GSK

Business Context and Reporting Period

Company: GSK plc
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter (Q3) and Nine Months ended 30 September 2022
Key Event: On 18 July 2022, GSK completed the demerger of its Consumer Healthcare business to form Haleon plc. Consequently, Consumer Healthcare results are presented as discontinued operations.

Key Financial Metrics

Note: Total EPS includes a significant one-time gain from the Haleon demerger. Adjusted EPS excludes discontinued operations and specific adjusting items.

Material Changes vs. Prior Period

• Revenue Growth: Q3 Turnover grew 18% at Actual Exchange Rates (AER) and 9% at Constant Exchange Rates (CER). Specialty Medicines (+24% CER) and Vaccines (+5% CER) drove growth, while General Medicines remained flat (+1% CER).
• Profitability: Adjusted Operating Profit grew 4% at CER in Q3. Total Operating Profit declined 35% at CER due to fair value losses on the retained Haleon stake and remeasurement charges on contingent consideration liabilities.
• Discontinued Operations: The demerger of Consumer Healthcare resulted in a total gain of £9.6 billion recognized in Q3, significantly inflating Total EPS to 255.9p.
• Product Performance:
  • Shingrix: Sales reached £760 million in Q3 (+36% CER), driven by post-pandemic recovery and new launches.
  • Xevudy: COVID-19 solution sales were £411 million in Q3, contributing to revenue but lowering overall margins due to lower profitability compared to prior pandemic adjuvant sales.
  • HIV: New HIV products (Dovato, Juluca, Cabenuva) delivered strong growth, representing 44% of the HIV portfolio.

Guidance, Outlook, and Risks

2022 Guidance (Raised)

GSK has raised its full-year 2022 guidance (excluding COVID-19 solutions):

• Sales Growth: Expected to increase between 8% and 10% at CER (previously 6-8%).
• Adjusted Operating Profit: Expected to increase between 15% and 17% at CER (previously 13-15%).
• Adjusted EPS: Expected to grow around 1% lower than Adjusted Operating Profit.

Management Commentary

CEO Emma Walmsley highlighted strong commercial execution, record sales for Shingrix, and confidence in the 2023 outlook driven by the RSV vaccine launch and Shingrix expansion. The company expects continued strong sales growth in Q4 2022 but anticipates higher R&D spending.

Risks and Contingencies

• Legal Proceedings: Ongoing Zantac litigation involves approximately 77,000 plaintiffs. GSK maintains its position on scientific validity but faces uncertainty regarding potential liabilities.
• COVID-19: Future sales of COVID-19 solutions are expected to be substantially lower. The mix of lower-margin Xevudy sales reduced Adjusted Operating Profit growth by approximately 4%.
• Exchange Rates: Significant volatility in Sterling against the US Dollar and Yen impacts reported results. Management notes a potential 7% positive impact on 2022 turnover if current period-end rates hold.
• Pension Deficits: The net deficit on UK pension plans increased to £1.69 billion due to lower asset values and higher inflation, though GSK made voluntary cash contributions of £334 million in October 2022.

Investor Verification Checklist

• Adjusted vs. Total Results: Verify the distinction between Adjusted results (core business) and Total results (which include the £9.6bn Haleon demerger gain).
• Xevudy Margin Impact: Assess the long-term margin implications of the shift from high-margin pandemic adjuvant sales to lower-margin Xevudy sales.
• Shingrix Sustainability: Confirm the durability of Shingrix growth post-pandemic rebound and the impact of new market launches.
• Zantac Litigation Exposure: Monitor the outcome of Daubert hearings and bellwether trials regarding ranitidine cancer claims.
• RSV Vaccine Approval: Track the regulatory review timeline for the RSV older adult vaccine candidate (Priority Review granted in US).
• Dividend Policy: Note the declared Q3 dividend of 13.75p per share (post-consolidation) and the unchanged full-year expectation of 61.25p.