GSK plc (GSK) Earnings Call Transcript & Summary

Good afternoon, and welcome to the GSK shareholder webcast. My name is Sarah, and I am your event manager. [Operator Instructions] And please note that today's call is being recorded. And I am now going to hand over to Sir Jonathan Symonds, Chairman of GSK. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us today for this shareholder webcast. I'm Jon Symonds, Chairman of GlaxoSmithKline plc. First of all, I want to start by saying I do hope you and your families are well and coping in this difficult time, and thank you for taking the time to join us. I'm sorry that the first time I get to meet you as Chairman of GSK is in this unusual format, that we find ourselves in very exceptional time. I'd like to start by explaining the format we have had to follow for this year's AGM in order to comply with the current restrictions related to the COVID-19 pandemic. At 2:30 this afternoon, our AGM was held here at GSK House at a closed meeting attended by myself and Victoria Whyte, our Company Secretary. The quorum for our shareholder meetings is 2 shareholders present in person or by proxy and entitled to vote. Therefore, we were able to meet the quorum requirements at this closed meeting in accordance with the government's current stay-at-home measures. We wrote to all of our shareholders in early April 2020 to explain these arrangements, and I hope you understand why we had to run our AGM in this way this year. Our priority is to take steps to protect our shareholders, employees and the Board and as a result, to enable GSK to continue to focus on providing health care to patients in need. In order to meet these stringent requirements, we encouraged all shareholders to submit proxy votes. All the votes validly submitted by shareholders before the AGM have been counted, and I'm pleased to report that all resolutions were passed. In almost all cases, the votes for approval of the resolution were in the high 90%. The vote for the remuneration report was 94.5% and the remuneration policy was 88.2%. We will continue to work with shareholders to improve our overall approval rating in the coming year. The full results will shortly be announced to the London Stock Exchange and published on our website. And thank you to all of those shareholders who took time to submit their proxy votes in advance of the AGM. Your continued engagement is very much appreciated. This formal part of the AGM is very important and provides us with the ability to operate the business effectively for the year ahead, but the substantive part of the AGM, however, has always been where the Board and management are held to account and can be questioned by our shareholders and owners. This webcast is the closest way we could replicate that element of the AGM. We did not want you to miss the opportunity to engage with the company. And therefore, we have invited you to this hour-long meeting today. I will start this event with a few remarks, following which I'll hand over to our CEO, Emma Walmsley, who will give you an update on GSK's performance in 2019 and our response to COVID-19. I will then open the session to your questions. [Operator Instructions] But before we begin, I'd like to introduce my fellow Board members. As well as Emma, joining us on the line today are Iain Mackay, our Chief Financial Officer; and Hal Barron, our Chief Scientific Officer, who will be available also to answer your questions. Also, all of our Nonexecutive Directors, Vindi Banga, our Senior Independent Director, Dr. Vivienne Cox, Lynn Elsenhans, Dr. Laurie Glimcher, Dr. Jesse Goodman, Judy Lewent and Urs Rohner are also listening into this event. I'm also very pleased to welcome Charlie Bancroft, who joined the Board on the 1st of May. Charlie brings with him a wealth of financial management experience in global biopharma and consumer health care, which will be invaluable to the Board in the coming years as it oversees the delivery of GSK's strategy. On joining the Board, Charlie became a member of the Audit and Risk Committee and has agreed to succeed Judy Lewent as Chair of this committee following approval of GSK's 2020 annual report in the first quarter of 2021. I'm enormously grateful to Judy for agreeing to stay on for another year to facilitate a smooth handover. Last year also saw Sir Philip Hampton stepping down as Chairman as well as Iain Mackay becoming our Chief Financial Officer, replacing Simon Dingemans. I'd like to take this opportunity to thank Philip and Simon for their service at GSK and wish them well in their future endeavors as well as to formally welcome Iain. Before I hand over to Emma, I'd like to make a few comments on our company. This is my first AGM as your Chairman. I'm very happy I'm proud to say that, knowing that I've joined a company with a remarkable history and what I believe to be a very exciting future. I've worked in the life sciences industry for most of my career, and I know just how important the industry and the innovation it brings is to making a meaningful difference to patients' lives around the world. This has never been more true than in the current pandemic we find ourselves in with COVID-19. Now more than ever, we need the scientific expertise and innovations that the life sciences sector contributes that are essential to help the world emerge from the current pandemic. As you will hear from Emma in a moment, few companies are better placed to contribute to this than GSK, but I'm also particularly pleased to see how the industry is working together and pooling its expertise around the world. The Board has worked closely with Emma and her team to support the company's response to COVID-19, which has been extraordinary. In a moment, Emma will describe the work we are doing to protect our employees, to ensure that we can continue to operate and to find solutions. I could not be more proud of our response and the leadership that Emma and her team are showing every day. All of our employees around the world are committed to this cause, and I want to thank them all and none more so than the 20,000 employees in our manufacturing and R&D organization who have continued working at sites throughout the crisis to ensure patients continue to receive their medicines, vaccine and consumer health care products. The Board is receiving regular updates on the progress we are making to help with the potential solutions to the pandemic, whether that is through medicines that have the potential to treat COVID, such as our work with Vir Biotechnology or through our partnerships with several organizations to develop a vaccine, most notably with Sanofi. Of course, the Board is also closely monitoring with management the impact of COVID-19 on our business. Unlike many other sectors and businesses, I'm pleased to report that we are confident in the strength and sustainability of GSK and our continued ability to deliver on the long-term goals of the company. But like everyone, we are watching very carefully how the economic impacts of the pandemic unfold. In a moment, Emma will talk through the progress made in 2019. Seems like a very long time ago now. But before that, I want to highlight a couple of strategic things. The Board was pleased to see the positive operational performance through 2019 with growth in sales and earnings and good cash generation. This was an excellent performance in a year when Advair finally went generic in the U.S. Our performance allowed an 80p dividend to be paid for the year, as we expected. The Board supports management's clear framework for capital allocation, with its first priority of investing in the long-term growth of the business. The Board was also pleased to see the progress made by Emma, Hal and the team to strengthen the pipeline, particularly in oncology. This progress further validates the new approach to R&D set out by management, which focuses on the immune system, the use of genetics and advanced analytical technologies. Continued progress in R&D is critical as we prepare to split into 2 new world-leading companies in biopharma and consumer health care. I'm pleased to report that in my many conversations with shareholders during my first month, I've received strong support for the group's strategic direction and the priorities set by Emma and her team. The Board is very engaged on this issue, and we've set up a new committee to work closely with management and to provide support and direction as we prepare for this split. Before concluding, I'd like to mention the work the Board is doing on ESG matters. We are, rightly in my view, seeing increased focus from investors on the value of ESG, or environmental, social and governance factors, to improve our overall performance. I believe GSK's purpose, strategy and priorities are well placed to deliver long-term value for society and shareholders. And while our immediate focus is on the response to COVID, we are committed to driving global health innovation, whether that be in tuberculosis, AMR, access and affordability of our medicines or in tackling climate change. With that, I'll stop for now and hand you over to Emma. Emma?

Thank you, Jon. Hello, and good afternoon, everyone. I want to first echo Jon's comments on hoping you're all staying well and regret that we can't be with you in person during this challenging period. I'm going to talk about our performance in 2019 in a moment, but first want to spend a few minutes detailing how the company has responded to the COVID-19 pandemic. Responding to this extraordinary public health crisis is right at the heart of our purpose for the company, and GSK's portfolio is highly relevant and needed at that time. We've mobilized across the entire company to implement a comprehensive approach to navigate this crisis, focused on 3 areas: our people, business continuity and bringing solutions. Over the last few months, our people have shown tremendous courage, commitment and resilience. As Jon has said, we have thousands of employees working tirelessly to ensure our products continue to reach the patients and consumers that rely on them. And we're working hard to make sure all our employees are protected and supported, providing them with the technology and resources they need, whether they're working at a factory, a lab or renewed circumstances from home. We're implementing our business continuity plans across all essential operations, including in our manufacturing and supply network and for our clinical trials. Overall, I'm pleased to report that our business continues to perform well and has demonstrated resilience in the face of significant pressure and uncertainty. Importantly, we're using our science and technology to support the global response to the pandemic. As one of the world's leading vaccines companies, our primary focus is on developing a vaccine, which, of course, will be core to the exit plan the world needs. We're working with a number of companies across the globe on this and a few weeks ago, announced our unprecedented collaboration with Sanofi. In this partnership, Sanofi will contribute the antigen element of the vaccine. This is based on their recombinant DNA technology and has been used in their existing flu vaccine, and we'll contribute our proven pandemic adjuvant technology. This combination of a protein-based antigen, together with an adjuvant, is very well established and used in a number of vaccines today. And when added to some vaccines, an adjuvant can influence immune response and has been shown to create a stronger and longer-lasting immunity against infection. And using an adjuvant can also be very important, therefore, in a pandemic situation as it may reduce the amount of vaccine protein required per dose, which allows more vaccine doses to be produced and therefore, contributes to protecting more people. There is, of course, a long way to go, but teams from both companies are working urgently on this. And if everything does go to plan, we aim to make the vaccine available and with the capacity to produce hundreds of millions of doses a year by the second half of 2021. Alongside vaccines, we're also exploring therapeutic options. In April, we entered into a new collaboration with a San Francisco-based company, Vir Biotechnology, to identify and accelerate the development of new antiviral antibodies that could be used to fight COVID-19 or future coronavirus outbreaks. Together, we plan to accelerate 2 very promising antibody candidates into Phase II trials in the next 3 to 5 months. Beyond vaccines and medicines, we're also making other contributions using our capabilities and expertise. For example, here in the U.K., we've joined forces with AstraZeneca to help the U.K.'s national testing centers and are setting up a new laboratory with Cambridge University to help boost testing for COVID-19. So I hope that gives you something of an overview of our plans and commitment to being part of the solution for COVID-19 and our confidence in our management of business continuity. As you may have seen last week, we delivered strong results for Q1 2020, with growth in sales and earnings reflecting good underlying performance and increased demand, including COVID-related stock building for many of our products. Looking ahead, there is a period of considerable uncertainty, especially in the next few months, but we remain confident in the resilience and sustainability of GSK's business and our ability to deliver on our long-term priorities of innovation, performance and trust. Turning now to 2019. It was a year of good progress across each of these 3 priorities. Sales grew to GBP 33.8 billion, an increase of 8% at constant exchange rates. We've been focused on the commercial execution of new products, and I was particularly pleased to see their significant growth contribution last year. Standout among them was Shingrix, our vaccine for shingles, which had a remarkable first year with sales of GBP 1.8 billion. In respiratory, we also saw good growth from Trelegy, our 3-in-1 inhaler for COPD; and Nucala, our biologic for asthma. And in HIV, we had total sales of GBP 4.9 billion with our new 2-drug regimens already contributing sales of GBP 422 million. Total earnings per share increased 23% CER to 93.9p, and adjusted earnings per share grew 1% CER to 123.9p. We also saw good cash generation in the year of GBP 5.1 billion. And as the Chairman said, we confirmed a full year dividend of GBP 0.80. As I've consistently said, strengthening our pipeline is our #1 priority for the long term. Hal has introduced a new approach to R&D focused on the science of the immune system, the use of human genetics and advanced technologies. And in all, we now have 37 medicines and 15 vaccines currently in clinical development. In 2019, we delivered 8 regulatory filings for new medicines; 6 positive readouts from 6 pivotal studies, including 3 in oncology; and progressed 4 new assets into pivotal studies. I was particularly pleased to see positive data on all 3 of our oncology pivotal readouts last year: Zejula for ovarian cancer, belantamab mafodotin in the fourth-line treatment of multiple myeloma; and dostarlimab in the second-line treatment of recurrent endometrial cancer. We submitted each of these assets to regulators for approval. Just last week, we received FDA approval of Zejula for first-line maintenance treatment of ovarian cancer. We acquired TESARO because we believe PARP inhibitors were relevant to more women than just those with the BRCA mutation. That has now proven to be the case and a significant milestone for the company and importantly, for many women with this terrible disease. In HIV, we saw a strong flow of positive data that further supports the transition we're making to 2-drug regimens, and we've received the first approval globally for Cabenuva, the first long-acting monthly injectable for HIV, which offers the option to reduce the need to take a medicine every single day to instead taking it just 12 times a year. In addition to strengthening our pipeline, we're also making good progress in the delivery of other strategic goals. We're moving at pace with the integration of our new consumer health care joint venture following the successful completion of the transaction with Pfizer in July last year. Since closing the joint venture, we've announced 90% of leadership roles, completed closes in all major markets and co-located employees in 31 locations globally. And as I said to shareholders last year, our intention is to separate around 3 years from closing that transaction. So we've started now a 2-year program, which we're calling Future Ready, to prepare the group to separation into 2 highly relevant companies: one in biopharma, focused on science related to immunology; and the other in consumer health. Our program will help set up competitive capabilities and cost base for both companies, along with the right capital structures to create significant value for patients, consumers and shareholders. These will be 2 companies whose purpose, priorities and capabilities have never seemed more relevant than now. Before handing back to Jon, I want to finish by reminding -- by explaining how proud I am that GSK has consistently taken action to make a broader contribution to society in addition to delivery of financial returns. Our company-wide response to COVID has been a clear demonstration of that, but also many other recent initiatives related to global health and health security. Following the publication of excellent data for our candidate vaccine for TB, still the world's biggest infectious disease killer, in early 2020, we secured a groundbreaking agreement with the Newgate Medical Research Institute to develop the vaccine for use in low-income countries. We also filed regulatory submissions for a new formulation of our latest HIV medicine, which will expand access for use by children in resource-poor settings. And I was particularly pleased to see that last year, we were ranked the top pharma company in the Dow Jones Sustainability Index for the first time. Cultural change at GSK also remains very important, and we're also making good progress on this to develop a more performance-focused culture, which retains a strong emphasis on purpose, values and the power of our people. Our regular employee survey shows excellent engagement scores at all levels of the organization over the course of last year. I'm proud and thankful for the fantastic contribution from all GSK employees, never more obvious than through the challenges we face now. To close, GSK performed well in 2019, making good progress against our strategic priorities. We've had a very strong start to 2020. And looking ahead, whilst we clearly face a period of considerable uncertainty, we're confident in the resilience and sustainability of GSK's business and our ability to deliver on our long-term priorities of innovation, performance and trust and our purpose as a company to help people all over the world do more, feel better and live longer. And with that, I'll hand back to Jon.

Thanks, Emma. I hope you'll agree that that's an impressive set of achievements. We have approximately 35 minutes left for questions. [Operator Instructions] We do have a sharp finish today at 3:45. And if we don't have the opportunity to answer all questions, we will provide answers to you afterwards. If I'm -- if you're asking your question by telephone, the operator will introduce you. I will alternate questions between those submitted by shareholders online via the webcast and those from the conference call line. What we have had -- in the recent weeks, we have had a number of questions submitted by shareholders. And while you are thinking of your questions, I might just go through because they are, I think, helpful in defining some of the themes.

So the first question. There'll be many questions on separation and our preparations for the separation of the Consumer Healthcare business. And do we have enough fast-moving consumer goods experience on the Board? And when will we be beginning to plan for the new Board? Obviously, the Board continuously reviews the composition of the skills and capabilities that we need to deliver our strategy. We actually have quite strong consumer and health care expertise on the Board today. Vindi Banga had an extensive experience with Unilever. Charlie Bancroft, who has just joined us on the Board, was recently on the Board of Colgate-Palmolive. And I'm sure nobody needs reminding that Emma has considerable experience from 17 years at L'Oréal as well as 8 years running the Consumer Healthcare business here. So we are very well positioned to optimize the business portfolios of both the Consumer Health and the Biopharmaceutical business. At the point of separation, we will, of course, have to build 2 Boards, but we will not focus or begin to build the new consumer health Board until we're much closer to the date of separation. It's very important that the Board we have today act exclusively in the interest of all shareholders. There have also been questions on why we decided not to issue dividends by way of checks. Obviously, this is inconvenient to a number of people. But the decision to remove check was really because we can be much more certain that shareholders receive their payments in a much more efficient and secure way. There's also no risk of the money being lost. Interestingly, over 14,000 payments to our shareholders fail to be cashed in every year and have to be replaced by checks. So clearly, there's a major efficiency benefit by going to direct payment. Also, share price performance is another theme and particularly, the performance on TSR. I would say that in 2019, the GSK share price increased by 19.3% against FTSE, which -- FTSE 100, which increased by 12%. This year in 2020, our share price is broadly flat, but that's against the market that I think everybody well understands on this call, that is down by over 20%. The relative improvement of -- or the relative performance of GSK shares against the sector has improved since 2017. That, in my view, is no surprise because 2017 is the year when Emma became Chief Executive, and she has brought with her clarity and focus around the priorities of the organization. As she's already mentioned, innovation, growing and strengthening the pipeline. 2019 was an exceptional year in pipeline progress, peak performance, the delivery of stretching goals and the delivery of promises on what we set out to achieve. And with no loss of focus on our reputation, the work that we do on the global health agenda and the trust. I believe IPT is essential to the delivery of the aims and aspirations of GSK. And if we continue to be successful in delivering against that, I have no doubt that the relative TSR will follow. Finally, before I go to your questions, there has been a question on our strategies relating to being a living wage employer. I'm delighted to say, and I think Emma has well emphasized in her comments, the priority that we place on our employees and being a good employer. And therefore, we are committed to the modern employer as part of our trust agenda. This includes ensuring that GSK specifies working hours in all its contracts. We do not support 0 in our contracts. And we have extensive consultation processes with all of our employees to ensure that we are continually seeking to improve the environment in which they operate and therefore, that they can continue to deliver outstandingly well as they do today. So with that, I'm now going to ask Victoria for the first question from the web, please?

Certainly. So the first question is from [ Matt Booth ]. He has asked, to what extent will the company monetize any treatments or vaccinations for COVID-19?

This is a very important question and one that Emma and her team have spent a lot of time both thinking through but also communicating, and I will certainly not do justice to the answer of that question. So Emma?

Well, thanks, Jon. And a very important question. I mean the first thing to say is our #1 priority is to actually get to solutions that work, demonstrate efficacy, that we get there as soon as we possibly can because of the global emergency. And particularly in the case of vaccines, although it would be relevant for any potential treatments, too. But in the case of vaccine, you're obviously looking to eventually get to protect billions of people. So we would like to be able to really prioritize the question of scale, which is why we've also said that more than one vaccine will be required. With that in mind -- and this is highly relevant to the monetization question. We, right from the beginning on our vaccine approach, pursued this strategy of bringing an adjuvant but -- because it can be antigen-sparing, but underpin that with 4 principles. One is that we wanted to go in partnership and -- because collaboration can get to potentially a better solution faster. Go for a global approach, and that is highly relevant in terms of the third point, which is a commitment to access and making sure this gets to the people that need it most. That may well be framed by access in terms of developing countries and potentially donations, but it can also be about the people that need it most in terms of, for example, access, prioritizing health care workers. And then lastly, the fourth principle for our vaccines approach was about making sure that we prioritize pandemic preparedness, and that's key in terms of investments going forward. So the world -- and we are contributing and supporting the world being better ready for further outbreaks or the next one. On that basis, we were very clear that when we look as a whole at transversely to potential collaborations in vaccines, we do not expect to profit from them during the pandemic phase because any short-term profits that we might make from being part of a vaccine or vaccine solution, we would be looking to reinvest either in terms of our further science and technology, pandemic preparedness that's either with our own investments or in partnership with others, but also use those funds to help contribute to donations, which we would also partner on with organizations, governments and agencies that will be focused on that for the developing world. So that will be my part.

Thank you. Do we have any more questions?

No. That's all the questions we've had in on the webcast.

So perhaps we'll give you a minute or 2 to see if there are any questions that people would like to submit. Okay. Well, in that case, if there are no further questions, I would like to thank you for joining us today. I hope you found the remarks from Emma and I valuable, particularly in relation to the work that we are doing with the current pandemic. If there are questions that you subsequently wish to ask, you can, of course, contact us at any time, either by e-mail to our Company Secretary or writing to our registered office. Again, thank you very much. Again, your continued support and your understanding during these exceptional times are very much appreciated, and we'd like to wish you all good health in the weeks and months ahead. And hopefully, next year, we will get to meet in person. Thank you.

Thank you very much.

Thank you. Everyone, that concludes your conference call for today. You may now disconnect. Thank you for joining, and stay safe.