of medicines used for HIV, respiratory and oncology. Vaccines segment helps people against infectious diseases. Consumer Healthcare involves oral health, pain relief and nutritional supplements. GSK has around 99,000 employees across 95 countries.

On 28 April 2021, the Company will release its Q1 FY21 results.

 (Source: Company Presentation)

Growth Prospects and Risk Assessment

Overall, the Company is maintaining good momentum on the strategic priorities as it made several investments in next-generation vaccines and medicines. Furthermore, the biopharma pipeline has over 20 products in late-stage clinical trials and planned for launch by 2026. GSK accelerated its progress regarding bifurcation of two standalone Biopharma and Consumer Healthcare companies in 2022. However, GSK had anticipated a short-term disruption during H1 FY21 for the vaccines business due to prioritization of Covid-19 vaccination programmes.

(Source: Company Presentation)

The R&D pipeline comprised 57 vaccines and medicines in the field of infectious diseases, oncology, and immune-mediated diseases. GSK has several collaborations regarding the development of Covid-19 vaccine.

 

However, the performance can be significantly impacted by the stringent regulatory policies, compliance management, Intellectual property risk, political and macroeconomic disruptions, failure to maintain quality of vaccine and medicine, market consolidation and acquisition risk. The Group is also exposed to the risk of foreign exchange currency fluctuations and the Covid-19 pandemic uncertainty.

Industry Outlook Dynamics

With reference to the recent report from the McKinsey, the global oncology therapeutics had generated USD 143 billion of branded pharmaceuticals sales in 2019, representing 20% of global pharmaceutical sales. The industry is expected to grow at a CAGR of 12.0% and reach USD 250 billion by 2024. Furthermore, the Oncology has proven to be the world’s largest pharmaceutical therapeutic area and hence, it is very competitive. The industry is accelerating on the innovation aspect, and the significant advancements have improved patient outcomes.

After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of GlaxoSmithKline Plc.

Recent Developments

On 17 February 2021: GlaxoSmithKline had signed a binding agreement with Vir Biotechnology, which will expand their existing collaboration to include the research and development (R&D) of new therapies for influenza and other respiratory viruses. Under the terms of the agreement, the Company is making an upfront payment of USD 225 million and increasing its equity investment in Vir by USD 120 million.

On 3 February 2021: The Company announced a new €150 million collaboration with CureVac N.V., which develop next-generation mRNA COVID-19 vaccines. According to regulatory approval, the development programme will commence immediately and targeting vaccine availability in 2022. Moreover, it will support the manufacturing of around 100 million doses of CureVac's first-generation Covid-19 vaccine CVnCoV in 2021.

A Glimpse of Business Segments (FY20)

Financial and Operational Highlights (for the year ended 31 December 2020 (FY20), as on 3 February 2021)

(Source: Company Website)

• The Company delivered a strong sales performance with an increase of 1% AER (up 3% at CER) to £34 billion as compared with the previous year, while it was down by 2% CER on a pro-forma basis.
• In Q4 FY20, the Comapy saw a good growth in Respiratory (up 14% AER), HIV (up 1% AER), Immuno-inflammation (up 21% AER) and Oncology (up 74% AER).
• During the year, Pharmaceuticals turnover decreased by 3% AER (down 1% CER) to £17.1 billion, with Respiratory sales increased by 22% AER (up 23% CER), HIV sales were flat. However, the sales of Established Pharmaceuticals decreased by 16% AER (down 15% CER).
• In Pharmaceuticals, it witnessed a growth in Trelegy, Nucala, Relvar/Breo, Juluca and Dovato.
• Led by the adverse impact of the COVID-19 pandemic, the sales from vaccines declined by 2% AER (down 1% CER) to £6,982 million as compared with the previous year.
• Reported Consumer Healthcare turnover for FY20 surged by 12% AER (up 14% CER) to £10,033 million against the prior year. The inclusion of the Pfizer portfolio drove this growth. Furthermore, it saw a strong in e-commerce and underlying strength of brands across the portfolio and categories.
• Total operating profit for FY20 increased to £7,783 million as compared with £6,961 million in FY19, with higher operating margin and lower adjusted operating margin.
• It had increased its total earnings per share (EPS) from 93.9 pence in 2019 to 115.5 pence in 2020. The increase in EPS was driven by increased income from asset disposals and the net profit on Horlicks and other Consumer Healthcare brands' disposal.
• The Company saw a strong cash flow generation, with a free cash flow of £5,406 million and net cash inflow from operating activities of £8,441 million.
• GSK reported significant progress in Biopharma pipeline, with more than 20 new product launches planned by 2026.
• In Oncology, the Company is building a good momentum, with 15 potential medicines in trials.
• GSK is on track for separation into new standalone Biopharma and Consumer Healthcare companies in 2022, with the achievement of £1.1 billion divestment proceeds and £0.3 billion annual cost savings.
• The Board has declared a Q4 dividend per share of 23 pence and expects to maintain the dividend per share for 2021 at 80 pence.

Financial Ratios (FY20)

Share Price Performance Analysis

On 18 February 2021, at the time of writing (before the market close, at 10:15 AM GMT), GlaxoSmithKline Plc shares were trading at GBX 1,239.41, down by 1.12% against the previous day closing price. Stock 52-week High was GBX 1,748.55, and Low was GBX 1,237.88, respectively.

From the technical standpoint, 14-day RSI stood at 30.20, which is supporting the upside movement.

In the last five years, GlaxoSmithKline Plc’s stock price has delivered a negative return of ~9.39% as compared to a ~12.35% return of FTSE 100 Index and a ~30.99% return of FTSE All-Share Pharmaceuticals & Biotechnology Index, which shows that the stock has shown decent performance as compared with the benchmark sector and the benchmark index.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

GSK highlighted that it expects the adjusted earnings per share to decline by mid to high-single-digit percent on a constant exchange rate in FY21. The Company expects growth in new and specialty products and Consumer Healthcare, with deferral of strong growth in Vaccines performance and increased investment in the pipeline. The Company has delivered a resilient performance in the financial year, and it has built a strong momentum on strategic priorities. The pandemic has impacted the company's Vaccines business segment; however, the vaccination rates have recently improved slightly. The Company has set in cost control methods, and growth drivers have offset the impact of the pandemic. The health crisis has led to a significant increase in consumer healthcare products. The Pharmaceutical and Consumer business's performance is on track, and a sustained recovery in the adult vaccination rate is expected. The key focus would also be delivering integration and restructuring programmes. Overall, the Company has shown improvement in financial performance for FY20, while maintaining good momentum on the strategic priorities, and the fundamentals of GSK's business stayed strong.

(Source: Company Website)

Considering the resilient performance, strong momentum on strategic priorities, high confidence in the competitive growth outlook for two new companies, sustained recovery in adult vaccination rates, sound business model, decent operating and financial performance, robust cash generation, improved profitability margins, a strong contribution from key respiratory growth drivers, consistent dividend payments from the last 15 years, and support from the valuation as done using the above method, we have given a “BUY” recommendation on GlaxoSmithKline at the current price of GBX 1,239.41 (as on 18 February 2021, before the market close at 10:15 AM GMT), with lower-double digit upside potential based on 14.38x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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