GlaxoSmithKline pins recovery on rivals’ jabs after pandemic hit to drugs sales

Simon Freeman
·3-min read
 (AFP via Getty Images)
(AFP via Getty Images)

DRUGS giant GlaxoSmithKline suffered a 18% slide in revenues in the first quarter of 2021 as sales of its medications were dragged down by the impact of the pandemic on general healthcare.

The London-based FTSE 100 group said multi-billion pound plans to separate its over-the-counter medicines and pharma research divisions into two separate companies were “well underway”.

But it is, perhaps embarrassingly, pinning hopes for a near-term recovery on a return to ‘normal life’ engendered by the global rollout of Covid-19 vaccines developed by rivals.

Revenue across the group fell 18% in the first quarter of 2021 resulting in total sales of £7.4billion, slightly below consensus forecasts of £7.8billion.

GSK’s pharmaceuticals arm reported a 12% drop in turnover to £3.9billion, impacted by a 47% slump in adult and adolescent immunisations for its blockbuster shingles vaccine Shingrix in the US.

Consumer healthcare was down 19% to £2.3 billion, reflecting stockpiling and the relatively mild winter cold and flu season.

Operating profit dropped 30% to £1.8 billion while adjusted earnings per share were down 39% to 22.9p compared to the same period last year when sales were flattered by stockpiling.

GSK is also feeling the heat after US activist investor Elliott Management built up a multi-million pound stake.

The hedge fund has remained silent over the reason for the buy-up but has a reputation for accelerating the pace of corporate change.

CEO Dame Emma Walmsley would not be drawn on the intervention today.

She said the Q1 results were in line with the company’s expectations and “reflect the anticipated impacts of Covid-19”.

Walmsley added that growth prospects remain strong with the launch of a long-lasting HIV drug, the start of late-stage trials for a vaccine for respiratory disease RSV, and a new treatment for severe asthma.

She also brushed aside carping in the City over her intention to head up the new research company following the demerger despite lacking a scientific background.

Unhelpful comparisons have been drawn with AstraZeneca’s boss Pascal Soriot, who studied to be a vet.

Walmsley, who worked in consumer marketing for L’Oreal for 17 years before joining GSK in 2017, said the priority of a CEO was to: “set strategy... and I’ve clearly laid that out from day one.”

In a statement to the stock market, the company said: “We are encouraged by the rate at which COVID-19 vaccinations are being deployed in many countries, particularly the US and UK, which provides support for healthcare systems returning to normal.

“As a consequence we remain confident in the underlying demand for our vaccine products, and we expect strong recovery and contribution to growth in the second half of the year.”

GSK’s tie-up with Sanofi to develop a Covid vaccine is yet to get out of the starting block. It has agreed to help production of US developer Novovax’s candidate from next month.

Sebastian Skeet, senior analyst at Third Bridge, said: "GSK endured a pretty lacklustre 2020 following a number of pipeline setbacks and Covid-19 disruption. Worryingly, their 2021 performance looks all too familiar.

“Not only have existing challenges such as a muted shingrix recovery, late-stage pipeline setbacks, and increased competition around key on-market assets persisted at GSK, but we have seen additional pressures in the form of currency and shareholder activism.”

Steve Clayton, manager of the HL Select UK Income Shares fund, said: “With major structural change on the cards with or without Elliot’s alternative vision, it looks set to be a year of forced evolution at GSK.

“Elliot have a reputation for shaking up underperforming businesses and driving strategic change.

“What they will push for at GSK is yet to be seen, but it’s a safe bet that they see more value taking a course different from that which GSK is currently following.”

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