GSK plc (GSK) Earnings Call Transcript & Summary

Good morning. I'm James Gordon, JPMorgan European pharma and biotech analyst. And today, I've got the pleasure of introducing the GSK presentation. You're going to hear from GSK, CEO, Emma Walmsley, and we can have the Q&A after in this presentation room. So thanks a lot for joining us today. Emma looking forward to the presentation.

Thank you very much, James. Good morning, good afternoon to anyone that's watching a very happy new year to you all. And let me say, of course, how absolutely wonderful it is to be able to attend today's conference in person. Please turn to our usual cautionary statement regarding forward-looking statements first, and then please turn to Slide 3. Today, I want to leave you with 4 key things. Firstly, GSK is now a focused global biopharma company with a unique strategy focused on the prevention and treatment of disease. We are a world leader in infectious diseases with an exciting pipeline of vaccine and anti-infective medicines and an emerging portfolio based on the science of the immune system. We are delivering the step change in performance and competitive outlook that we promised and will meet our performance goals for the decade ahead, delivering health impact sustainably and at scale. Please turn to Slide 4. One year ago, I told this conference that 2022 would be a landmark year for GSK with the prospects of the most significant corporate change for the company in 20 years, alongside a new chapter of competitive and profitable growth. And I am pleased to say that we delivered on all aspects of our commitment. GSK is now a focused global biopharma company with the ambition and purpose to unite science, technology and talent to get ahead of disease together. It's a company focused on the science of the immune system, human genetics and advanced technologies with world-leading capabilities in vaccines and medicines development across 4 key therapeutic areas. Through ongoing improvements in R&D productivity and operating performance, we're unlocking the potential of GSK. And our bold ambitions are reflected in our commitment to attractive growth and a significant step change in delivery over the medium term. And through the demerger of Helium, a world-class consumer health care business in its own right, we've strengthened our balance sheet, creating additional flexibility to invest in growth and innovation. Turning to Slide 5. We've delivered exceptional progress in our transformation and performance and there's more to come. In innovation, we've built a pipeline of 65 vaccines and specialty medicines, many with the potential to be first or best-in-class, and we've strengthened our pipeline and platform capabilities with smart business development. We've also achieved industry-leading milestones, including the approval and launch of the first long-acting HIV medicines and the U.S. FDA regulatory submission acceptance of the first RSV older adult vaccine candidate. In performance, alongside the successful helium demerger, we delivered strong double-digit growth in sales and adjusted operating profit in the first 9 months of 2022. We raised our full year guidance twice -- our mix has improved with vaccines and specialty medicines representing nearly 2/3 of our sales now, partly due to the tremendous performance of our shingles vaccine, Shingrix. This all puts us well on track to deliver our attractive medium-term growth commitments. And we also made excellent progress on trust, consistent with our high ambitions for patients and our people. We maintained our #1 position in the Access to Medicines Index for the eighth consecutive time. And we ranked second in the industry in the S&P Corporate Sustainability Assessment. Turning to Slide 6. To sustain this step change in growth-based performance, we're prioritizing our investment in vaccines and specialty medicines, which we expect to grow to around 3/4 of our revenue by 2026. General Medicines, our primary care business will still remain an important part of GSK, optimized for profitability and cash flow. By prioritizing investment in Vaccines and specialty medicines, we'll realize the increasing opportunities across the prevention and treatment of disease. Here, we believe we are uniquely positioned in terms of our strategy and capabilities. Turning to Slide 7. We're focused on 4 core therapeutic areas: infectious diseases and HIV represent around 2/3 of our pipeline and are our primary focus for R&D. In immunology, respiratory and oncology, we're taking a focused and pragmatic approach, prioritizing programs using human genetics, functional genomics, AI and machine learning to drive probability and pace of success. We're ambitious and agile in our commitment to deliver smart business development to support future growth, too. Our focus is on vaccines and specialty medicines that address high unmet medical needs and deliver, of course, on our R&D strategy. Turning to Slide 8. We start from a strong leadership position in infectious diseases, specifically in vaccines and HIV. In the last 12 months, the combined sales of our vaccines, HIV and anti-infectives portfolio exceeded GBP 13 billion, around $17 billion, and that excludes the Pandemic solutions. Together, these categories now account for over half of GSK sales. We supply the broadest vaccine portfolio in the industry. We lead innovation in HIV and we play a continuing and meaningful role in antibiotics through familiar established brands such as Augmentin. Importantly, this combined portfolio is delivering strong growth with vaccines up 20% in the first 9 months of '22 and HIV up 9%. Turning to Slide 9. We have a long history of innovation in vaccines. We vaccinate 40% of the world's children. We helped to drive the adult vaccine market with our groundbreaking shingles vaccine, and we've built a leading position in global health with relevant innovation, scale, access and tiered pricing. We've built our leadership in vaccines over many, many years, and we supply 25 vaccines across 160 countries with market-leading positions in multiple key categories, including pediatrics, meningitis and shingles. We have world-class manufacturing, regulatory and technical expertise, creating high barriers to entry in this highly attractive category. Vaccines require significant initial capital investment, large community-based trials in healthy subjects and complex manufacturing. And all of this results in long durable life cycles with no medicine like patent cliffs. Governments also increasingly recognize the value of vaccination programs in preventing disease, reducing the burden of hospitalization of course, and contributing to population health and therefore, economic growth. We have a deep, innovative pipeline of vaccines. In '22, our pivotal RSV data was a key highlight in a strong year of R&D delivery, which also saw us gain the first WHO prequalification for malaria vaccine and its relentless innovation that drives our growth. With the help of more than 50 new product launches our vaccines business has grown sales at a 10% compounded annual growth rate since 2000. And over the period '21 to '26, we expect it to deliver at least high single-digit CAGR, excluding pandemic sales. Turning to Slide 10. Technology is at the very core of our strategy. We have the broadest suite of vaccine platform technologies available, allowing us to select the right approach to develop the best vaccine for each pathogen, whether it's a virus or bacteria. Among the many we have at our disposal, we have 3 key platform technologies. Our adjuvant portfolio is a particular area of strength for GSK. We're applying the ASO1 adjuvant used in Shingrix and several pipeline opportunities, including our RSV vaccine for older adults. The second platform is mRNA, where we're pursuing advances through our collaboration with CureVac and are increasing internal capabilities. The third platform is MAPS technology, which stands for multiple antigen presentation system. This allows us to target complex pathogens that have multiple serotypes. With the help of this powerful suite, we built an industry-leading vaccines pipeline, which I'll highlight here on Slide 11. This vaccines pipeline includes 23 projects, most of which have first or best-in-class potential. Among the 15 mid- to late-stage development opportunities, we have several promising vaccine candidates based on high unmet patient needs and attractive commercial potential. We're excited about our meningitis ABCWY vaccine and our next-generation 24-valent pneumococcal vaccine. Our earlier stage pipeline includes innovative vaccine approaches to important diseases including our first mRNA candidates and targeted immunotherapy against herpes simplex. For today, though, I'm going to focus on our RSV candidate for all the adults, which we consider to be best in class. Turning to Slide 12. The unmet need here is very significant. RSV is responsible for 420,000 hospitalizations and 29,000 deaths annually in developed countries. RSV disease is a substantial burden in the elderly with almost half of all U.S. cases seen in the over 65s. Our groundbreaking pivotal data demonstrated unprecedented efficacy in older adults with 94% protection against severe RSV disease. Importantly, efficacy was high and consistent against RSV A and B strains in people in their 70s and those with comorbidities. This last group is highly significant as over 90% of adults hospitalized with RSV disease have underlying medical conditions. These patients suffer the most and have the most significant impact on health care costs. We submitted these data as part of a comprehensive package, which includes data demonstrating that the vaccine can be safely and effectively co-administered with an influenza vaccine. We've already received acceptance of our regulatory submission by the U.S. FDA, the EMA and the Japanese regulators. And in the U.S., we're undergoing a priority review with a PDUFA date of the third of May 2023 and which puts us on track for the important ACIP meeting in June. Given the scale of the unmet need and our potential to positively impact the health and well-being of vulnerable adults we're confident our RSV vaccine represents a significant commercial opportunity for GSK with multibillion pound Shingrix-like annual potential. Turning to Slide 13. Moving from vaccines to anti-infectives, we are well placed to meet some of the biggest global challenges. Chronic hepatitis B is associated with close to 1 million deaths annually and hundreds of millions of people are living with this disease. Our antisense oligonucleotide bepirovirsen has the potential to provide a first-in-class functional cure for this disease. We recently presented data that showed that bepi alone or in combination can deliver a sustained reduction in viral DNA and surface antigen key efficacy measures. We expect to start the Phase III study this half year and we'll update you more next month. Antimicrobial resistance also represents a critical threat to global health and well-being of so many. It results in more than 1.2 million deaths annually, and that's expected to grow to 10 million by 2050. We have a portfolio of agents addressing several resistant bacterial infections. Our most advanced asset is gepotidacin, which has the potential to be the first novel antibiotic -- oral antibiotic for uncomplicated urinary tract infections in more than 20 years. Following the early stop of the 2 pivotal studies for positive efficacy, we plan to file a new drug application in the U.S. for gepo in the first half of this year. Turning to Slide 14 and to HIV. We continue to be at the cutting edge of developing new options for patients for treatment and prevention. This slide lists several accomplishments that speak to our pioneering innovation. I'm not going to mention all of them, but I want to highlight that we developed and launched the first second-generation integrase inhibitor, the first 2-drug regimen, the first long-acting injectable regimen for HIV and the first long-acting injectable for PrEP. Turning to Slide 15. Our HIV portfolio is going to transform in the next decade as our pioneering innovation advances the standard of care. Over the 5 years to 2026, we expect our HIV business to grow at a mid-single-digit CAGR driven by our 2-drug regimen, Dovato and by increasing contributions from our long-acting agents Cabenuva and Apretude. By 2026, we estimate long-acting regimens will generate around GBP 2 billion of our sales around 1/3. By the second half of the decade we expect cabotegravir to increasingly replace dolutegravir as the foundational integrated inhibitor in our portfolio, and this will allow us to manage the loss of exclusivity of dolutegravir at the end of the decade. So while dolutegravir-based products currently account for less than 20% of GSK sales, we expect this proportion to decline substantially to around mid-single digits by the time of the LOE. Additionally, we have a very exciting development pipeline of innovative medicines that may offer new self-administration and ultra-long-acting options. Together, we expect these to sustain our leadership position and drive growth as we look into the next decade. Turning to Slide 16. In June 2021, we set out commitments to grow sales and adjusted operating profit by CAGR's of more than 5% and more than 10% over the period to 2026. We also provided granularity on the expected outlook by business as well as for our operating margin and our cash generation. And we are delivering on all of these commitments. Our 2022 guidance is for 8% to 10% sales growth, and adjusted operating profit growth of 15% to 17%. Each of our businesses are performing in line with or ahead of our medium-term objectives, and our margin and cash flow are all trending positively. And as a reminder, we have negligible exposure to losses of exclusivity over this medium term. So we remain highly confident that we will deliver the significant step change in performance that we promised. Turning to Slide 17. Taking all together, the dynamics in our business, attractive medium-term growth from vaccines and specialty medicines, increasing contributions from our late-stage pipeline assets and our very manageable LOE exposure we are very confident in our ability to deliver our long-term sales ambitions. And I remind you that this sales ambition doesn't include the benefit of our developing early-stage pipeline or business development for which we have now increased capacity following our demerger. We expect GSK to be a growth company, not just for the medium term, but through this decade and beyond. Turning to Slide 18. And how we deliver this growth matters deeply to us. At GSK, we continue to be guided by our purpose: to unite science, technology and talent to get ahead of disease together. Integral to this is running a responsible business, which builds trust and reduces risk for sustainable health impact, shareholder returns and supporting our people to thrive. We've prioritized our resources to focus on the 6 material areas depicted here. And as I mentioned earlier, our leadership and progress in access to medicines and sustainability have been recognized in external rankings. Over the next decade, we will deliver health impact sustainably and at scale with an ambition to positively impact the lives of 2.5 billion people. Turning lastly to Slide 19. To summarize, as we enter 2023, GSK is a focused global biopharma company that is ambitious for patients and its people and has a unique strategy based on the prevention and treatment of disease. We have compelling prospects as a world leader in infectious diseases with an exciting late-stage portfolio of vaccines, anti-infectives and specialty medicines and an emerging pipeline based on the science of the immune system. We are delivering a step change in performance and growth. And most importantly, we are very confident that we will sustain growth through the decade and beyond to deliver human health impact at scale. We have a very exciting future ahead of us together. With that, I'm going to ask my colleagues, Ian, Tony, Luke, Deborah and David, to join me up here, James, and we'll move to Q&A. Thank you very much.

[Operator Instructions] Maybe Emma, do you want to introduce who you are up on the stage with you.

This is the dream team in the industry. We have -- I'll go from my left. So David Redfern, who leads all of our corporate development and also chairs ViiV. Tony Wood, our Chief Scientific Officer, leading R&D. Luke Miels, Chief Commercial Officer; Deborah Waterhouse, the CEO of ViiV, our HIV business, and Iain MacKay, our CFO. And James.

Great. Thanks very much. They don't have a question they'd like to start with. In that case, I'll go to the first question I had, which was just in terms of the priorities within the pipeline and from a therapeutic perspective. So oncology seemed to be listed towards the end in terms of focus areas. So can you talk about where is the focus now? Is oncology going to be a big part of GSK going forward? Or is it less of a story now and more of the story is going to be anti-infectives?

Well, maybe I'll start answering that and then perhaps Tony, you can pick up on how we think about allocating capital, both organically and inorganically. When we laid out the strategy for change at GSK to drive this transition into being a growth and a profitable growth company again. A big part of that was reinvesting in R&D and driving a shift in the portfolio. And for that, we said we wanted to move away from being more of a general medicines business to really prioritizing specialty medicines and vaccines. And that has already been a big shift in 2018. I think specialty medicine vaccines were 44% of our business. They're now at 2/3. We'll get to them being 3 quarters. It's important for the economic mix, but it's also where a lot of innovation and new technology platforms are coming through. Within Specialty Medicines, we've consistently said that there are 4 key therapy areas, and that's in infectious diseases, HIV, which is, of course, a big business for us and a key infectious disease and then immunology, respiratory, and oncology. Now in our pipeline, 2/3 of it today is in infectious diseases and HIV. So be fair to say that's where our priority is, but we remain extremely committed to these other areas of our specialty portfolio and are excited about some of the things that are coming through. But I think it would be fair to say that in share of voice and both the actual size of the business today and contribution to growth, it's a bit smaller, but some exciting things happening, both inorganically in terms of our progress. I mean on oncology, we've got RUBY coming through, but also -- sorry, organically, but also inorganically we got the launch of momelotinib, for example, a great deal that was done there in oncology. But Tony, do you want to talk a bit about how you see allocation of R&D resources.

Yes. So perhaps I'd start by emphasizing that our focus remains across the core 4 therapeutic areas that Emma described, we have at the R&D business, the integration of everything from vaccines and including medicines. And capital allocation across that portfolio is really driven by where we see opportunity to make a meaningful difference to standard of care. And that occurs at a late-stage portfolio meeting that Luke and I both co-chair. And so what you see in the evolution of the portfolio that Emma described, is the consequences of that data-driven decision process. Underpinning that, of course, we have our technology platforms and investments there. But fundamentally, we're looking to allocate capital in a way that can best deliver with regards to meaningful difference in standard of care.

Maybe one of the products you mentioned was you filed your older adult RSV vaccine. You're not the only company going after older adult RSV, so how are you thinking about the competitive set up? Why will someone use the GSK product versus a competitor product? And maybe if someone could also talk about duration of protection. Is this going to be a jab where you have to get jabbed every year? Or could this be a product which gives you longer protection?

Yes. Well, so again, I'm going to -- there are 2 aspects to that. One is there's a huge amount of unmet need, I'd like Tony to talk about the comprehensive data package that we have. And then perhaps, Luke, you can talk appropriately since it is a competitive situation about how we see the market prospects and our excitement and ambitions there. In the end, in all my experience, having more than 1 player is rarely a bad thing, especially when you're creating a new market and especially when you have a stronger data packages we think we do, and we look forward to continuing to generate. But maybe you can talk about it.

Yes, let me just begin by reiterating the strength of the package, particularly in the context of those most at risk. So 94% vaccine efficacy in those with comorbidities and in the above 70 age group, looking across the broader population above 60, vaccine efficacy in excess of 80%, in both the A and B strains. Early data suggesting that flu occurs without deleterious effect on either administered vaccine and immunological data suggesting that we should see protection into a second season. Obviously, we're waiting on vaccine efficacy data to substantiate that, and we're very hopeful that we'll be able to bring that second season data as part of our June ACIP presentation.

Luke anything?

Yes. I mean I think, as Emma said, the presence of 2 companies is likely to drive rapid expansion and adoption. I think the initial usage of these vaccines is going to be propelled by high-risk individuals. We've done a lot of market research on the known profile of the competitor as well as ours. And when you move beyond the basic headlines in the aggregate groups and look at high-risk subgroups, physicians see a distinct difference between these 2 vaccines. I think to Tony's point, I think the biggest variable at this point is ultimately going to be coverage in the second year, will have that ideally before we actually go through the final ACIP process in June of this year. And I think, again, the presence of the adjuvant gives us some encouragement there. Competitively, we've indicated that we think the pricing range is going to be somewhere between high dose flu and Shingrix. And then finally, I think we're very comfortable competing with the other company. We compete with them in the meningitis B area. We get 3/4 of those patients in the U.S. So we're very much looking forward to the competitive and scientific exchange.

I think the only other thing I'd add on ours is, I think we are seeing over what the world has experienced in the last few years, just this huge emergence of exciting vaccine technology, but also recognition particularly for older, vaccine vaccination is no longer something that's just for babies. And every government, family business recognizes that prevention is cheaper, and better than treatment. So anything we can do to keep people out. So you are hearing much more noise about RSV. And of course, the IRA has removed co-pay for older readouts as well, which is a great move forward and hopefully, will reduce one of those barriers to access that was being talked about earlier.

And a couple of audience questions here. One is on RSV. So I think there's 2 parts to the question. One is, what are your thoughts on the $2 billion number as peak sales opportunity that Pfizer has put out and the second part of the question is, where would revenues peak in the U.S.? And then where would incremental grow from? How are you thinking about ex U.S?

Luke, do you want to talk about that?

Sure. I missed your second question. Was it...

When would the product peak in the U.S.? I guess they're asking about U.S. uptake and then what about ex U.S.? And how are you thinking about the ex U.S. opportunity?

So I think peaking in the U.S. is at least a decade away. If you look at classical penetration of vaccines and adult populations in the U.S. before COVID about 2/3 of adults had a regular vaccination, primarily flu. To Emma's point, I think COVID has raised the awareness of people who historically may have had cardiometabolic complications would not naturally connect that to a respiratory risk. COVID has now made those people more aware of the consequences of an infection with a respiratory pathogen. So I think that is going to drive multiyear growth. at least a decade of continuing penetration. Of course, the cohort is replenished each year as people age. In terms of ex U.S., I mean, I think if you look at what we've done across the portfolio, and particularly with Shingrix, we're now reporting 40% of our revenue is ex U.S. with a very tight pricing corridor. So I think there is a sizable opportunity for RSV outside of the U.S., and we intend to fully develop that.

Another question here. The question is, what does hidden in plain sight mean in terms of the size of an acquisition and top and bottom line accretion. I think maybe they're talking about recent comments about the sort of deals that GSK were looking for.