Third quarter revenue was up 9%, ignoring exchange rate movements, to £7.8bn. Speciality Medicines saw the greatest uplift at 24%, with Vaccines and General Medicines up 5% and 1% respectively.
GSK recognised a total profit of £9.6bn relating to the demerger of the consumer healthcare division Haleon. Underlying operating profit for the remaining business was up 4% to £2.6m, a 1.6 percentage point fall in margin to 33.3%. This reflected lower margins of COVID-19 solutions and launch costs for new medicines.
GSK generated free cash flow of £712m. Net debt was down to £ 18.4m from £22.1m, benefitting from a £ 7.1bn pay out from the demerger which was partly offset by acquisition activity.
GSK intends to pay a quarterly dividend of 13.75p with full year expectations of 61.25p unchanged.
2022 sales guidance has been raised, with growth expected between 8-10%. Underlying operating profit growth is now expected to sit in the 15-17% range.
Separately, GSK announced that the US Food and Drug Administration has accepted its filing for the approval of the respiratory syncytial virus (RSV) older adult vaccine, with a final decision now expected by 2 May 2023.
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Our View
It was important for GSK to hit the ground running after spinning off its consumer healthcare arm, Haleon. They've done just that, quick out the blocks with an upgrade to full year guidance.
Underlying operating profit this year's expected to be well ahead of the group's goal for annual growth of 10% per year out to 2026. Strength in Specialty Medicines, which are for hard-to-treat conditions and therefore command a premium, underpin this goal. The group aims to grow its portfolio with new treatments rather than tweaking their usage as it has done in the past. This opens the door for greater growth, but more risk as well.
The drug approval process is complicated, with many treatments never seeing the light of day. That means hundreds of thousands can be funnelled into drug development that bears no fruit. GSK's hoping to reduce this margin of error by focusing on rare treatments backed up by gene-specific data, but there are no guarantees.
Cancer treatment is one key area for growth, with several late-stage treatments in the pipeline, including monelotonib via the Sierra Oncology acquisition with an authorisation decision by the US FDA due in June 2023.
The Group also has a strong presence in HIV treatments which make up more than half of speciality medicines revenues. Its newer HIV treatments are key part of GSK's future as generic competitors eat away at pricing power for some of the group's existing treatments.
Recently, GSK's vaccines have been hitting the headlines for the right reasons. Shingrix being one of the most influential growth drivers, and the RSV vaccine hitting important developmental milestones. Subject to regulatory approvals the vaccine could launch next year. GSK believes this could eventually add $4bn annually to revenues.
We're encouraged by GSK's improving debt position, and analyst forecasts suggest it'll be just 1.5x cash profits by the year end, a level that we feel comfortable with. GSK's provided firm guidance on this year's guidance on this year's dividend pay outs. For 2023, the first 'clean' reporting period following the demerger, forecasted dividend pay outs are about 2 times covered by free cash flow. That's according to consensus estimates. However, no dividends can ever be guaranteed.
Compared to forecast earnings, the valuation is below the long-term average, and significantly below many of its peers. This may in part be due to the uncertainty surrounding litigation relating to the discontinued heartburn drug Zantac. Some estimates point to settlements worth as much as $2bn, around 3% of GSK's current market value. If this can be resolved, there's potential for that rating gap to be closed. But this will require strong execution of GSK's growth strategy and clinical pipeline. New drug approvals are never a given, even after a successful late-stage trial.
GSK key facts
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