GSK plc (GSK) Earnings Call Transcript & Summary

It gives me great pleasure to introduce Phil Thomson, something I haven't caught up with for a while. So Phil thanks for joining us. Phil is the President of Global Affairs at GSK. So he's going to provide us with a presentation just to kick off this session, and then we're going to move into Q&A. So if you have a question, you can send them through the chat box to me and also [indiscernible] together and -- for Phil to go through. But otherwise, Phil, over to you. Thanks so much for joining us. It's great to see you again. Let's kick off with the presentation, then we'll move to Q&A.

Great. Thanks, Mark. It's great to be here virtually with you. And as you say, caught up for a long time, but it's great to do so. So thank you. So I thought I'd start, as you said, with a few slides, just to orientate everybody on GSK's approach to ESG. And I'm hoping that people can see the slides because I can't. So this should be quite interesting. So the first slide, which really speaks to our 3 strategic priorities that the company has. And for those of you that are holders and followers, you'll know these well, which are essentially innovation, performance and trust. And those 3 priorities are the 3 priorities of the company. Everybody in the company that works at GSK is aligned to those enhanced -- to make contribution towards them. And very specifically, ESG does actually sit in all 3, but very specifically in trust. Now ESG is governed at GSK through the Board, our Corporate Responsibility Committee is a dedicated committee that looks at ESG matters. The exec team -- everybody in the exec team has specific accountabilities for ESG matters and is measured in all our performance and in those working inside the company. And then we also have the Risk Oversight Committee, which has all members of executive team plus the key leaders from the control functions within the company. So probably a very familiar setup for people, but essentially, that governance right from through the Board, through the executive committee and then through the company. If I could go to the next slide, and this is really where I hope you can see that we are -- this is how we're focused on trust. So our trust priority is driven by a framework that you can see here. And this work was really done 3 or 4 years ago. I led it, and we developed this framework from essentially talking to and working with all our key stakeholders, including investors, but all the way through to -- investors through to NGOs, for example. And what we did was come up with this composite framework, which essentially are the core areas where we want to deliver trust -- to build trust and, as it says at the top of the slide, really to do 2 things: to drive sustainable impact and by impact, we mean societal impact but also financial performance; and at the same time, reduce our risk. And that's really how we see ESG within the company. It's about delivering performance and reducing risk for the company. And I'm sure we can come on to that in a second. The areas here, as I say, are all relevant to our stakeholders and are the areas that we want to make a difference in. And if I just show you how they cut as it were to ESG. So if you go to the next slide, we have a specific focus on environmental impacts. In fact, we've just literally announced new targets on this, which I'll come on to in a second. If you go to the next slide, you'll see the S of ESG, which is the social impact, and that really speaks to our core proposition of what we're trying to do, which is bring innovation -- differentiated value innovation to patients around the world, at the same time, with clear access opportunities. And then, of course, as a company in our own right, deliver a social impact to the communities we work with and with the people who are part of the company is what we call our modern employer proposition. And then the final area is the G, the governance. And within here, we have a very clear focus around supply, quality and also ethics and ethical behavior, whether that is interaction with doctors, for example, or use of data. So the trust framework is our approach. And as you've hopefully just seen, it cuts very strongly to ES&G. We have, within that framework, essentially a set of targets and public commitments. We actually have 13 public commitments and targets which we publish. And those targets, they can be a mix of numeric targets as well as the way in which we want to operate. They tend to be over a 3- to 5-year period. So we're not -- we always try and look for longevity but achievable longevity. We're not necessarily looking for sort of 20-year commitments. Actually, we want to have them specific and measurable. Those are evaluated annually at the Corporate Responsibility Committee. So I take that to the committee. And they -- and we run through, obviously, where we've been and where we're going, so we understand our trajectory. And where we can, we get them independently verified by experts in the field or through benchmarking, and then we publish those every year. For 2020, Mark and I were just talking before we came on about the rollercoaster year that 2020 has been, actually, for -- also on an ESG perspective, actually, it's been a year of progress, and as you might expect, heavily dominated by our response to COVID-19 and the pandemic. And that really has been across 3 areas. Firstly, how we have looked to maintain supply and continuity, given the disruption to COVID, whether that be actual supplies of medicines or clinical trials, for example. How we've worked to deliver what we call COVID solutions, and we're working actively in vaccines and therapeutics and have quite a broad portfolio of options there. And then also, very importantly, we've been engaged in what we think is needed in future preparedness to pandemics and working to help develop policy with governments in that space and also joining collaborations like, for example, the Trinity Challenge, which is a new collaboration -- global collaboration that's focused on using technology to impact future pandemics. So that really has been a very dominant part of this year. At the same time, we've also maintained our very strong focus on global health. I think this is an area GSK legitimately can claim to be a leader in. We're focused across HIV, TB and malaria, good advantages in all 3 of those, whether it's pediatric medication for HIV, new vaccine for tuberculosis and the rollout of the malaria vaccine. And at the same time, supporting AMR. Again, we have 28 projects in R&D that are pathogen-related, and AMR is a significant issue that needs addressing but is also a significant proposition we are engaged in. And then I mentioned environment. We set new targets this year, a few weeks ago, essentially looking to achieve impact both on climate and nature by 2030. That's, I think, generally, really exciting new targets we set ourselves. And then final area is on people where we have -- again, we're moving forward on inclusion and diversity targets, both inside the company. There will be more news on that, I hope, in the next few months, which we'll publish. And some of that is obviously related to COVID. My final slide is really just to reinforce about how we look at this, and that's really the benchmarks and the indices. I'm guessing many of you will be familiar with these. And we use them, I would say, in 2 ways. One is obviously to report against and to hopefully offer shareholders interest in our valuation. I would say we're increasingly also using these to help influence our own strategic thinking. And I think this is the great opportunity, actually, with more coherence around the benchmarks and indices, is that companies can actually use them to help influence their own strategic direction, how they want to address ESG matters. And as you can see and I hope you know, we are very much towards the top of the sector across a range of these indexes. So Mark, a bit of a whistle stop tour but hopefully helpful for people to get a sense of where we're at.

100%. Phil, thanks so much. That was really interesting. I guess we could split this up into a few different parts, the social, governance, environment. And that's quite a lot under the social, I guess. And innovation is clear that one of the key priorities that CEOs state out. So I mean maybe starting with COVID. Could you sort of help us understand how you're balancing -- addressing this sort of huge impact to the world's population, health care systems and economies with the need to support the sustainability of your business model? I mean you sort of mentioned The Trinity Challenge, which was a new one for me in terms of future pandemics. But it'll be great to understand how you're sort of balancing, addressing the impact with the sustainability of your business model.

Yes. Well, I mean, that has been one of the big challenges of the year, quite honestly, is how do you drive to much needed solutions, but at the same time, not disrupt what you need to deliver. And in vaccines, in particular, you can really see that if you hold -- if you try and develop vaccines alongside all the work that's going on in your current pipeline, you can get very, very significant disruption. And a lot of the vaccine companies experienced that with Ebola and Zika, and I think being honest, you probably saw some of that hesitancy when COVID emerged because the scale of it just wasn't that well understood. Now I think that very quickly changed. And for us, though, having been active on H1N1, Ebola, we have -- we thought long and hard about, okay, well, where do we really focus our energies and efforts? And the adjuvant platform that we've got, which other companies have adjuvants but I think we can claim to be the biggest. We know that makes a difference in the pandemic setting. So we knew that with H1N1. And that's why we said, right, we're going to focus on adjuvant partnerships with other companies that have got antigens. And we think that's where we can add the most value. By doing that, we hopefully hit that societal effort of, okay, where can we have the most value in the vaccination side. But at the same time, it meant that we didn't take off, off the gas on RSV, for example, which is a really important program inside our pipeline. And actually, I can tell -- well, you know, we saw great data on that asset over the course of the year as well as being able to do the adjuvant technology use in -- with other COVID vaccines. And that I think is a great sort of example of, actually, because we chose to do the adjuvant, it allowed us to move on RSV -- allowed to move on RSV, but we've managed to do something on COVID. I think the other interesting dynamic to all of this on COVID has been the short-term pressure that you alluded to and the supply continuity and the focus we've had to do on that. And I think inside the organization, there've been incredible herculean efforts to make sure products flow, particularly in the first few months of the year was absolutely maintained. But we've also had to think quite strategically about what we're seeing with the technology shift. And you know better than anyone. I mean the mRNA revelation almost this year is incredible, and it's fantastic to see. It's a privilege to be part of an industry where you're seeing that kind of -- I mean literally unprecedented, putting a person on the moon-type activity happened. And that's caused us to think, well, how are we thinking about our new vaccine technologies and the investment we made in CureVac, for example, in Germany and the monoclonal antibody therapy investment we made with Vir. Those are 2 strategic investments that we thought through on the back of COVID. So that whole kind of sustainability of the company, it's short term, keeping the product flow supply, making the intelligent choices inside the company so that you don't destabilize core business and then also being quite strategic in the sense of where the new technology leap's going. That's how we thought about it.

That makes a lot of sense. And in terms of the sort of the, I guess, responding to future pandemics, you've got the different technologies you're bringing through, as you said; and in adjuvant, you are a leader. Are you thinking about also sort of -- you're scaling up manufacturing behind Shingrix. Is this as an area where more broadly now you're thinking about scale and size of your vaccines business longer term, which could include coronavirus or sort of pandemic-type viruses as well as obviously the innovation you're bringing through on RSV? Is that something -- I don't know if you talked to -- but the sort of manufacturing side to be even more directly involved in future pandemics maybe.

Yes, I think that's right. I mean I think one of the learning -- well, many learnings from COVID, I think the idea of scalable manufacturing capacity, particularly fill and finish. But also, I think the use of these new technologies, they go hand-in-hand. And we're certainly thinking about, well, what will be -- what's the next adjuvant type of technology we should be engaged in as part of a pandemic preparedness. Where should we have flexible manufacturing capacity? And actually, not just us, but actually how could you create a sensible network across the industry and be able to trade? Because we've sort of managed to do that, and you'll see that, I think, more as the antibodies come through. But it's not easy. And it's not easy for the industry to collaborate, actually, for all the reasons you can expect around antitrust and competitiveness. But I do think there are some options there. And then I think the other area I alluded to that we're thinking about is how do you use technology, and I mentioned this Trinity Challenge, but the use of data, whether it's surveillance and monitoring for pandemics; or in the case that we're looking at -- we're actually looking at a distribution mechanism, a platform that we think with good technology, we may able to improve supply of vaccines but also potentially [indiscernible] but diagnostic testing kits or PPE or something like that. So I think there's quite a lot of opportunity, actually. I think for vaccines specifically, as I say, I think scale-up of manufacture is definitely one of them. I think the -- I'd probably guide you more, though, to where is the next technology [indiscernible] we're thinking about. And certainly, some technology, mRNA technology, those are the things we're really quite focused on.

Got it. I mean the other thing that people worry about, maybe again there hasn't been enough preparedness, is antimicrobial resistance. So I know this is an area which is close to your heritage and your heart. You've got a new innovative antibiotic, gepotidacin.

Gepotidacin.

Yes, exactly, which is in Phase III. A bit of a mouthful. But I mean how -- can you help us understand sort of where you're going in terms of supporting science around antimicrobial resistance and some of the sort of challenges financially of supporting your space, which I expect at some point in the future will become very important as we see with the pandemic today?

Yes. Well, you're spot on. I mean it's a huge problem. And actually, we've been talking about it as kind of almost a quiet pandemic and the slow-moving pandemic versus COVID. And I think there is the real potential of that, actually. But we -- just say, you're absolutely right. This is our heritage. I mean we were involved in the manufacturing of penicillin back in World War II. So we've got a long heritage here, and Augmentin is still a very significant product for us, which is amoxicillin and particularly in -- well, globally, but particularly in the emerging markets. And I think where -- so where we are on this is that, actually, you mentioned gepotidacin. It's one of the most advanced antibiotics. One of the few antibiotics that's actually classified as novel. We're actually excited about gepotidacin for the social impact, but actually from a commercial standpoint as well. And I think, frankly, it's probably a bit unregistered out there as a commercial opportunity. And the reason why I say that is because it's really important to think about these things, both in social impact and commercial impact. And often what happens here is the antibiotics gets very quickly put into social impacts. It's going to be reserved. There's no return on it. And that's why you've got all these problems with the development of antibiotics. I actually am getting more optimistic about this in the sense that, okay, we have seen biotechs go bankrupt -- say this, biotechs go bankrupt over the last few years. But actually, we are starting to see some of the push incentives and the R&D around novel antibiotics starts to make a difference. And there is a pipeline emerging. It's not big enough by any stretch of the imagination. I think there's something like 40 projects globally versus thousands in oncology. So it's nowhere near enough. But I do I think there's emerging optimism on the R&D push side where we've got the big issue, and you'll know this better than anybody, is the pull side, which is the market and the attractiveness of the market. So gepotidacin, I can tell you, actually, we think is a good commercial opportunity, not least because of where it may be used. If it was to just be reserved, then it's still a problem because the market is not necessarily rewarding the antibiotics that come through. Now again, I think there is a growing understanding of that amongst policymakers. And you're seeing whether it's -- there's an Act just passed in the U.S. where they're focused on this. You're seeing there's new subscription model being tested in the U.K. Germany are starting to look at this in a more holistic way. So I do think, actually, the future of the antibiotic market is moving in the right direction. The question is, is it moving fast enough? And will it really tackle AMR as a result? The other thing for us very specifically is also vaccination. So what I think is also becoming clearer and clearer is that within the task of impacting AMR, vaccination has a real role, whether it's specific vaccines. And we've got one for staphylococcus we're looking at, at the moment but still early days, but we are -- there's a program underway or actually if it's just around using mainstream vaccines or currently approved vaccines in a more holistic way, and therefore, stopping people from getting, frankly, into hospital and, therefore, being susceptible to antibiotic use or antibiotic resistance. So I think this world is moving in the right direction. I think that the last 12, 18 months, we've seen the AMR fund. We've seen [ CarVax ], the venture that's allowing private and public money to come in. And the last thing I'll just say is I just think COVID is a bit of a game changer when we think about public-private financing. And BARDA, I think, has always been at the cutting-edge of this. I think it's going to be really interesting to see what happens with the new European vehicle they put in -- they're going to put in place. And again, I just think when you look back at disease areas where the -- you've got great signs starting to emerge, you've got that public-private initiative, scale funding, things can happen. And HIV, that was the classic example, and I hope it happens again on AMR.

That's really interesting. Maybe one last on innovation and we can move on to access, Phil. In terms of -- you've got a head of R&D empowered by your CEO to take smart risk and really think about your R&D engine in a different way, bringing new technologies, investing in new areas as well. So how do you sort of decide what the key priorities are across sort of the global health care R&D unit you could bring in, I guess, consumer as well as -- as part -- at this point? When it comes to it, how do you decide where you're going to deliver the greatest differentiation and pricing power and provide the greatest bang for the buck when it comes to the social side of ESG?

Well, that's a great question I get asked a lot. So we -- inside the company, I mean, so we've done -- and Hal, Hal Barron who you're talking about has been involved in this as is Roger Connor who heads up our vaccines business and Luke as well. So we've done a lot of work actually over the last 2 years to really think through from a global health perspective. And just so I'm clear with everybody, that's really what -- when we talk about global health, it's really in that not-for-profit space that I'm talking about. We've done a lot of work over the last 3 years to really crystalize, okay, well, what is it that we will focus on in that space. And the way we've got to the answer on that is really where we've got great scientific strength and expertise and heritage. Where is that? And that starts to take you into some very familiar areas for GSK, i.e., infectious diseases where we've got a portfolio of opportunity or knowledge; where we've got -- where we work well with partners who are experts. And we're one of the biggest partners of Gavi, for example, Bill & Melinda Gates Foundation. And then where in the world do we think we can make the biggest difference, which really comes to your very fine point, which is burden and impact. When we pull that together and look at it from a GSK perspective, it really takes you into those -- into infectious diseases, strong focus on HIV, TB and malaria; actually, looking at adolescents and children in particular as a population piece; and then actually then saying least developed countries. And we've put those elements together. Now neglected tropical diseases is also part of that, and we have expert facilities in Tres Cantos in Spain who are really good in that space. So that's also part of it. And then the latest thinking is that, actually, we've then said, okay, well, we made a mistake here as a company a few -- several years ago, when we said, actually, we want to try and do global health end to end. And when you step back as a company, this really comes to your question on sustainability, is where can you -- where are you best at? Your best at the science and the innovation. Actually, the delivery and the distribution is enormously challenging, particularly in the global health space. So what we've started to do is actually, say, we are going to focus on early stage science, probably up to clinical development, sort of Phase II. And then actually, we then started to think through -- we're going to have a quite aggressive partnering of assets. And the best example I can give you of this is the TB vaccine, which is really exciting concept and that fantastic data that came through last year. And we've partnered that with the Gates Foundation. And actually, they are going to be working on the clinical development, and it's in Phase II. So they're now taking that on. We're obviously helping. But essentially, it's almost like a business development deal where we're out-licensing it to a partner. And that, we think, is the right model for where we add value, how we make it sustainable and ultimately make the difference. And then the final thing I'd say is we just talked about antibiotics. It's really interesting that we can have antibiotics or HIV, for example, where we've got really great commercial business, really great innovation with Cabenuva and drugs like that. At the same time, we want to have a global health proposition as part of those businesses. And that, again, is where we've been -- we've tried to get very clear inside the organization: well, what's commercial, what's not-for-profit, who's working on what and how do we make sure that we capture the synergies but actually we keep the focus in both of those spaces so that we're getting the return, the financial return, but we're also delivering a social impact. And hopefully, that gives you a bit of color on how we think about it.

Absolutely. Got it. Maybe on a question on access, Phil. GSK's commitments reached 800 million underserved people in developing countries with your products by 2025. Could you sort of help us sort of understand the initiatives you're taking there in terms of these people getting access to your medicines? And I guess, more broadly, how do you sort of balance your value creation through innovation and reasonable pricing? So are you implying sort of different pricing metrics or different cost economic similarities across different parts of the world?

Yes. So the short answer to that last bit is absolutely and yes. I mean -- so the way we think about this is that it's really a portfolio of methods to increase access. And that range is essentially from philanthropic donation. So we have a longstanding commitment, for example, on lymphatic filariasis program, which is essentially a donation program, hopefully, eliminating LF by 2030, and we're getting there for sure. It's really fantastic. But then we also think about -- if you think about it as a spectrum moving through from donation through to actually then tiered pricing, voluntary licensing, partnerships. And that is really that portfolio. And the interesting one, I think, is probably tiered pricing, where I think GSK was one of the first to really go hard after this in the sense of what levels of tier could you operate both for least developed countries, middle income countries and then what you would call developed countries. And that, I think, has probably been one of our more successful ways of generating access to our products. I mean -- so there's a pricing component to this. There's then the IP side of this. And I'm always sort of weary about this because people very quickly go to, well, patents stop people getting drugs. And I can see why people say that. And there is definitely some truths to it. But the reality is what we try and do is we try to look for IP opportunities. And I mentioned our HIV business. I think they are brilliant at this, where they can have very strong intellectual property on a new product like dolutegravir, for example, but then they can also work with companies who can take on a license and make that product available. And I think we've learned over the years that if we get this combination of pricing and IP mechanisms right, then we can genuinely have quite an impact on uptake and then access. And that target you described is built up through various bits of that portfolio, hopefully I've just described, contributing to that target.

Understood. Why don't we move on to the governance question? Phil, I guess, how far are ESG considerations integrated into the company's strategy, which I think you talked a bit about in your introductory remarks, but also into the government and then incentivization within GSK?

Yes. Well, I think just -- so I think for GSK, it's pretty long-standing, the focus on ESG. And I mean ESG has become much more relevant, I think, in the institutional investment setting in the last -- I sound quite old now, Mark, because we're going back aways. But in the last 5 years, I think it's very different to the 5 years before that and certainly the 5 years before that. So I do think the concept of building trust, I think, has been with GSK really since at the highest levels of the company really over the last 10 -- 10, 15 years. As I mentioned earlier, in terms of how it's governed, really, I mean, from CEO downwards, as I said, everybody has to demonstrate value and delivery in those 3 priorities that I mentioned at the beginning. And obviously, one of those is trust, the measurement of performance, and therefore, remuneration is absolutely part of that. And whether it's through base salary or through bonus or through long-term incentives, all of those have a component, which is allocated to trust through the objective setting that every individual has. And I think whilst I would say GSK have this for a long time, I do think it's also -- I've been on the Corporate Responsibility Committee now for, I don't know, 8 years, something like that. And I can tell you the importance of that committee for the GSK Board has increased every year almost from a governance perspective. And our current Chair, Lynn Elsenhans, we're looking at proactive opportunities. This year, for example, very heavy focus on COVID, as you would expect. But we've also been increasingly focused around the risk part of the committee's responsibilities as well. So I think inside the company, you can -- this ESG agenda is continually rising, actually, is probably the way I would describe it.

Got it. I guess, in the last sort of 5, 6 minutes, if we pivot to environmental. So you're working towards having net 0 emissions across your full value chain in biopharma by 2030. So I guess could you give us a sense of how challenging this is and how you're monitoring your progress?

Yes. Well, so it's definitely a challenge. The big -- having said that, I mean, I think we feel like we're confident we've got a pathway to get there. The biggest challenge we've got really revolves around our inhaler franchise and particularly Ventolin. But again, I think we have a plan around that. And we think we can do it. I think the overall, as ever with these types of plans, it's -- I mentioned Ventolin, and that is a very big dynamic in the plan. But ultimately, the real success is you have to tackle this, again, in a portfolio way across lots of different elements to get to those carbon reductions. And with the new targets that we've set out, we're actually making some investments inside the company to allow us to do that. And that's especially human resource investments, new capabilities to make sure that we can deliver. The other interesting thing, I think, from an investor perspective is obviously, the delivering of that from the social impact side. But actually, what's been really interesting, doing the work to set those targets has been looking at the risk side and thinking about, for example, how climate change can actually impact your business and the risk it presents to the business, whether that be, for example, sites in water scarce areas or in vulnerable areas that could be impacted by climate change. And the sophistication, I think, that's starting to be used in this area to track performance but also mitigate risk, I think, is all for the good, actually, from an investor perspective on what company should be doing or shouldn't be doing, actually.

Got it. And maybe sort of last topic for me because I'm quite interested in this one. In terms of -- you defined Glaxo as being a modern employer. So I'm just trying to understand, you launched that sort of ambition in 2018 that we haven't spoken for a few years now. But what is a modern employer? And how are you tracking progress towards that?

Yes. Well, it's a great question, and it's an ambition. And what we've tried to -- it's always a danger with slogans, but it does actually -- if you ask people in GSK, modern employer is there. I promise you, it's not just a glib marketing headline. I mean really -- and it's very focused on people, and it's focused on people's development, so training, personal development health care and well-being. And as a health care company, we can obviously offer some really interesting stuff on that, and how we think about the well-being of our people. And then there's a really big focus, as you might expect, on inclusion and diversity. And we've done well on, what I would say, on gender. I think we're moving in the right direction. I think ethnicity, again, good progress, but there's more we know we need to do. And we're very focused on that right now. And hopefully, you'll see more of that in the new year. And it's really, I think -- those are all the components. I think if you step right back, what it really speaks to is that we know we're only as good as our people. And whether that's scientists, that scientist that makes that breakthrough or it's the individual and the manufacturing line that goes the extra mile to make sure that product is at the highest quality and it gets into the hand of the patient, it's all about the people. And therefore, they're our biggest asset in many ways. Yes, of course, we've got all these -- the capital buildings and that sort of stuff, but actually, it's human capital that really, really makes the difference. And therefore, we need to invest in them, look after them, engage them. We've got some pretty hard metrics in this space, so -- as well as some of the targets I just mentioned. We've got engagement surveys that were happening biannually or now annually. We've got a new 180 system, which is -- allows your -- the people that are working with you to tell you what they really think. So there's a lot of focus around this with good KPIs, I think. And I know it's an area, in particular, I can say this, that my boss feels very strongly about. She feels that the culture of the organization is one of the things that you have to get right. She wants to change GSK's [ cultitude ], you'd to be more high-performing, and that's part of this agenda as well.

Right. Well, Phil, we've come up to the end of our time. It's flown by. It's been really lovely talking to you again. Thank you so much for supporting the conference. And I'd like to say thank you on behalf of Morgan Stanley for everybody who's listened in. If you have any questions, please get in touch with me and we can get back to you through the company in terms of any topics that you found interesting and that you feel you need further follow-up. So without further ado, Phil, thanks so much for time. It's been a pleasure. And thank you, first, to [ Helen ], for helping facilitate the session as well.

Thanks, Mark.