GSK Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2023

There are 16 speakers on the call.

Operator

Hello, everyone. Welcome to our half year in Q2 2023 Conference Call and Webcast for Investors Madness. Presentation was sent to our distribution list via e mail, and you can also find this on gsk.com. Please turn to Slide 2. This is the usual Safe Harbor statement for comments on our performance using constant exchange rates or Doctor, unless stated otherwise.

Operator

As a reminder, following the Consumer Healthcare demerger in 2022 to Vaughan Hayen, we're presenting performance and growth on the continuing operations to GSK. Please turn to slide 3. Today's call will last approximately 1 hour and management presentation will take between 30 to 35 minutes with the remaining time for your questions. And we request that you ask one question so that everyone has a chance to participate. Our speakers today are Emma Waldy, Tony Wood, Luke Miles, Deborah Waterhouse and Julie Brown, with David Redfern joining the rest of the team for the Q and A portion of the call.

Operator

Turning to Slide 4, I will now hand the call over to Ellen.

Speaker 1

Thanks, Nick, and a very warm welcome to everyone joining us today. I'm delighted to be presenting to you all another set of excellent results for GSK. Please turn to the next slide. Sales and profits grew at double digit levels for the quarter, our 6th consecutive quarter of strong growth. Sales were £7,200,000,000 up 11% excluding Pandemic Solutions.

Speaker 1

Adjusted operating profit was up 12% to £2,200,000,000 And adjusted EPS were up 17% to 38.8p This is further evidence of a Sustained step change in GSK's performance, and this momentum supports our decision to upgrade our guidance for the year. Our performance also demonstrated delivery of the strategic choices we've made to develop the portfolio and the R and D pipeline. New products, notably in vaccines and HIV, all made healthy contributions to growth and reflect the investments we've made to prioritize these parts of our business. 62% of sales are now coming from vaccines and specialty medicines, which we expect to provide durable and profitable growth through the decades. And new products launched since 2017 have contributed sales of £4,600,000,000 so far this year, adding nearly £1,000,000,000 of additional turnover compared to 2022.

Speaker 1

Equally, our general meds business continues to perform alongside the other parts of our portfolio. Next slide, please. We are deploying In a financially disciplined way to invest in growth and deliver stronger returns to shareholders, we are delivering on Our commitments. And as you can see from the slide, we are on track to hit all the targets we set out in 2021. As you all know, our very first priority for capital remains to remains to invest in continued pipeline progress and we know this is the key question for shareholders.

Speaker 1

At the core of our work It's an aggressive pursuit of organic pipeline delivery and targeted business development. We're making good progress on both and there is more to come. The approval of Orexvi this quarter is, we believe, transformational and set to bring enormous benefits to people aged over 60 through annual exposure of RSV. Orexley is spearheading the next wave of vaccine innovation at GSK. This quarter, we presented positive pivotal data for our pentavalent meningitis vaccine, secured regulatory approval for Shingrix in Japan in at risk populations and achieved U.

Speaker 1

S. FDA Fast Track designation for our candidate vaccines to prevent gonorrhea, a bacterium that is considered a high priority pathogen by the WHO. Now as it assumes our recent media management event, We have substantial innovation to come with potential new vaccines to prevent influenza, pneumococcal disease and herpes simplex virus. This all sits alongside other innovation infectious diseases like bekareverse and for hep B and a new portfolio of much needed anti infectives. We're also very pleased with progress we're making in our HIV portfolio.

Speaker 1

A key aspect here is, of course, to develop the portfolio to Replaced a lot of exclusivity for dolutegravir, which as a reminder is not expected to start until 2028 in the U. S. And 2029 in Europe. And we are well on track to do this. We expect sales from our new long acting regimens of around £2,000,000 by 2026.

Speaker 1

And to add to this, clinical development plans are advancing very well to support new ultra long acting options launching from 2026. And with these innovations, we aim to replace the majority of revenues from dolutegravir and support profitable growth for GSK well into the next decade. And we're looking forward to talking to you more about this at our HIV Meet the Management event in late September. Equally, We continue to make good progress in our business development. Here, we're targeting acquisitions and partnerships to strengthen and augment our core therapy areas to help deliver above and beyond our current long term outlooks.

Speaker 1

So you should expect to see us keep up broadly the same levels and pace of BD as we have in the last 18 months. This quarter, we completed the acquisition of First Health, building upon our respiratory expertise with the addition of Kamalopixent, Phase 3 potential best in class treatment for refractory chronic cough. Our pipeline in broader respiratory is developing well too across all three product And we're increasingly confident it will be a major source of new long term growth. Next slide, please. Our focus is to deliver competitive performance and improve shareholder value in the short, medium and long term.

Speaker 1

With our current momentum and further successful execution of our priorities, we are very confident in our ability to deliver profitable sales growth in all three of these Time frames. For 2023, we now expect to deliver sales growth of 8% to 10% and adjusted operating profit growth of 11% to 13%. For 2026, we expect to deliver sales of more than 5% and adjusted operating profit of more than 10% on a CAGR basis. And by 2,031, we're confident we will have effectively absorbed any impact from the loss of exclusivity across the portfolio to deliver our stated ambition of more than £33,000,000,000 in sales. We noticed our ambition is significantly higher than current market expectations.

Speaker 1

And over the next year, we continue to give you more clarity and specificity on our building blocks to deliver profitable results through a series of media management events, data readouts and a more comprehensive update against our 2021 long term plan. Let me now hand over to Tony, who will talk you through his latest thoughts on R and D priorities

Operator

Thank you, Emma, and hello, everyone. It's great to be with you today. Please turn to Slide 9. I'm pleased to report that we're making good progress in strengthening the pipeline and we know there's more to come. Our absolute focus is to develop pipeline and can drive sustainable profitable growth.

Operator

As it is being achieved through a combination of organic delivery and disciplined business development, overlaid with continuous improvement in R and D productivity. This is reflected in my three priorities for R and D shown on this slide and in the delivery of our strategy, which is focused across 4 therapeutic areas and aims to leverage our deep understanding of the immune system and use of advanced technologies. Next slide, please. It's important that we allocate our capital and resources at Pequodro. I think about this from 2 perspectives.

Operator

1st, from a therapeutic area standpoint, our priority is to build on our strengths and leadership in infectious diseases, HIV, Recycler immunology and our emerging capabilities in oncology. This is by investing in both organic and targeted business development to deliver 1st or best in class innovation, balancing probabilities of success and sales potential. And we applied the same discipline and returns criteria for both approaches. In addition, we also see platform and data technology enabled opportunities. 2nd, from a time perspective, I want to develop, partner or acquire vaccines, specialty medicines and technologies with significant commercial potential that can meaningfully contribute to sales and profit growth in the latter half of this decade and beyond.

Operator

I want a portfolio of R and D that offers a good balance of risk and return and which can drive growth to GSK above and beyond the ambitious The ambition, sorry, I just talked about. Slide 11, please. Our pipeline to date comprises 68 Assets in Clinical Development. 2 thirds of the assets within our development portfolio are focused on infectious diseases in HIV.

Speaker 2

In infectious

Operator

diseases, we're focused on seasonal respiratory viruses, bacterial, fungal and chronic viral infections. Vaccines are front and center of this effort. Emma has already mentioned the vaccine some of the innovation that is currently behind it. Our pen developed meningococcal vaccine candidate recently met all primary endpoints in the Phase 3 trial and demonstrated immunological effectiveness against 110 diverse Menb strains. These accounts for 95% of circulating strains in the U.

Operator

S. 5 steerer groups are responsible for most meningococcal infections and no single approved vaccine can yet protect against all phi. If approved, then ABCWI would do so, offering a simplified immunization schedule and supporting increased vaccine uptake. This is important when you consider that only 30% of adults currently receive full protection from all 5 meningococcal serials. We're on track to submit the vaccine to regulators in 2024.

Operator

Our novel 24 variant new copper vaccine candidate acquired through the Afinibax transaction has also shown very positive immune response across serotypes. We continue to examine potential acceleration options with 2430 variant programs in infants and adults. With Q of A, we look to disrupt the influenza market and delivered new multivalent donation vaccines using next generation mRNA technology. Multivalent Phase 1 and 2 flu and COVID trials are underway and we expect data from these towards the end of this year and the start of 2024. In chronic viral infections, In addition to geographic expansion, we're looking at new growth opportunities at Xhinryu's.

Operator

These include extending the population who might benefit from protection to a younger such as the recent Japanese approval to include adults aged 18 to 49. And we continue to review the potential need for a booster. Additionally, a growing body of evidence suggests that shingles vaccination may reduce the risk of dementia. And we're leveraging our expertise in herpes to develop a promising injectable treatment for the control of herpes simplex virus free activation. Our plan is to initiate proof of concept studies later this year.

Operator

In anti infectors, we've now assembled a promising portfolio of new medicines. Geprotitisin, which has stopped early for efficacy and is anticipated to launch next year, has the potential to be the 1st oral antibiotic to treat uncomplicated and to give any tract infections in more than 20 years. Confluencing this is TevaMed from Syrah Therapeutics, which if approved, will provide us with access to late stage antibiotics with the potential to treat complicated urinary tract infections. Brexepam, a novel firstly confinitis to treat fungal infection, prior to an exclusive license agreement with Nexus completes this trio. The pyridosis is another potentially transformative treatment, which could help patients achieve a functional cure for chronic hepatitis B.

Operator

We look forward to presenting data from our Phase 2b trial being together later this year. This trial is designed to answer whether it's a furologist to improve the durability functional period following the EPI treatment. In HIV, we're entering an important period in our development plans for potential Ultra long acting treatment and prevention options. These spearhead the transition we expect to deliver in the HIV portfolio over the next 5 years. We'll be setting up more detail in our Q3 investor event.

Operator

In respiratory and immunology, we are advancing late stage development of our IL-five NDEBAMOPONOMA. The addition of tamalexim, the highly selective P2X3 antagonist, the treatment of refractive chronic cough also provides us with another asset in Phase 3 development. Luke and I expect to be sharing more with you on our plans and opportunities in respiratory before the year end. In oncology, we are progressing the regulatory submission for monoblotinib following U. S.

Operator

FDA's recently extended review date to September. We're confident this new medicine will help tackle the significant and debilitating medical needs of myelofibrosis patients within the year. Given the makeup of our current portfolio and capabilities, our approach in oncology is to prioritize the development of novel medicines to treat blood and Wix cancers and could store other potential breakthroughs in immuno oncology. Jamperli, our highly effective PD-one inhibitor is central to this approach and exploration of the backbone treatment for using combination of further proven or promising therapies is in development. Next slide please.

Operator

You'll see how many of the elements I've just touched on are expected to play out over the next 12 to 18 months. I believe these together with targeted business development and a series of Important to 1 of these 2 investment decisions will lead to significant progression of this pipeline in the shorter term. Slide 13, please. Alongside allocating resources to prioritize and accelerate clinical development, I want us to continue to improve overall R and D productivity. We've made progress.

Operator

Success rates and cycle times are improving, but more needs to be done. For me, this really means 2 things. First, doubling down on leveraging our scientific capabilities with the use of new platform and data technologies. And second, developing our partnering and external sourcing capabilities. With AI and machine learning applications now rapidly maturing, access to proprietary data to feed models and generate novel insights as a key strategic differentiator.

Operator

For example, we recently presented data release for better results from the DCLR Phase 2b trial. This deep multimodal analysis helped us to develop a clear heterogeneity mapping chronic hepatitis B, stratifying individuals treated with the periversum to be subtypes, a highly enriched response, a mixed response and a non response subtype, each defined by distinct clinical, neurological and molecular trajectories and associated with a number of markets. These predictive models provide greater precision in existing markets and suggest potential enrichment strategies. We're competitively placed in platform technologies and have laid strong foundations in data technologies. I want us to now vigorously scale and build on these and rapidly test and progress high quality 1st and best candidates, all with the aim of accelerating and improving the success rates of our development programs.

Operator

In summary, let me close by saying, I'm pleased with the progress we've made so far this year and that we have clear plans in place to move forward at pace to deliver on our key objectives for R and D and support the overall growth ambitions to GSK. I'll now hand it over to Luke on Slide 14.

Speaker 3

Thanks, Tony. Please turn to the next slide. Pleased to say that quarter 2 was another quarter of continued strong commercial execution with growth across the business. All 3 of our core accruals, Agnes, Specialty and General Medicines were up in the quarter with growing contributions across all three regions. Please turn to Slide 16.

Speaker 3

In quarter 2, we delivered £7,100,000 of sales, up 11% versus last year, excluding Pandemic Solutions. In vaccines, strong growth of 15% excluding pandemic solutions was supported by Shingrix, which was up 20% and VEXERA, which was up 18%. Shearworks delivered another record quarter of sales and it's the 6th consecutive quarter of growth. In the U. S, we've now reached the most motivated consumers with about 32% penetration of eligible people receiving at least one dose.

Speaker 3

Moving forward in the U. S, we're resourcing for success by raising awareness about the importance of shingles prevention, especially among shingles who are less motivated to get vaccines. We remain confident in the U. S. Opportunity and believe we can reach Loom like penetration of around 60% to 60% 65% over time.

Speaker 3

Ex US remains an important growth driver for Shingrix and represented 46% of the revenue in the quarter. Grecords is now available in 33 countries with modest with less than 3% penetration, indicating the potential for further expansion in these populations. We've got unconstrained supply and strong global demand, and we continue to retain high value U. S. Mic pricing as we launch in private pay settings globally.

Speaker 3

In specialty medicines including HIV, which Deborah will speak about shortly, We increased sales by 12%, excluding Zaluby, to £2,500,000,000 Our market leading blockbuster specialty medicine, Enlista and Yucala continued to deliver double digit growth. Enlisted was up 19% in the quarter with sustained growth across all major markets with further opportunities to drive increased penetration in both SLE and lupus nephritis with about 25% buyer penetration in the U. S. And other key markets. We're focused on life cycle management opportunities with Analisa as we explore further indications including systemic sclerosis associated with interstitial lung disease, which will be important for patients as well as having a continued halo effect across the entire product.

Speaker 3

Yucala was up 15% in the quarter and remains the 1st and only biologic approved in 40 synaplic diseases with new indications driving growth and differentiation. The severe asthma market continues to grow in the U. S. With opportunity for Nucala to drive buyer penetration with our clearly differentiated profile in high EOS patients. We look forward to having CFP data in 2024.

Speaker 3

In oncology, sales were down 3% in line with expectations. However, Jupyterne continues to be a growing contributor and we're excited about the potential for our PD-one as a development program investigates the opportunity to help more patients with endometrial of varying potentially other indications. Our general medicine portfolio grew 8%, driven primarily by Trelegy, which is up 30% in the quarter. Trilogy continues to have a best in class profile across access versus competitors and has a leading share of voice with key specific HCPs like formulologists and allergists. Considering the strong Q2 and H1 performance,

Operator

we now expect Specialty Medicines to

Speaker 3

grow high single digit And General Medicine to grow at low single digit in the full year. We still expect vaccines to grow in the mid teen. Please turn to Slide 17. We're very excited about the outcome of Rexy. We believe Rexy's profile of recommendations to support our market leadership and position with multibillion annual sales potential.

Speaker 3

Additionally, the CDC has now adopted last month's ACIP recommendation and has been communicated broadly to health care providers, an important step that sets clinical guidance and established a trigger prepared coverage. We're now underway as we speak, and we have a clear understanding of what is required for successful commercial execution. We're also building our relationships with retailers given our expertise with the older adult population through Shingrix and we're playing to our strength using our deep and our experience in trial and the primary results. We've now shipped doses to distribution centers and we look forward to the impact that this important medicine will have on help prevent the severe consequences of RSV in the U. S.

Speaker 3

And globally, as we also prepared for month of season across Europe. With that, now let me hand over to Deborah on Slide 18.

Speaker 1

Thanks, Luke. Our HIV business delivered sales of £1,600,000,000 in the Q2 of 2023, growing 12%. This growth was primarily driven by demand, which contributed 8 percentage points of growth and U. S. Pricing favorability, which contributed a further 2 Percentage points of growth.

Speaker 1

Our performance benefited from strong patient demand for our oral 2 drug regimens and long acting Injectable medicines, which now constitute more than 40% more than 50% of our total portfolio. This demand helped grow our global market share by 2 percentage points versus last year. The inventory build that we saw in the U. S. At the end of last year Have now materially burned, and we don't anticipate any further significant burn this year.

Speaker 1

Dovato delivered £430,000,000 in the quarter. Market performance reflects HCP belief in Dovato, which is now our number one SellingGate Triv Medicine. We were also pleased that donategravir received U. S. FDA pediatric exclusivity in the quarter, which extends the Dontevera loss of exclusivity in the U.

Speaker 1

S. By a further 6 months to April 2029. And as a reminder, Europe is to April 2028. And as a reminder, Europe is 2029. We aim to further consolidate our leadership in pediatric HIV by following a similar approach with our foundational medicine cabotegravir.

Speaker 1

Turning to Cabanueva. Sales for the quarter were £176,000,000 reflecting strong demand with high levels of market access and reimbursements across the U. S. And Europe. Growth is being driven by positive sentiment towards the solar data Presented at COI earlier in the year and strong commercial execution, it is particularly pleasing to see that more than 70% of Cabanuna sales originating from competitor regimens.

Speaker 1

Moving on to prevention. Sales of Aperitrade, the world's first long Injectable for the prevention of HIV delivered £36,000,000 in the quarter, and we're pleased by the growing momentum across the U. S. We were delighted that early this week, the European Medicines Agency granted positive opinion for this medicine. With more than 100,000 new infections every year across the continent, We very much look forward to the approval of Aptitude, which has the potential to significantly reduce the transition of HIV in Europe.

Speaker 1

We're encouraged by the progress of our pipeline, which is focused on innovative long acting regimens. We have 3 clear Target medicine profiles to build the world's 1st self administered long acting regimen for treatment and to provide only long acting regimens with treatment and prevention with dosing intervals of 3 months or longer. I'm pleased to confirm that next month, we shall begin our Phase IIb study of cabotegravir in combination with our broadly neutralizing antibody, N6LS, which offers the potential for ultra long acting dosing. We are very excited about the potential of these medicine profiles and will be ready to present the Vex in 2024. We remain very confident in our ambition to achieve a 5 year mid single digit sales CAGR to 2026, and our strong Q2 performance means we are in a position to raise our outlook for 2023 from mid single digit to a high single digit growth rate.

Speaker 1

And with that, I will hand to Giulio on slide 9.

Speaker 4

Good afternoon, everyone. I am delighted to be here at my first set of results as the CFO of GSK. The biopharma industry is incredibly special to me. It's where I've spent most of my career and it is a sector that can create enormous value for patients and shareholders. GSK is a company that I've long admired and it has a clear purpose to positively impact the health of 1,000,000,000 over the next decade.

Speaker 4

And I'm really pleased to be part of the team that is going to deliver this. As this is the first time speaking to you and before we cover the financials, I wanted to take the opportunity to highlight the 3 areas of focus This is going to be important to me as CFO. So first, disciplined capital allocation with 2 clear priorities, To invest for growth and to deliver improved returns to shareholders. 2nd, partnering with Tony to enhance returns on investment and improve R and D productivity with a strong focus on resource optimization and efficient funding. And third, identifying sources of business efficiency to fund investments and deliver a competitive P and L.

Speaker 4

So first, turning to the next slide in capital allocation. Our first priority is investment in the business, driven towards development of the pipeline through both organic and targeted business development. We will also invest to support new product launches. My intention here is to be laser focused on prioritizing and accelerating investments in those assets and technologies, which will help us to deliver growth. I intend to achieve this through an increased focus on ROI for organic and BG related investments.

Speaker 4

And this will include an assessment of the market opportunity, 1st in class potential and best in class potential, peak year sales, probability of success and expected financial returns. Through returns to shareholders, our primary mechanism for cash distributions will remain through the delivery of a progressive dividend. And last year, the payout ratio of 40% to 60% over the cycle was established. And we expect to maintain dividends within this range as earnings increase over time. For completeness, in the event of a surplus, excess cash would be returned to shareholders using the most efficient mechanism available.

Speaker 4

However, we do not expect excess cash in the medium term given our priority is to invest in growth. And finally and very importantly, we remain committed to maintaining a balance sheet with a strong investment grade credit rating. Taken together, I believe this represents a sensible capital allocation framework for GSK, consistent with our strategic priorities and supportive of our commitment to deliver profitable growth through this decade. Turning now to the quarter. As I cover the financials, references to growth are at constant exchange rates unless otherwise stated, and I will focus my comments on adjusted results.

Speaker 4

So starting with the income statement. Sales increased 11%, excluding COVID solutions, and were up 4% overall, reflecting the strong delivery that Luke and Deborah have covered. Operating leverage, primarily in COGS, drove adjusted operating profit growth of 11 With the margin increasing to 30.2%. Excluding COVID Solutions, adjusted operating profit grew 12%. Turning to the reported results.

Speaker 4

The growth in total profit was driven by strong operating performance and favorable Contingent consideration liability remeasurements. Please turn to slide 22. And turning to margin dynamics. As mentioned, the adjusted operating margin was 30.2%, a 200 basis point increase versus the prior year at constant rates. Excluding the impact of COVID, solutions, the margin increased 20 basis points.

Speaker 4

Cost of goods sold decreased, primarily reflecting reduced sales of lower margins of Udi in Q2, which resulted in a gross property increase of 11%. Excluding COVID solutions, COGS increased in line with sales with a neutral gross margin impact, With favorable mix and efficiencies offset by higher freight and energy costs. SG and A reflects behind product launches such as Shingrix, geographic expansion, HIV and preparations for Orax's imminent launch. We expect the SG and A growth to reduce in the 4th quarter as investment levels stabilize and to be broadly in line with sales growth for the full year. In R and D, there was increased investment across a range of early and late stage programs, including a number that Deborah and Tony discussed earlier.

Speaker 4

Our royalties benefited from Gardasil, Biktarvy and Cosentympta. And there was a 70 basis point adverse move from foreign exchange. And next is the type piece. So earnings per share benefited from lower net finance expense and non controlling interests. And now turning to the adjusted compared with our total results.

Speaker 4

Next slide, please. So overall, total and adjusted operating profit was similar in the second quarter at £2,100,000,000 £2,200,000,000 respectively. In addition to CCL remeasurements, the main other adjusting items of note were within divestments, significant legal and other. And this reflected dividend and distribution income received, including Halion dividends and the fair value movements of Halion shares, which was partly offset by significant legal charges. Legal fees primarily reflected increased charges to Zantac, of which the vast majority are related to prospective legal costs for the defense.

Speaker 4

Next slide, please. Cash generated from operations was €1,900,000,000 in the first half, €2,000,000,000 lower than the prior year. And the key drivers are similar to those covered at Q1 and relate to the Gilead settlement and timing of Zavuby collections received last year, together with pension payments and increased working capital this year. There was no change to our expectation that 2023 cash generated from will be slightly lower than 2022 and we remain committed to our 2026 Projection of more than £10,000,000,000 Net debt increased to £18,200,000,000 reflecting the free cash outflow and net acquisition cost of Bellas Healthcare, partly offset by disposal of investments, including the monetization of part of our equity holding in Herian. And turning now to guidance on slide 26.

Speaker 4

We have delivered a very strong first half. And as Emma mentioned, we are upgrading our guidance for the year. As a reminder, all of this guidance excludes the impact of COVID-nineteen solutions. We now expect sales to increase between 8% 10%, We expect adjusted operating profit to increase between 11% 13% And adjusted earnings per share to increase between 14% 17%. Within sales, we are maintaining our full year vaccines expectation of a mid teens percentage growth and are upgrading our expectations for specialty and JM Med.

Speaker 4

We now anticipate specialty medicines in HIV within it to grow a high single digit percent and for Gen Med to grow a low single digit percent. And turning to phasing. And firstly, on sales, we expect that the second half growth will be below the first half, informed by the comparators. We would also expect sales growth to be slightly higher in Q3 relative to Q4. And secondly, on operating profit, we expect that the second half growth will be stronger than the first with a broadly similar growth rate in each quarter, primarily reflecting SG and A growth expectations as mentioned earlier.

Speaker 4

Next slide, please. In summary, our business is performing well and with strong momentum. I look forward to connecting with you and update you on our and continued delivery towards our 26 and 31 goals in the quarter to come. With that in mind, Slide 27 Shares how we plan to keep you informed in 4 key areas: execution, portfolio, capital allocation and investor events. Execution shares our major earnings and reviews.

Speaker 4

The portfolio component builds on the R and D That list shared in Tony's presentation. Capital allocation is being clarified further today. And the Investor Relations program shows how we plan to provide you with the building blocks underpinning our pipeline and the opportunity to meet the management to 2 more events this year. The first will focus on HIV in September, followed by respiratory and immunology in the Q4. We will also continue to run a comprehensive program of meetings, participation in investor conferences and updates from key medical events.

Speaker 4

And thank you. And with that, I will hand back to Emma.

Speaker 1

Thanks, Julie. It's great to have you with us. Turning to slide 20. We continue to build trust by delivering in the 6 key areas we prioritized for ESG performance. This quarter, we made progress on several fronts, but I want to highlight one in ticket level.

Speaker 1

Of the more than 2,500,000,000 people will reach The majority will be through our infectious disease portfolio of vaccines, antibiotics, antivirals and global health products. And so we were delighted to see new third party funding announced to advance M72, a tuberculosis vaccine candidate Discovered and developed by GSK into Phase 3 development. This could potentially become the first new vaccine to help prevent pulmonary TB in more than 100 years. It's a true testament to GSK's vaccine scientists and our ability to partner with others to develop innovative global health assets in an economically viable and sustainable way. With more than 10,000,000 people falling ill and more than 1,500,000 And the increasing evidence of drug resistance, the successful development of this vaccine could have a profound impact on human health.

Speaker 1

Final slide, please. So in summary, we are seeing strong momentum in our performance with continued delivery of competitive sales and We remain very focused on continuing to progress our pipeline through organic development and targeted complementary business development, And our progress is providing us with high confidence to deliver our outlooks and ambitions for shareholders through the decades. And with that, let's move to the Q and A with the team.

Operator

Thanks, Emma. So just as a reminder, to those that wish And Again, just request it. So you asked one question in the first instance and then we can always come back for a second round. Let's take our first question from James Gordon at JPMorgan. So James, you're unable to speak, so over to you please.

Speaker 5

Hello, James Gordon, Jacob Morgan. Thanks for taking the question. I'll keep to one. My question is about Shingrix in the U. S.

Speaker 5

So I think the sales declined 10% this quarter, although maybe it's sort of flattish when we adjust for stocking. But I saw you've refined the Shingrix Global guidance, so it's now high teens this year. I think it was double digit before. And Luke made some comments about having reached the most motivated patients in the U. S.

Speaker 5

And further penetration increases, but that sounds like maybe that's going to be tougher in the less motivated patients. So the question is, where are we on Shingrix and U. S. Growth specifically, could we now be running out of road for the U. S.

Speaker 5

Growth and it's going to be more ex U. S. Growth, But the U. S. Is maybe sort of flat this year and then could even decline.

Speaker 6

Or is Q2 a bit of

Speaker 5

a blip in the stocking and other one off factors and there's still plenty of U. S. Growth to come?

Speaker 1

Thanks, James. Obviously, we're still very ambitious, the scale and reach of JUMRIX. So, Luke, do you want to specifically come up from dynamics of the U. S? Sure, James.

Operator

And I suspect you're probably

Speaker 3

not the only person with that question. So I'll take a little bit longer to cover all those points. So the short answer is not yet. I mean, we've covered in past calls, there will be a point which we're entering now that we'll need to work harder to develop this, what essentially a logarithmic growth curve. But yes, I'll just I'll take a little bit of our owner's dynamics because it's very much a non retail effect right now and as you said with some stock movements.

Speaker 3

So For Retail First, we actually saw an 8% growth or up 8% versus last year, and that was pretty much driven by 65 year old individuals coming in following the removal of the co pay linked to the IRA. And it's interesting, in Q4 and Q1, We added about 2% to the total vaccination rate each time. So we're now at a penetration of around 32% on the latest data we have, which is Q1. If you then sort of subtract that, that's about 80,000,000 more people to go if we were to get to 100%. And we add around 4,000,000 people who turn 50 each year.

Speaker 3

The other important moment on stocking is we actually changed the rules in terms of how much stock Wholesalers could haul. So we have 2 categories, category A and category B. Historically, On category B, which just gave wholesalers more room and more flexibility in terms of the volumes that they hold. We've now tightened that up We try and remove some of this volatility. If you remember last year, we had top movements which were at 1.3, 1.8 and down to 1 down to 0.9.

Speaker 3

So far this year, we're pretty tight in the range of 0.6% to 0.7%. Expect it will go up a little bit at the end of Q3 in the flu season, But we're trying to keep a tighter call on that. So that has an effect as well. Now if we go to the non retail, this is the important component in the U. S.

Speaker 3

And this is the key shift. So historically, non retail has been around 45%, 50% of the business. But in Q1 that went down to 34% and in Q1 Q2 it's around 31%. And it's very specific. We have a very small number of key customers who are now approaching 60% of the target population in their vaccination.

Speaker 3

Now we have about 197 other key customers that we can work for. So I guess the glass half full look at this is that we can get to the types of penetrations that we're targeting in these centers and that's an opportunity with the other ones. So but you're right, we do need to work harder to get to those less motivated patients, but we've always known that's coming and we've got plans to do that. If we look outside of the U. S, just to conclude, We sort of try to explain historically that we have been certified to see the U.

Speaker 3

S, which is sort of Down on that curve. We're now starting in Europe and we're very early days in markets like China. And as we said, we have about 3% penetration if you exclude the U. S. And Germany, which are ahead of the weaker penetration.

Speaker 3

So We're in good shape overall. And I think we look forward to updating you on Q3.

Speaker 1

Thanks, Luke. And the other point to Emphasizes, as Luke referred to, the cost of reaching deeper into the U. S. Obviously goes up. And actually, In the other markets we're in because we don't have advertising and because price has been successfully Global Arts remains a very opinion business in adult immunization, which of course we're now adding to with RSP in much more setting.

Speaker 1

Additional pipeline beyond that. Next question please.

Operator

Next question is from the gentleman at Credit Suisse. Joe?

Speaker 7

Yes. Thank you. I would like to ask a question about IRA and two aspects of that. I wonder if you have a view about increased volume in anything other than vaccines, given the change in patient co pay going down. And also if you could talk about penny pricing and how we should think about that.

Speaker 7

You have some old products, which will have accumulated Very large rebates, which in the theory would become a problem next year. We've seen the in unit companies talk about it. How are you going to handle that in respiratory? Thank you.

Speaker 1

Thanks, Joe. Well, I'll come to Luke to Abbott. You're absolutely right. There are some really good things about the IRA that we're very supportive of the co pays and Removing in vaccines is important for our portfolio. There are some other things that alongside others in the sector We're concerned about in terms of unintended consequences.

Speaker 1

And 2 parts of our portfolio, HIV will be more likely 25. And then in Gen Meds from next year, there is some impact, 4 of which is explicitly absorbed in our guidance and in our outlooks. So you'll see some volatility there. But Luke, I don't know whether you'd like to comment more on the specifics in established respiratory. Yeah.

Speaker 1

Sure.

Speaker 3

I mean, Joe, you're bang on in terms of some effects in terms of compliance. I mean, we see patients drop out products like Trelegy in terms of that historical coverage gap. So that should help with the volume. As I said, there's other aspects to the program that we're less than admirable and we need to see how that affects. In terms of AMCAP, we've got a very clear list of products exactly as you said that have had pretty intensive Discounting and historical price increases, which have been ahead of inflation and those reinvested commercial players will have effect.

Speaker 3

Mean the total exposure, this is just total revenue not impact, we're going to really stress this, about US700 $1,000,000,000 So that's GloVein, HFA, GloVein Discus, Advair HFA, Advair Discus, Ceravent and Lamictal. And the biggest of those is Lamictal. Now we've had a lot of warning that this is coming and we're working in the U. S. Has done a great job in terms of developing authorized generics partnerships.

Operator

We

Speaker 3

have options to divest selected products and where we can't bring an authorized generic or we are unable to divest, of course, we can always lower to address that. So that's a collection of approaches that we're doing to protect the bulk of that business.

Speaker 1

Thanks, sir. Next question, please.

Operator

So the next question is from James Cuddy at Morgan Stanley. James, over to you please.

Speaker 8

Great. Thank you very much. So maybe a question for Julie picking up on one of her comments. So You mentioned sort of building a competitive P and L. So what is your definition of a competitive P and L?

Speaker 8

And what sort of focus what would be the focus areas To generate better, that competitiveness in terms of margin ranges or growth potential. And then there are and are there any sort of early areas That could drive efficiencies or levers that you can use to get you into these competitive ranges. Thank you.

Speaker 1

Right, Jack, go straight to you, Jim.

Speaker 4

Okay. Thank you very much. Thanks, Jim. So in terms of I see a competitive P and L is one that's operating to full capacity and making optimal use of the resources in the business and capital allocation in the business. And I think progress has been made in GSK already following the separation with the future ready program.

Speaker 4

I mean, clearly, at the moment, we're in the launch cycle with a number of important medicines and vaccines being brought to the market, as Luke and Deborah both mentioned. As we move beyond this, of course, we will continue to look for efficiencies. And we do anticipate once we're through the launch cycle that SG and A will grow at some lower rates and sales thereby improving that particular margin. And working with Tony closely because obviously I've been in the pharma industry for a long time and worked with R and D for a long time. Clearly, investment in productivity and resource allocation in R and D is critical to a pharmaceutical business.

Speaker 4

So as you can imagine, I will spend some time looking for continuous improvement and opportunities to fuel Business efficiencies to fuel further growth.

Speaker 1

Next, Jean. Next, please.

Operator

So next question comes from Emily Field at Barclays, over to you please, Emily. Okay. Can I propose to take the next question then from Peter Welkers? So Peter, over

Speaker 9

to Peter. Oh, no. I'm here. Can you hear me? Sorry, I didn't get the pop up.

Speaker 9

I apologize. Sorry, I wanted to ask a question on flu vaccine. I know that you had previously guided for a down year, but that's now expected to be down 20%, if you could give any color On what the driver is for that? And then I believe on the pipeline slides, you indicated that we could get an update on the go forward plans For the mRNA seasonal flu vaccine, and if you could just give any sort of high level thoughts on what we could expect from that decision in the back half of this year. Thank

Speaker 1

you. Okay. Thanks, Emily. I think you said on flu. So I'll come to I mean, as you know, our Current Clear business is in, let's call it, not the most modern technology platform, and we are expecting a decline.

Speaker 1

So I'll let Lars Luke comment very briefly On why we see that. But once again, to reiterate our overall outlook for Vaxxis overall remains very strong For the year and then perhaps, Tony, you can update. I know we're excited about the potential doublet I see that we can go off with MR and A. So, Luke,

Speaker 3

do you want to Sure. Thanks, Adam. Emily, thanks for your question. So basically, you've got a comparative issue as The demand around the time of COVID, of course, was very high. And so that's there's pressure there.

Speaker 3

And the fact is there's a lot of doses around there where people are very motivated Discount to upload them. So we're seeing pricing pressure. In terms of volumes, we expect around 43,000,000 doses this year versus around 51,000,000 that we sold in 2022. So our goal remains to evolve this technology and I'll hand over to Tony.

Operator

Yes. So first of all, as I said, we're now moving with the mRNA partnership into and COVID into Evaluation of multivalent options, we continue to be encouraged by the data that we see there and that is a move into Phase 1 and Phase 2 studies, we expect in the case of both instances and we'll see VDAS on those towards the end of the year and at the beginning of next year. And probably the only other thing I would add is that I'm sure you follow this well. The field continues to encounter difficulties in flu with regards to coverage, particularly in these strains. And what I'd say at this point is that our studies are Designed to account for arm B strain coverage and looking at a broader range of antigens.

Operator

So all of that will come together when we have an which is to update you in more detail at the beginning of this year. We're very pleased with the progress in the platform.

Speaker 1

Thanks, sir. Next question, please.

Operator

So our next question is from Peter Welk with Jeff. Please go ahead, Peter.

Speaker 10

Hi, yes. Thanks. I'd like to come back and apologize for this, but I'd like to just U. S. Shingrix a minute, just to try and understand the cadence here that we're talking about.

Speaker 10

Presumably, the retail segment is typically the segment that we would anticipate to increase towards the end of the year. So just trying to understand it. In that segment, you're saying demand is still robust, but presumably, we'll see the usual sort of detailing that you do together with flu. Or is there any sort of issue, I guess, with the RECs fee perhaps taking over priority there going into the flu season for the retail channel this year. And for the non retail, just trying to understand.

Speaker 10

So the issue is that there's a large The majority of the non retail segment has yet to reach that 60% to 65%, but it's becoming is it well, could you just talk about what is the challenge perhaps To get doctors there, is it coverage or is it as insurance coverage or is it just getting these people back in to see the physician? What is it exactly the sort of receiving there with the doctors, please? Thank you.

Speaker 3

Sure. So Peter, I'll start with non retail first. So we've had a couple of very, very large players that we've intensively worked With and as natural when you've got momentum, you try and go with that. And we really wanted to see how high the penetration we can get. We still expect those large centers to keep vaccinating and our aim is to go beyond 60%, but The curve does tend to flatten out at 60%.

Speaker 3

Now if we think long term, this is why I'm personally fascinated with the relationship that we've seen In the Welch study around vaccination and Shingrix and the potential relationship with DIMENSION, we're going to be very busy with lifecycle work on that one, both prospectively and retroactive retrospective analysis. There are another 197 key customers that we have that are in the 30s or a range from sort of the 30s to 60s that we are now putting more work behind. We also pulled back on the primary care promotion on Shingrix in these centers and we're concentrating on TRELEGY to give that a hard put along with Nucala as an experiment to see if PCBs would respond. We're now switching that team back to Shingrix. So that's all pointing in the right direction.

Speaker 3

It's more a case of prioritization and just moving that up, these larger centers put a flag in the system and we saw volumes really moving. So we just need to do the hard work to pick up the other ones now and I feel very confident In terms of retail, you're right, there is still a seasonal relationship, and we expect that to continue. It's not as extreme as it was in the couple of years of Shingrix, but it still exists. The unknowns are there's no push on COVID booster this year. So we don't know what effect that is.

Speaker 3

That has been a drag historically. But as you correctly point out, we're going to be very busy with Orexi targeting the high risk individual, which is a subset of the Schindler's target universe. So Let's see. We'll get some more color. Of course, you don't have a crystal ball, but I remain very confident about the demand for this product in the U.

Speaker 3

S. And total 3.

Speaker 1

And just to remind everyone again, ex U. S. And Germany, we're at less than 3% penetration. So there is plenty of runway for this asset and it's an asset that we are planning to add to. So next question please.

Operator

So our next question comes from Eric Ledergo with Stifel. Eric, over to you please. Yes. Thank you, Nick. Same, everyone.

Operator

Just a question to get more clarity in terms of cash flow development. We're now getting in terms of earning growth into the double digits, And you're raising the guidance here, but still guiding in terms of cash flow declining this year. Could you maybe Give us a little bit more details about the push and pulls to make the difference between earning growth and cash flow decline. Even though we go beyond the Gilead settlement and the COVID impact and whether getting into 'twenty four and beyond, we might see cash So development more in line with earnings? Thank you.

Speaker 1

Thanks, Eric. Well, over to you, Julie. And remember, we're reiterating Our 'twenty six outlook for operating cash flow.

Speaker 4

Yes. Thanks, Anna, very much. And thanks for the question, Eric. So this year, clearly, we've had an influence of a number of factors with the cash flow. A couple of things happened last year that have Obviously, it affected the comparator.

Speaker 4

So last year, with the cash flow, we had the Gilead settlement that occurred at the beginning of the year. And then we've also had as the VUDI receivables coming in last year. This year, the cash flow has been depressed somewhat, partly by movements in working capital and also which we expect to resolve by the end of the year. And also, we've had An additional pension payment that's been made this year, which was reasonably sizable over GBP 350,000,000 So there are some somewhat one offs you may call them relating to the cash flow. This is why you see the CHF 2,000,000,000 swing in the first half.

Speaker 4

But we are maintaining the guidance for the full year for cash flow, which is basically to be slightly lower than last year. The major reason you do see this difference, usually our cash flow weighting is very much towards the second half. We normally have around 70% to 75% of the cash coming in, in the second half of the year. Last year was very unusual. It was fifty-fifty because of the things I mentioned.

Speaker 4

So that's why you're seeing the difference. In terms of 2024, obviously, we'll guide when we come to that at the end of the year. But you can be sure that we will care for cash. We'll be very focused on cash conversion and the translation of profit into cash. You can see us Paying a lot of attention to that as we go forward.

Speaker 1

Right. Thanks, Rick. Next question?

Operator

We've got a next question from Michael Leuchten at TDEC. So over to you, Michael.

Speaker 11

Thank you. Next question on RSV and Luke's comment on prioritization, please. So I guess the ACIP recommendation could have been A little bit stronger than it was. Just wondering how you reacted to that. Will you throw more commercial resources at DIRECTV?

Speaker 11

Or is the plan executed as it was? Thank you.

Speaker 1

Thanks. Well, I know it's very excited about the pending launch. So, can you add a bit of color to that?

Speaker 3

Sure. Look, I think on my Christmas Wish list, it would have been for a simple label, but that's the label we've got. But I think to put it in perspective, our It's always been to focus on these high risk individuals who naturally would engage in that type of discussion with their healthcare provider, our regular visits to the pharmacy because they're polypharmacy. And we have market research that clearly says that. And if you look at our label, that Secondary claims, the 94% efficacy, etcetera, really plays to our strength.

Speaker 3

So I think at the end of the day, it doesn't have an enormous impact in the 1st couple of years. We are now actively with Tony's team generating the data that the Asia wants to see and we're confident that we can bring that. So I think if we look in the medium to long term, we'll see this as fully supported, simpler access process for these vaccines. Our discussions with insurers are very, very encouraging. There's also been some really good work published by our friends in New York They've looked at rates of RSV present in hospital setting, particularly if you use food in those tests.

Speaker 3

And they're looking at it's really an under diagnosis by a factor of 2. So the demand is there. The willingness to recommend is there. So we remain encouraged and the pricing as the force is higher. I think we have to see the full effect in terms of the multi season label.

Speaker 3

But again, for these high risk patients, I think this is more of a reassurance. And also, arguably, let's just move this out of the seasonal pot that we would normally typically have with flu because you've got that longer time frame in terms of coverage. So net net, I think we remain very excited, as Emma said. We're very much looking forward to an exciting battle with Pfizer and it's something that we relish. And in the end, this is going to be meaning that physicians and pharmacists are better informed that patients are going to get a better vaccine.

Speaker 1

Great. Thank you. Next question please.

Operator

Next question from Graham Parry at Bank of America. Graham, over to you, please.

Speaker 1

Hi, Graham.

Speaker 2

Hi. Thanks for taking the question. So actually, I just want to follow-up on, I think, couple of people asked effectively if you can grow shrinkage in the U. S. So I'll just throw that Alex.

Speaker 2

I think it's been answered. And then actually asked my question, which is on Zantac. So with the Girt settlement, you showed a willingness or even a desire to settle cases in California. But is that still the attitude that you have towards The upcoming case in November and now the same lead plaintiffs as it is representing the plaintiffs both in California and the Delaware cases Would any settlement of the entirety of the Azantec litigation now need to include a Delaware settlement as well? Thank you.

Speaker 1

Thanks, Graham. Well, we'll come to Luke Steele, and he wants to add anything more to his already reasonably comprehensive answer on the U. S. But in terms of Exactly. We remain very confident in our position.

Speaker 1

We continue to be guided by the silence of the evidence that's been in place. We've got a dedicated team managing this. We'll continue to defend ourselves vigorously. We obviously won't comment on our specific legal strategy ahead of its execution. Thank you, Sean.

Speaker 1

Happy to see where we are, and we'll keep everybody updated as we progress through. Obviously, knowing that we've got They were coming in the New Year, so nothing more to add than that. Luke is shaking his head with nothing new to add on Chirix. So back to you, Nick.

Operator

Thank you. Can we take the next question from Rajesh Kumar at HSBC, please?

Speaker 3

Hi, there. Just on the capital allocation piece, you suggested that you're going to focus on Deals as well as investing organically in R and D. So could you run us through some Criteria you look at when you deploy capital, when you pick between R and D versus external investment, How do you compare the 2? What are the internal metrics you look at? And if below the top management are incentivized similarly for doing deals versus organic investment.

Speaker 1

Yes. So I'll comment on that and then let's see if Julian wants to add it further. But it should be really clear in In our capital allocation framework that our number one priority is investing growth. And as you saw both from Judy's side and from Tony's side, that's about The pipeline and the launches. I mean, in the pipeline, it is organic and inorganic.

Speaker 1

I mean, you will notice across the entire sector. I think probably about half of the pipeline is sourced Outside, that number is probably going up across the sector. And we've been really pleased with the We set our balance sheet to create the capacity to do that and have had a very focused track record of executing against deals reasonably. Swift pace, particularly over the last 18 months, so you should expect to see it all be the same. I mean the most important point It's because it's part of the way we do R and D, our BVT reports into Toni.

Speaker 1

There is We've been very thoughtful about the incentive system and the goals that we set in terms of pipeline progression to keep it neutral regardless Whether it's sourced internally or externally, because you're absolutely right. And then there were some slightly perverse incentives around that, which are helpful. And our criteria are unchanged, and I think we laid out specifically on Tony's opening slide. We like to look for assets that are best Well, first of all, we look at ROIs, NPVs. We look at contribution to sales growth, particularly in the latter half of the decade and beyond.

Speaker 1

We look across the balanced portfolio of risk across all therapeutic areas. We're obviously focused more on investing in our specialty and vaccines pipeline, but also in technology platforms that will allow us to Continue to improve productivity. So that's what we like to see the tech enablement of what we bring through. The really important point is that regardless of whether it's internal or So regardless of TA, we use the same set of criteria. So I don't know if I can tell you what Julian writes that or?

Speaker 4

Yes. Just an extra point. I think, I mean, we have got also a very rigorous governance process that runs through both BD assets. We get together regularly looking at the BD pipeline as well as the organic pipeline. And as Emma mentioned, One of our jobs we see as being very important is also to accelerate the key assets.

Speaker 4

So we identify the key assets. We look to accelerate them. We look to ensure that they've got the right resources to do that and that we remove any blocker that could be there in the organization. And finally, we also review assets, whether it be BD or organic for success. So we do post deal reviews also.

Speaker 4

So there's a very rigorous process around this.

Speaker 1

Right. Thank you. Next question, Paul.

Operator

Next question from Richard fox@bmbparabas. Over to you, Richard.

Speaker 6

Thanks, Nick. So I just wanted to push you a little bit more To talk about your expectations for the RSV launch based on the initial outreach, I think With the new Kapustin looking uncertain, I think the market is skeptical on your previous Shingrix like target. But given higher pricing, clearly, it could be A more meaningful opportunity near term, if you can drive rapid uptake. Looking at consensus, I think we've got £180,000,000 of sales this year and Going to 570 next year. I just wondered if you could give us your thoughts on whether you see potential to exceed those numbers or is the weaker ACIP recommendation and maybe lower vaccine uptake you're factoring into flu vaccine going to be a headwind I know you've not upgraded the vaccines guidance despite that higher pricing.

Speaker 6

So does that moderate your Expectations in terms of volume. Thank you very much.

Speaker 1

Thanks. Well, I mean, first of all, I'll start and then I'll come to Luke on any Additional comments. But there was absolutely no change to our outlook, which was reemphasized again on Meet the Management update on infectious We see the potential of this to be around £3,000,000,000 of sales. So in that sense, it's a multibillion asset. I think we've been clear right from the beginning that we didn't expect the stock to be at the same rate as Shimbricks, just as a simple factor of awareness of See, of course, we've got some competitiveness for arms space in there.

Speaker 1

But also, as you know, We made very specific recommendations from ASIC, Fortune, which was unusual as well as the bizarrely helpful Initial sources of supply that we are a long way from dealing with here. We're also taking a different Case of launching in multiple countries across the world. We don't guide for individual quarters of sales, but Luke, I'll let you comment on Some more details around the process as well.

Operator

Yes. Thanks, Richard.

Speaker 3

I mean, I think there was no solution for RST historically, so it didn't really make a lot of sense for systems to focus on. And then as you saw COVID with PCR testing, other than that was an accompanying test and Better understanding the character and prevalence of RFE emerged. So I think we're in a very different place than we were, say, a couple of years ago. And we as we start to promote it and educate doctors and pharmacists and pharmacists. Canadians are very enthusiastic about this product.

Speaker 3

I think that's a very fair long term ambition. There's a heavy overlap with If you look at Hi Desk Wu and of course the SHIBRX population and the pneumococcal population, I've said in the past that I think will be a steady build, the peak will be very strong. And this is outstanding data for something that's very Impactful, the healthcare systems and individuals. So I think we'll get there. And the data that we've generated so far is quite exciting.

Speaker 3

Pricing wise, again, we went into ASPEP with a core of $270,000,000 to $295,000,000 and we've been able to We keep within that at 280. So I think our credibility with ACIP has enhanced through that process and the reception we've received so far For payers and pharmacy changes, it's been very encouraging. So that's probably all I can say at this point. I very much look forward to updating everyone in Q3.

Speaker 1

Wonderful. Thanks, Luke.

Operator

Next question is from Andrew Baum of Citi. Andrew?

Speaker 2

Many thanks. So in relation to TRELEGY, we're expecting it to be included And the IRA price negotiation list being enacted in 2027. I'm curious as to how Luke is thinking about The ability of GSK to claw back the rebate in order to mitigate the impact of the list price reduction. My understanding is that PBMs cannot exclude a drug once it's been selected for price negotiations. Do you think you can take away the rebate?

Speaker 2

Or do you think that the PBMs will make you pay by Creating hurdles to other products in your portfolio. And then just following up on an earlier question in relation to the Impact of the out of pocket cap in driving increased volumes. To what extent do you think, still the patients are going to have to pay $2,000 out of their own pocket, How meaningful do you think that really is in getting patients off your patient assistance program on to pay drugs? Or do you actually think $2,000 is still a real barrier for many patients And therefore the volume impact isn't going to be that meaningful. Thank you.

Speaker 3

Yes. Andrew, I think $2,000 is still a large amount of money for many people, particularly older individuals. But it's an improvement. It's more predictable for those patients. I don't see a massive adjustment in some of our assistance programs, particularly in our college areas

Operator

like that. In terms of Trilogy, I mean Q4 this year, we'll have

Speaker 3

a better idea in terms of how CMS is defining those first Part D drugs and how they That's going to be managed. But we have, as you said, very high ROI growth on Trelegy already. I think PBMs Probably the more your second scenario is more likely to be reality. And I think we We're very rational to make that assumption, but we're obviously starting to think about various combinations and initiating discussions with them. I think the other factor with Trelegy is whether you'll see a generic emerge at some point because the technical challenges that we can't see anymore on closing 3 In how medicines and validating that for a regulatory product is not simple as we've seen with AbbVie.

Speaker 3

So I think that's also another factor which we're starting to look at. Great. Thanks. Nick?

Operator

Yes. Please take our next question from Gary Hulford of Berenberg of G.

Speaker 12

Hi. Thanks, Nick. Question is for Deborah on long acting HIV. So clinical APANUVA strong performance in Q2. Just Whether you can talk to that, was that growth in the quarter truly reflective of underlying demand?

Speaker 12

Or are there anyone else to be aware of when we're modeling Sales in the second half of this year and beyond. You also highlighted that together, 2 drug regimens, long acting, Represent, I think you said, around 50% of total VIB. So interested to see whether that run rate At this point, it's what you would have expected from the long acting portfolio, in particular, were you behind, In line or ahead of those internal expectations at this point in the year. And can I squeeze in a quick one just to remind us of the time lines Your female pre dosing formulation? Thank you.

Speaker 1

Thanks, Kerry. Well, obviously, we're extremely Pleased with the performance of B3 this year and to be able to upgrade our outlooks on it and not least because of the innovation that we pioneered on coming through so strongly. So Deborah, do you want

Operator

to put

Speaker 1

that on those? Yes. Thanks for the question, Carrie, needless to say, we're really pleased with the performance of our HIV business in the quarter, really strong underlying growth for both our royalty rate regimens and our long acting objectives. And that is absolutely being driven by demand. So let's go into Cabanueva.

Speaker 1

It's all demand. We've seen really positive demand for our products from people who are living with HIV, and we know this Set to continue because we know that many doctors' offices have got people on waiting lists, 6 in the U. S. To be started on the drug. So it's really strong underlying demand for people living with HIV.

Speaker 1

We expect that to continue. And this, in turn, gives us confidence that we can build this market and can deliver Great for a greater share of this market through our long acting jet vessels. In terms of expectation, it's ahead of where we expected, if I'm completely honest. So To be at 51% of our overall portfolio in our oral 2 drug relative regimen, the Logax Gjets is Ahead of expectations, we're really delighted by the underlying demand and particularly the logacting injectable uptake from Cabanueva. It takes a long time to build a market, and you're in this market on your own.

Speaker 1

So you always wonder how much will it take you on the deep stage The journey each barrier that we face. And actually, the answer is yes, we can. And we're really optimistic, really optimistic about this opportunity. In terms of the pipeline, I mean, we'll talk more about this at the Meet the Management session in September. But what we've said is that We're looking to target an ultra long acting version of cabotegravir, so an ultra long acting every 3 months plus from 2027 onwards.

Speaker 1

We're making really good progress with our reformulation of Cabotegravir, because that's going to be the backbone to the first wave of our innovation in threat and in treatment. And so what you've probably seen on some of the slides that Tony That was starting to move forward the accompanying partners, be it maturation inhibitor, be it captive or be it our VNAM. And so we're kind of moving those assets forward so that we can make a choice in 2024 of the regimen that we will take forward. And so the date that we've given in our previous investor update stands, but we hope to be able to give you a little more specificity when we do I'll meet the management in September, but very optimistic, positioned to be in both from a pipeline and performance perspective in the HIV space. Great.

Speaker 1

Thanks, Deborah. Well, I guess there are still a few handful more questions. So we'll keep going and try and give us some short answers.

Speaker 3

Just one correction or one clarification. The patent expiry or LOE for Trelegy is 20 27, but where IRO had an impact was 2028. Just want to make sure everyone's here on that. Right.

Operator

Thank you. Yes, Simon Baker over to you, please, at Redburn.

Speaker 13

Thank you, Nick. Good afternoon, everyone, and thanks for taking the question. Going back, Tony, to Slide 13 on R and D. Two related questions, so one really. Firstly, on the reduced cycle times, could you give us some idea of how much of that is down to therapeutic Mix and how much is underlying reduction in non vaccine R and D times.

Speaker 13

And also on the probability trend, you show a nice Trend of improvement in Phase 2, 3 and beyond probabilities of success. Normally, that is matched by a reduction in Success rates in Phase 1, I. E, you are killing projects earlier. I wonder if you could give us an idea how that trend has evolved over time. Thanks so much.

Speaker 1

Thanks, Greg. So, Tony, no key areas for you.

Operator

Yes. Doting down both questions, Simon. I forget. And in terms of your first question with regards to cycle times, obviously, there's a component Vaccines in that. However, we are seeing cycle times hone down, particularly across our late stage portfolio.

Operator

So we get a contribution from both. And then in terms of success rates in Phase 2, of course, all we want to do throughout the Fabio is beginning to take attrition earlier and earlier. And one of the things that we're driving coming from our focus in Human genetics and functional genomics and of course the benefits that we get in focusing in infectious diseases is to be able to Take the attrition on efficacy terms much earlier than first time in humans. So I'm expecting that or rather what we'll see for the future is those Preservation of Phase 2 success rates and it being accounted for by earlier attrition than that Early in first time in human, we're very much I'll be more focused on the quality of agents driving survival in that stage.

Speaker 1

Thanks for the next question, please.

Operator

Next question from Emmanuel Papadakis. I'll turn it back over to you, Emmanuel.

Speaker 14

Thank you, sir. Perhaps just a quick follow-up. I think, Luke, you said the in response to the earlier question around rebates offsetting price negotiation, You said the second scenario. Could you just clarify what you meant by that? I do mean you think you will be able to reduce rebating to offset that price reduction?

Speaker 14

And then the question I wanted to ask is a moment, Lotanib, the delay in PDUFA, to what extent do you think any bolus will now be diminished in demand by the delay given the emerging data we've seen On anemia benefit with pukritinib and to what extent indeed then is pukritinib's quarterly run rate of €20,000,000 or so actually a better guide to How we should be thinking about that? Thank you.

Speaker 3

Yes, Emmanuel. I just think we're going to have pressure and it's going to be difficult to evade those structures, which I think is my understanding of Andrew's 2 options. So I would expect a high paying scenario versus a low paying scenario with We're trying to introduce new products and portfolio. But again, we're looking at options to offset that. And I think that, yes, we're making good progress there.

Speaker 3

In terms of borlatinib, I think the bolus will still be there. It's really interesting. Some of the recent market research we've got It's quite crowded. Some of the numbers just for interest, I mean 75% of doctors agree that it fulfills an unmet need. This was quite interesting.

Speaker 3

Around 60% of patients present with anemia within 1 year of diagnosis and about 46 meter transfusion. And the other interesting statistic which fits our strategy is about 2 thirds of them are on that 10 to 5 milligram dose of prodrugsolitinib. In terms of Procritiv, I don't think it's an accurate analog because really their label is Within that platelet subgroup, the assisted broader and media group, there has been some obviously some credit posters etcetera Presented that the NCCN guidelines, if you look at the minute study, they declined to review That's broader recommendation. So that product is very much anchored in the low below 50% placement group, whereas we have a much broader opportunity, we believe, with all the pending indications. We'll wait and see what the FDA automatically signs in terms of the label.

Speaker 3

We built the business case for the deal on a second line label 2nd line in India. Hope that helps.

Speaker 1

I think last question, Julian.

Operator

Last question. So over to Steve Scala at

Speaker 3

Thank you. Can you hear me?

Speaker 1

We can.

Speaker 15

Okay. Thank you. In adult RSV, how has your Success in contracting thus far compared to your expectations and versus what you think Pfizer has accomplished to date. Is your potentially superior data giving the edge versus Pfizer? And if not, then why do you think that's the case?

Speaker 15

Thank you very much.

Speaker 1

And so in recognition that we are in a competitive commercial situation, I'll let Luc answer

Operator

the final question. Thanks, Steve,

Speaker 3

we are encouraged, but it's happening right now. So literally as we speak. So we'll have more news here in Q3, but I'll leave this business. Great. Sorry, I can't get any more.

Speaker 1

Thanks, Luke. Well, once again, thanks everyone for joining us. We've been Very pleased to report another excellent quarter performance with strong sales and earnings growth driven by new product sales, There is ongoing progress in our pipeline, the improvement of the world's first RSV vaccine, players of our Bellas Health deal, Of course, upgrading guidance and with this momentum behind us, a lot of confidence in delivering our short-, medium- and long term targets, and we really look forward to keeping you informed over the quarters ahead. Thanks all. Bye.

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Earnings Conference Call
GSK Q2 2023
00:00 / 00:00