Glaxosmithkline Regulatory News (GSK)

Issued: Wednesday, 27 July 2022, London U.K.

GSK delivers strong Q2 2022 sales of £6.9 billion +19% at AER, +13% at CER and Total EPS1 from continuing operations2 17.5p -42% AER, -58% CER; Adjusted EPS

of 34.7p +23% AER, +6% CER

Highlights

Strong commercial execution across Specialty Medicines, Vaccines and General Medicines drives double-digit sales growth

·

Total sales: £6.9 billion +19% AER, +13% CER, excluding COVID-19 solutions +16% AER, +10% CER

-

Specialty Medicines £2.7 billion +44% AER, +35% CER; HIV +14% AER, +7% CER; Oncology +29% AER, +23% CER; Immuno-inflammation and other specialty +32% AER +24% CER; COVID-19 solutions (Xevudy) sales £0.5 billion

-

Vaccines £1.7 billion +9% AER, +3% CER; Shingrix £731 million >100% AER, >100% CER

-

General Medicines £2.5 billion +5% AER, +2% CER

Continued cost discipline supports delivery of improved adjusted operating margin

·

Total continuing operating margin 16%. Total EPS 20.8p -40% AER, -53% CER; Total continuing EPS 17.5p -42% AER, -58% CER; primarily reflecting increased contingent consideration charges driven by exchange rates and adverse comparison due to a credit for the revaluation of deferred tax in Q2 2021

·

Adjusted operating margin 29%. Adjusted operating profit growth +22% AER, +7% CER. The impact on growth from lower margin COVID-19 solutions was approximately -16% AER, -14% CER

·

Adjusted EPS 34.7p +23% AER, +6% CER. The impact on growth from lower margin COVID-19 solutions was approximately -20% AER, -18% CER

·

Q2 2022 continuing cash generated from operations £1.6 billion. Free cash flow £0.3 billion

Strengthening late-stage R&D pipeline with positive data read-outs and strategic business development

·

US FDA approval for Priorix (MMR vaccine); Vocabria plus rilpivirine approval in Japan for HIV; Cervarix approval in China for cancer-causing human papillomavirus

·

Positive phase III high-level results for respiratory syncytial virus vaccine candidate in older adults. Full results to be presented at an upcoming scientific meeting with regulatory submissions anticipated in H2 2022

·

Proposed acquisition of Affinivax provides access to next-generation phase II 24-valent pneumococcal vaccine candidate and innovative MAPSTM technology

·

Promising phase IIb interim data presented for bepirovirsen, a potential new treatment for chronic hepatitis B. Phase III monotherapy trial is anticipated to start in H1 2023

·

Completed acquisition of Sierra Oncology on 1 July 2022. Data from momelotinib's MOMENTUM phase III trial presented at 2022 ASCO Annual Meeting; results showed a statistically significant and clinically meaningful benefit on symptoms, splenic response, and anaemia. NDA submitted to the US FDA

·

Phase III data readouts expected in H2 2022: pentavalent (MenABCWY) meningitis vaccine candidate, otilimab in rheumatoid arthritis, Jemperli in 1L endometrial cancer, and Blenrep in 3L multiple myeloma

Improving revenues and margin support confidence in full-year outlooks

·

Expect 2022 sales growth of between 6% to 8% (previously 5% to 7%) and Adjusted operating profit growth of between 13% to 15% (previously 12% to 14%); both at CER. Adjusted EPS expected to grow by around 1% lower than operating profit. 2022 guidance excludes any contribution from COVID-19 solutions

·

Dividend of 16.25p/share (13p before Share Consolidation) declared for Q2 2022. No change to expected dividend of 61.25p/share (49p before Share Consolidation) for FY 2022

Successful demerger and listing of Haleon on 18 July, creating a new global leader in consumer health

·

Balance sheet strengthened for GSK, through dividend of more than £7 billion from Haleon

Emma Walmsley, Chief Executive Officer, GSK:

"This is GSK's first set of results as a newly focused biopharma company, and we have delivered an excellent second quarter performance, with strong growth in Specialty Medicines, including HIV, and a record quarter for our shingles vaccine Shingrix. With this momentum in sales and operating profit growth, we have raised our full-year guidance and are confident in delivering the long-term growth outlooks we set out for shareholders last year. We continue to strengthen our pipeline, notably with very positive high-level results from our late-stage RSV vaccine candidate, together with targeted business development acquisitions of Sierra Oncology and Affinivax. These improvements in R&D and operating performance, together with a strengthened post-demerger balance sheet, create new capacity and flexibility for GSK to invest in growth and innovation for patients and shareholders."

The Total results are presented in summary on page 2 and under 'Financial performance' on pages 9 and 21 and Adjusted results reconciliations are presented on pages 17, 18, 29 and 30. Adjusted results are a non-IFRS measure excluding discontinued operations that may be considered in addition to, but not as a substitute for, or superior to, information presented in accordance with IFRS. Adjusted results are defined on page 37 and £% or AER% growth, CER% growth, free cash flow and other non-IFRS measures are defined on page 68, COVID-19 solutions are also defined on page 68. GSK provides guidance on an Adjusted results basis only, for the reasons set out on page 37. All expectations, guidance and targets regarding future performance and dividend payments should be read together with 'Guidance, assumptions and cautionary statements' on pages 69 and 70.

(1)

Earnings per share have been retrospectively adjusted to reflect the GSK Share Consolidation on 18 July 2022, see details on page 53.

(2)

Consumer Healthcare is now accounted for as a discontinued operation, see details on page 20.

Q2 2022 results

Q2 2022

Growth

H1 2022

Growth

£m

£%

CER%

£m

£%

CER%

Turnover

6,929 

19 

13 

14,119 

28 

25 

Total continuing operating profit*

1,081 

(15)

(35)

3,374 

36 

26 

Total EPS

20.8p

(40)

(53)

65.7p

6 

(1)

Total continuing EPS

17.5p

(42)

(58)

54.8p

9 

- 

Total discontinued EPS*

3.3p

(27)

(24)

10.9p

(4)

(8)

Adjusted operating profit

2,008 

22 

7 

3,951 

33 

26 

Adjusted EPS

34.7p

23 

6 

67.0p

36 

27 

Cash flow from operations attributable

to continuing operations

1,584 

17 

3,936 

>100 

Free cash flow

264 

>100 

1,741 

>100 

(*)

The amounts presented in the table above for continuing operations and Adjusted results excludes the Consumer Healthcare business discontinued operation. The amounts presented for discontinued EPS are for the Consumer Healthcare business. The presentation of continuing and discontinued operations under IFRS 5 are set out on page 50.

2022 guidance

With the momentum from the business performance to date, GSK now expects 2022 sales to increase between 6 to 8 per cent and Adjusted operating profit to increase between 13 to 15 per cent, excluding any contributions from COVID-19 solutions. Adjusted Earnings per share is expected to grow around 1 per cent lower than Operating Profit. We have delivered first half performance ahead of our full year guidance, slightly better than expected, informed by strong business delivery and the dynamics of prior year comparators.

Predominantly reflecting a more challenging H2 2021 sales comparator as well as an expected increase in R&D spend, we expect lower reported growth in the second half. Key external factors that will influence the second half of 2022 include the continued risk from COVID-19 dynamics and possible developments in the current uncertain global economic environment.

Notwithstanding uncertain economic conditions across many markets in which we operate, we observe evidence of healthcare systems recovering and continue to expect full year sales of Specialty Medicines to grow approximately 10% CER and sales of General Medicines to show a slight decrease, primarily reflecting the increased genericisation of established Respiratory medicines. Vaccines sales are now expected to grow at a low to mid-teens percentage at CER for the year. Specifically for Shingrix, we continue to expect strong double-digit growth and record annual sales in 2022, based on strong demand in existing markets and continued geographical expansion, however we do expect sales in the second half to be slightly lower than in H1 2022 due to some channel stocking in the first half in the US.

From Q2 2022, the Group presents the Haleon plc (Haleon) business as a discontinued operation according to IFRS 5. Adjusted results excludes profits from discontinued operations. Comparatives have been restated to reflect adjusted results from continuing operations, and guidance is provided on this basis.

Dividend policies and expected pay-out ratios are unchanged for GSK, but the dividends per share have been adjusted for the GSK Share Consolidation completed on 18 July 2022. The future dividend policies and guidance in relation to the expected dividend pay-out in 2022 for GSK are provided on page 35.

2022 COVID-19 solutions expectations

The majority of expected COVID-19 solutions sales for 2022 have been achieved in the first half of this year. Based on known binding agreements with governments, we expect that sales of COVID-19 solutions will be substantially lower in the second half. Compared with 2021, sales will be at a reduced profit contribution due to the increased proportion of lower margin Xevudy sales. Given the higher than expected sales achieved in the year to date we now expect this to reduce Adjusted Operating profit growth (including COVID-19 solutions in both years) by between 4% to 6%. We continue to discuss future opportunities to support governments, healthcare systems, and patients whereby our COVID-19 solutions can address the emergence of any new COVID-19 variant of concern.

All expectations, guidance and targets regarding future performance and dividend payments should be read together with 'Guidance, assumptions and cautionary statements' on page 69. If exchange rates were to hold at the closing rates on 30 June 2022 ($1.21/£1, €1.16/£1 and Yen 165/£1) for the rest of 2022, the estimated positive impact on 2022 Sterling turnover growth for GSK would be 5% and if exchange gains or losses were recognised at the same level as in 2021, the estimated positive impact on 2022 Sterling Adjusted Operating Profit growth for GSK would be 9%.

Demerger of Consumer Healthcare

On 18 July 2022, GSK plc separated its Consumer Healthcare business from the GSK Group to form Haleon, an independent listed company. The separation was effected by way of a demerger of 80.1% of GSK's 68% holding in the Consumer Healthcare business to GSK shareholders. Following the demerger, 54.5% of Haleon is held in aggregate by GSK Shareholders, 6.0% is held by GSK (including shares received by GSK's consolidated ESOT trusts) and 7.5% is held by certain Scottish limited partnerships (SLPs) set up to provide a funding mechanism pursuant to which GSK will provide additional funding for GSK's UK Pension Schemes. The aggregate ownership by GSK (including ownership by the ESOT trusts and SLPs) after the demerger of 13.5% will be initially measured at fair value with changes through profit or loss. Pfizer continues to hold 32% of Haleon after the demerger.

The gain on demerger distribution will be recognised in Q3 2022. The asset distributed was the 54.5% ownership of the Consumer Healthcare business. The assets distributed were reduced by Consumer Healthcare transactions up to 18 July 2022 that included pre-separation dividends declared and settled after the end of Q2 2022 and before 18 July 2022. Those dividends included: £10.4 billion (£7.1 billion attributable to GSK) of dividends funded by Consumer Healthcare debt that was partially on-lent during Q1 2022 and dividends of £0.6 billion (£0.4 billion attributable to GSK) from available cash balances. GSK's share of the pre-separation dividends funded by debt will result in a reduction of net debt for GSK on demerger (GSK's share of the pre-separation dividends and loans are eliminated in the consolidated financial statements until demerger).

Share consolidation

Following completion of the Consumer Healthcare business demerger on 18 July 2022, GSK plc Ordinary shares were consolidated in order to maintain share price comparability before and after demerger on 18 July 2022. Shareholders of GSK plc received 4 new Ordinary shares for every 5 existing Ordinary shares. Earnings per share, diluted earnings per share, adjusted earnings per share and dividends per share have been retrospectively adjusted to reflect the Share Consolidation in all the periods presented.

Results presentation

A conference call and webcast for investors and analysts of the half-year and Q2 2022 results will be hosted by Emma Walmsley, CEO, at 12pm BST on 27 July 2022. Presentation materials will be published on www.gsk.com prior to the webcast and a transcript of the webcast will be published subsequently.

Information available on GSK's website does not form part of, and is not incorporated by reference into, this Results Announcement.

The amounts below are from continuing operations unless otherwise specified.

Operating performance - Q2 2022

Turnover

Q2 2022

£m

Growth

£%

Growth

CER%

Specialty Medicines

2,704

44

35

Vaccines

1,715

9

3

General Medicines

2,510

5

2

Commercial Operations

6,929

19

13

Total turnover in the quarter was £6,929 million, up 19% at AER, 13% at CER, reflecting strong performance in all three product groups. Commercial Operations turnover excluding pandemic sales grew 16% at AER, 10% at CER.

Specialty Medicines

Specialty Medicines sales in the quarter were £2,704 million, up 44% at AER, 35% at CER, driven by consistent growth in all therapy areas. Specialty Medicines excluding sales of Xevudy were £2,238 million up 20% at AER, 13% at CER. In the quarter, HIV sales were £1,404 million with growth up 14% at AER, 7% at CER. Oncology sales in the quarter were £154 million, up 29% at AER, 23% at CER. Immuno-inflammation, Respiratory and Other sales were £680 million up 32% at AER, 24% at CER.

Vaccines

Vaccine sales were £1,715 million, up 9% at AER, 3% at CER in total and up 31% at AER, 24% at CER excluding unrepeated 2021 pandemic adjuvant sales. The performance reflected a favourable comparator to Q2 2021, which was impacted by COVID-19 related disruptions in several markets, and the strong commercial execution of Shingrix. The growth, however, was partially offset by lower paediatric and adolescent vaccine sales that reflected the normalisation of the US Center for Disease Control (CDC) purchasing patterns.

General Medicines

General Medicines sales in the quarter were £2,510 million, up 5% at AER, 2% at CER, with the impact of generic competition in US, Europe, and Japan offset by Trelegy growth in respiratory and the post-pandemic rebound of the antibiotic market since Q3 2021 in Other General Medicines. General medicines includes £33 million (Q2 2021: £34 million) of turnover between GSK and Haleon recorded in continuing operations with an offsetting amount recorded in discontinuing operations.

Operating profit

Total operating profit was £1,081 million compared with £1,275 million in Q2 2021. The reduction primarily reflected the higher re-measurement charges for contingent consideration liabilities, partly offset by increased profits on turnover growth of 13% at CER and increased milestone income.

Adjusted operating profit was £2,008 million, 22% higher than Q2 2021 at AER and 7% at CER on a turnover increase of 13% at CER. The Adjusted operating margin of 29.0% was 0.9% percentage points higher at AER and 1.5% percentage points lower at CER than in Q2 2021. This primarily reflected higher COVID-19 solutions sales at low margin, which reduced Adjusted Operating profit growth by approximately 16% at AER, 14% at CER and reduced the Adjusted operating margin by approximately 4.5 percentage points at AER and 4.4 percentage points at CER. This was offset by leverage from strong sales growth across all product groups, beneficial mix, and higher royalty income.

Earnings per share (adjusted to reflect the Share Consolidation on 18 July 2022)

Total EPS was 17.5p compared with 30.3p in Q2 2021. The reduction primarily reflects increased charges for remeasurement of contingent consideration liabilities as well as an unfavourable comparison due to a credit of £325 million to Taxation in Q2 2021. Adjusted EPS was 34.7p compared with 28.2p in Q2 2021, up 23% at AER, 6% at CER, on a 7% CER increase in Adjusted operating profit. This primarily reflected higher COVID-19 solutions sales at low margin with the reduction to growth from COVID-19 solutions being approximately 20% at AER, 18% at CER. Leverage from growth in sales of Specialty Medicines, beneficial mix, higher royalty income and a lower effective tax rate was partly offset by higher supply chain, freight and distribution costs and higher non-controlling interests.

Cash flow

Cash generated from operations attributable to continuing operations for the quarter was £1,584 million (Q2 2021: £1,357 million). The increase primarily reflected the increase in operating profit including beneficial exchange and favourable timing of collections partly offset by increased contingent consideration payments, adverse timing of profit share payments for Xevudy sales, a higher seasonal increase in inventory and adverse timing of returns and rebates.

Operating performance - H1 2022

Turnover

H1 2022

£m

Growth

£%

Growth

CER%

Specialty Medicines

5,839

69

63

Vaccines

3,384

21

17

General Medicines

4,896

3

2

Commercial Operations

14,119

28

25

Total turnover in the half year was £14,119 million, up 28% at AER, 25% at CER, reflecting strong performance in all three product groups. Commercial Operations turnover, excluding pandemic sales, grew 15% at AER, 12% at CER.

Specialty Medicines

Specialty Medicines sales were £5,839 million, up 69% at AER, 63% at CER, driven by consistent growth in all therapy areas. Specialty Medicines, excluding sales of Xevudy, were £4,066 million up 18% at AER, 14% at CER. HIV sales were £2,585 million with growth of 14% at AER,10% at CER. Oncology sales were £281 million, up 23% at AER, 19% at CER. Immuno-inflammation, Respiratory and Other sales were £1,200 million up 26% at AER, 21% at CER.

Vaccines

Vaccines turnover was £3,384 million, up 21% at AER, 17% at CER. Excluding unrepeated 2021 pandemic adjuvant sales, vaccine sales increased 33% at AER, 30% at CER, reflecting a favourable comparator to H1 2021, which was adversely impacted by COVID-19 related disruptions in several markets, and the strong commercial execution of Shingrix, particularly in the US and Europe.

General Medicines

General Medicines sales in the half year were £4,896 million, up 3% at AER, 2% at CER, with the impact of generic competition in US, Europe and Japan offset by Trelegy growth in respiratory and the post-pandemic rebound of the antibiotic market since H2 2021 in Other General Medicines. General medicines includes £76 million (H1 2021: £79 million) of turnover between GSK and Haleon recorded in continuing operations with an offsetting amount recorded in discontinued operations.

Operating profit

Total operating profit was £3,374 million compared with £2,485 million in H1 2021. This included the £0.9 billion upfront income received from the settlement with Gilead Sciences, Inc. (Gilead) and increased profits on turnover growth of 25% at CER, partly offset by higher re-measurement charges for contingent consideration liabilities.

Adjusted operating profit was £3,951 million, 33% higher at AER and 26% at CER than H1 2021 on a turnover increase of 25% at CER. The Adjusted operating margin of 28.0% was 1.0 percentage points higher at AER and stable at CER compared to H1 2021. This primarily reflected the impact from low margin COVID-19 solutions sales (Xevudy), which reduced Adjusted Operating profit growth by approximately 2% at AER, 1% at CER and reduced the Adjusted operating margin by approximately 3.3 percentage points at AER and at CER. This was offset by operating leverage from strong sales growth, beneficial mix, and higher royalty income.

Earnings per share (adjusted to reflect the Share Consolidation on 18 July 2022)

Total EPS from continuing operations was 54.8p compared with 50.3p in H1 2021. This primarily reflected the £0.9 billion upfront income received from the settlement with Gilead and increased profits on turnover growth of 25% at CER, partly offset by higher re-measurement charges for contingent consideration liabilities as well as an unfavourable comparison due to a credit of £325 million to Taxation in Q2 2021. Adjusted EPS was 67.0p compared with 49.3p in H1 2021, up 36% at AER, 27% at CER, on a 26% CER increase in Adjusted operating profit. This included higher COVID-19 solutions sales at low margin with the reduction to growth from COVID-19 solutions being approximately 2% at AER, 2% at CER. Leverage from growth in sales of Specialty Medicines, beneficial mix, higher royalty income and a lower effective tax rate was partly offset by higher supply chain, freight and distribution costs, lower associate income and higher non-controlling interests.

Cash flow

Cash generated from operations attributable to continuing operations for H1 was £3,936 million (H1 2021: £1,759 million). The increase primarily reflected a significant increase in operating profit including the upfront income from the settlement with Gilead, favourable exchange and favourable timing of collections and profit share payments for Xevudy sales, partly offset by increased contingent consideration payments reflecting the Gilead settlement and a higher seasonal increase in inventory.

Q2 2022 pipeline highlights (since 27 April 2022)

Medicine/vaccine

Trial (indication, presentation)

Event

Regulatory approvals or other regulatory action

Nucala

Severe eosinophilic asthma,

40mg prefilled syringe for

6-11 year olds

Regulatory approval (EU)

Vocabria/Rekambys (cabotegravir/rilpivirine)

HIV

Regulatory approval (Japan)

Priorix

Measles-mumps-rubella

Regulatory approval (US)

Cervarix

Human papillomavirus, two-dose vaccine schedule for girls aged 9-14 years

Regulatory approval (China)

Regulatory submissions or acceptances

momelotinib

MOMENTUM (myelofibrosis with anaemia)

Regulatory submission (US)

Shingrix

Shingles, at-risk adults aged 18+ years

Regulatory acceptance (Japan)

Phase III data readouts or other significant events

bepirovirsen

B-Clear (hepatitis B virus)

Positive phase IIb interim data

RSV older adult vaccine candidate

RSV, older adults aged 60+ years

Positive phase III data

COVID-19 vaccine candidate (SK Bioscience)

COVID-19

Positive phase III data

Anticipated news flow

Timing

Medicine/vaccine

Trial (indication, presentation)

Event

H2 2022

otilimab

contRAst programme (rheumatoid arthritis)

Phase III data readout

Blenrep

DREAMM-3 (3L+ multiple myeloma)

Phase III data readout

Blenrep

DREAMM-3 (3L+ multiple myeloma)

Regulatory submission (US, EU)

Jemperli

RUBY (1L endometrial cancer)

Phase III data readout (interim analysis)

Jemperli

PERLA (non-small cell lung cancer)

Phase II data readout

momelotinib

MOMENTUM (myelofibrosis with anaemia)

Regulatory submission (EU)

gepotidacin

EAGLE (uncomplicated urinary tract infection)

Phase III data readout (interim analysis)

MenABCWY (gen 1) vaccine candidate

Meningitis ABCWY

Phase III data readout

RSV older adult vaccine candidate

RSV, older adults aged 60+ years

Regulatory submission (US)

Menveo

Invasive meningococcal disease, liquid formulation

Regulatory decision (US)

Rotarix

Rotavirus, liquid formulation

Regulatory decision (US)

COVID-19 vaccine candidate (SK Bioscience)

COVID-19

Regulatory submission (EU)

COVID-19 vaccine candidate (SK Bioscience)

COVID-19

Regulatory decision (EU)

COVID-19 vaccine candidate (Sanofi)

COVID-19

Regulatory submission (US)

COVID-19 vaccine candidate (Sanofi)

COVID-19

Regulatory decision (US)

H1 2023

bepirovirsen

B-Together (hepatitis B virus)

Phase IIb data readout

daprodustat

ASCEND (anaemia of chronic kidney disease)

Regulatory decision (US, EU)

momelotinib

MOMENTUM (myelofibrosis with anaemia)

Regulatory decision (US)

Blenrep

DREAMM-8 (2L+ multiple myeloma)

Phase III data readout

Blenrep

DREAMM-7 (2L+ multiple myeloma)

Phase III data readout

Jemperli

RUBY (1L endometrial cancer)

Regulatory submission (US, EU)

letetresgene-autoleucel

IGNYTE-ESO (2L+ synovial sarcoma)

Phase II data readout

RSV older adult vaccine candidate

RSV, older adults aged 60+ years

Regulatory decision (US)

MenABCWY (gen 1) vaccine candidate

Meningitis ABCWY

Regulatory submission (US)

Malaria (fractional dose) vaccine

Malaria

Phase II data readout

Covifenz (Medicago)

COVID-19

Regulatory submission (US)

Covifenz (Medicago)

COVID-19

Regulatory decision (US)

H2 2023

otilimab

contRAst programme (rheumatoid arthritis)

Regulatory submission (US, EU)

linerixibat

GLISTEN (cholestatic pruritus in primary biliary cholangitis)

Phase III data readout

Blenrep

DREAMM-3 (3L+ multiple myeloma)

Regulatory decision (US, EU)

Blenrep

DREAMM-8 (2L+ multiple myeloma)

Regulatory submission (US, EU)

Blenrep

DREAMM-7 (2L+ multiple myeloma)

Regulatory submission (US, EU)

Jemperli

RUBY (1L endometrial cancer)

Regulatory decision (US)

momelotinib

MOMENTUM (myelofibrosis with anaemia)

Regulatory decision (EU)

Zejula

FIRST (1L maintenance ovarian cancer)

Phase III data readout

gepotidacin

EAGLE (uncomplicated urinary tract infection)

Regulatory submission (US, EU)

Refer to pages 59 to 66 for further details on several key medicines and vaccines in development by therapy area.

Contents

Page

Q2 2022 R&D pipeline highlights

2

Financial performance - Q2 2022

9

Financial performance - H1 2022

21

Cash generation

33

Returns to shareholders

35

Total and Adjusted results

37

Income statement - three months and six months ended 30 June 2022

39

Statement of comprehensive income - three months and six months ended 30 June 2022

40

Balance sheet

44

Statement of changes in equity

45

Cash flow statement - six months ended 30 June 2022

46

Segment information

47

Legal matters

49

Additional information

50

Reconciliation of cash flow to movements in net debt

58

Net debt analysis

58

Free cash flow reconciliation

58

R&D commentary

59

Principal risks and uncertainties

67

Reporting definitions

68

Guidance, assumptions and cautionary statements

69

Directors' responsibility statement

71

Independent review report

72

Contacts

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Financial performance - Q2 2022

Total results

The Total results for the Group are set out below.

Q2 2022

£m

Q2 2021

£m

Growth

£%

Growth

CER%

Continuing Operations

Turnover

6,929 

5,838 

19 

13 

Cost of sales

(2,176)

(1,708)

27 

28 

Gross profit

4,753 

4,130 

15 

7 

Selling, general and administration

(2,066)

(1,689)

22 

19 

Research and development

(1,242)

(1,167)

6 

2 

Royalty income

159 

77 

>100 

>100 

Other operating income/(expense)

(523)

(76)

Operating profit

1,081 

1,275 

(15)

(35)

Finance income

21 

4 

Finance expense

(204)

(189)

Loss on disposal of interest in associates

- 

(36)

Share of after tax (losses)/profits of associates and

joint ventures

(2)

16 

Profit before taxation

896 

1,070 

(16)

(40)

Taxation

(150)

201 

Tax rate %

16.7%

(18.8)%

Profit after taxation from continuing operations

746 

1,271 

(41)

(58)

Profit after taxation from discontinued operations

229 

267 

(14)

(16)

Profit after taxation for the period

975 

1,538 

(37)

(51)

Profit attributable to non-controlling interest from

continuing operations

40 

57 

Profit attributable to shareholders from continuing

operations

706 

1,214 

Profit attributable to non-controlling interest from

discontinued operations

97 

86 

Profit attributable to shareholders from discontinued

operations

132 

181 

975 

1,538 

(37)

(51)

Total profit attributable to non-controlling interest

137 

143 

Total profit attributable to shareholders

838 

1,395 

975 

1,538 

Earnings per share from continuing operations

17.5p

30.3p

(42)

(58)

Earnings per share from discontinued operations

3.3p

4.5p

(27)

(24)

Total earnings per share

20.8p

34.8p

(40)

(53)

Adjusted results

The Adjusted results for the Group are set out below. Adjusted results are from continuing operations and exclude the Consumer Healthcare business (see details in page 52). Reconciliations between Total results and Adjusted results for Q2 2022 and Q2 2021 are set out on pages 17 and 18.

Q2 2022

£m

% of

turnover

Growth

£%

Growth

CER%

Turnover

6,929 

100 

19 

13 

Cost of sales

(1,970)

(28.4)

29 

31 

Selling, general and administration

(1,955)

(28.2)

19 

16 

Research and development

(1,155)

(16.7)

4 

(1)

Royalty income

159 

2.3 

>100 

100 

Adjusted operating profit

2,008 

29.0 

22 

7 

Adjusted profit before tax

1,825 

24 

7 

Adjusted profit after tax

1,548 

26 

9 

Adjusted profit attributable to shareholders

1,398 

24 

7 

Adjusted earnings per share

34.7p

23 

6 

Operating profit by segment

Q2 2022

£m

% of

turnover

Growth

£%

Growth

CER%

Commercial Operations

3,304 

47.7 

15 

6 

Research and Development

(1,152)

3 

(2)

Segment profit

2,152 

31.1 

23 

10 

Corporate & other unallocated costs

(144)

31 

66 

Adjusted operating profit

2,008 

29.0 

22 

7 

Turnover

Commercial Operations

Q2 2022

£m

Growth

£%

Growth

CER%

HIV

1,404

14 

7 

Oncology

154

29 

23 

Immuno-inflammation, respiratory and other

680

32 

24 

2,238

20 

13 

Pandemic

466

>100 

>100 

Specialty Medicines

2,704

44 

35 

Meningitis

235

4 

- 

Influenza

32

(3)

(9)

Shingles

731

>100 

>100 

Established Vaccines

717

(5)

(9)

1,715

31 

24 

Pandemic Vaccines

-

(100)

(100)

Vaccines

1,715

9 

3 

Respiratory

1,649

9 

4 

Other General Medicines

861

(1)

(2)

General Medicines

2,510

5 

2 

Commercial Operations

6,929

19 

13 

US

3,317

19 

7 

Europe

1,549

23 

25 

International

2,063

15 

14 

Commercial Operations by region

6,929

19 

13 

Total turnover in the quarter was £6,929 million, up 19% at AER, 13% at CER, reflecting strong performance in all three product groups. Commercial Operations turnover, excluding pandemic sales, grew 16% at AER, 10% at CER. Specialty Medicines included £466 million sales of Xevudy, which contributed 24 percentage points of growth in the quarter at AER, 22 percentage points at CER. Vaccines growth reflected strong Shingrix performance assisted by demand recovery and channel inventory build in the US, partially offset by pandemic adjuvant sales in Q2 2021. General Medicines reflected the recovery of the antibiotics market and in particular the strong performance of Trelegy in respiratory in all regions.

Specialty Medicines

Specialty Medicines sales in the quarter were £2,704 million, up 44% at AER, 35% at CER, driven by consistent growth in all therapy areas. Specialty Medicines excluding sales of Xevudy were £2,238 million up 20% at AER, 13% at CER.

HIV

HIV sales were £1,404 million with growth up 14% at AER, 7% at CER in the quarter. The performance benefitted from strong patient demand for the new HIV medicines (Dovato, Cabenuva, Juluca, Rukobia, and Apretude) and a favourable US pricing mix, however, this was partially offset by the unfavourable phasing of Tivicay tenders. US pricing contributed 7% at AER, 4% at CER, with tenders reducing growth by 5% at AER, 6% at CER in the quarter.

New HIV medicines delivered for the first-time quarterly sales of over half a billion pounds at £571 million, up 73% at AER, 63% at CER, representing 41% of the total HIV portfolio compared to 27% in the same quarter last year. Sales of the oral two drug regimens Dovato and Juluca were £320 million and £152 million, respectively, with a combined growth of 49% at AER, 41% at CER. Cabenuva, the first long-acting injectable for the treatment of human immunodeficiency virus type-1 (HIV-1) infection, recorded sales of £72 million. Apretude, the first long-acting prevention injectable for the prevention of HIV-1, delivered sales of £8 million.

Oncology

Oncology sales in the quarter were £154 million, up 29% at AER, 23% at CER. Zejula sales were £120 million, up 22% at AER, 16% at CER, and Blenrep, sales of £30 million up 43% at AER, 33% at CER; the performance reflected growth in recently launched markets.

Immuno-inflammation, Respiratory and Other

Immuno-inflammation, Respiratory and Other sales were £680 million up 32% at AER, 24% at CER. Benlysta sales were £297 million, up 39% at AER, 29% at CER reflecting strong underlying demand in US and worldwide. Nucala sales were £367 million, up 26% at AER, 19% at CER including US sales of £236 million up 30% at AER, 18% at CER on continued strong demand and launch of additional indications.

Pandemic

In the period, sales of Xevudy were £466 million, with the overwhelming majority of sales achieved in Europe £123 million and International £320 million. In the US, the government contract was completed in Q1 2022.

Vaccines

Vaccine sales were £1,715 million, up 9% at AER, 3% at CER in total and up 31% at AER, 24% at CER excluding unrepeated 2021 pandemic adjuvant sales. The performance reflected a favourable comparator to Q2 2021, which was adversely impacted by COVID-19 related disruptions in several markets, and the strong commercial execution of Shingrix, particularly in the US and Europe. The growth, however, was partially offset by lower paediatric and adolescent vaccine sales that reflected the normalisation of the US CDC purchasing patterns.

Shingles

Shingrix sales more than doubled to £731 million primarily due to demand recovery, strong commercial execution aimed at shifting the shingles vaccination season forward, and earlier-than- expected channel inventory build in the US, and higher demand in Germany. All regions grew significantly in Q2 2022, with 40% of the growth contributed from outside of the US. Shingrix is now available in 23 countries including four new launches in the last quarter.

Established Vaccines

Established Vaccines decreased 5% at AER, 9% at CER to £717 million reflecting unfavourable CDC purchasing patterns and competitive pressure for Infanrix/Pediarix in the US, lower International sales of Cervarix, MMR/V vaccines and Synflorix, and the negative impact of a CDC stockpile borrow for Rotarix, partially offset by hepatitis vaccines growth in the US and Europe.

General Medicines

General Medicines sales in the quarter were £2,510 million, up 5% at AER, 2% at CER, with the adverse impact of generic competition in US, Europe, and Japan offset by Trelegy growth in respiratory and the post-pandemic rebound of the antibiotic market since Q3 2021 in Other General Medicines.

Respiratory

Respiratory sales were £1,649 million, up 9% at AER, 4% at CER. The performance was driven by Trelegy sales of £467 million, up 60% at AER, 50% at CER with strong growth in all regions and some benefit of prior period Returns and Rebates (RAR) adjustments in the US. Advair/Seretide sales of £262 million continue to be adversely impacted by generic competition, decreasing 24% at AER, 27% at CER. Overall, there was no significant impact of prior period RAR adjustments in the quarter.

Other General Medicines

Other General Medicines sales were £861 million, down 1% at AER, 2% at CER. Augmentin sales were £130 million, up 43% at AER, 45% at CER reflecting the post-pandemic rebound of the antibiotic since Q3 2021. This offsets the ongoing adverse impact of generic competition and approximately two percentage points impact from the divestment of cephalosporin products in Q4 2021.

General medicines includes £33 million (Q2 2021: £34 million) of turnover between GSK and Haleon recorded in continuing operations with an offsetting amount recorded in discontinuing operations.

By Region

US

In the US, sales were £3,317 million, up 19% at AER, 7% at CER. There were £23 million sales of Xevudy in the quarter following completion of the government contract in Q1 2022.

In Specialty Medicines, HIV sales of £894 million were up 25% at AER, 13% at CER. New HIV medicines delivered sales of £377 million up 75% at AER, 59% at CER driven by strong patient demand for Dovato, Cabenuva, Juluca, Apretude, and Rukobia as well as favourable pricing mix. Nucala and Benlysta both continued to grow double digits reflecting ongoing strong demand. Oncology sales increased 22% at AER, 10% at CER, despite diagnosis and treatment rates continuing to be adversely impacted by the pandemic.

Vaccine sales were £897 million, up 13% at AER, 2% at CER. Vaccine sales excluding the impact of COVID-19 vaccine adjuvant sales in Q2 2021 grew 53% at AER, 38% at CER. Growth was driven by Shingrix reflecting demand recovery, strong commercial execution, and channel inventory build. Growth was reduced by lower paediatric and adolescent vaccines sales reflecting the normalisation of CDC purchasing patterns.

General Medicines sales were £933 million, up 11% at AER, stable at CER, driven by strong Trelegy performance, up 74% at AER, 58% at CER on growth of the single inhaler triple therapy market and demand.

Europe

In Europe, sales were £1,549 million, up 23% at AER, 25% at CER, including Xevudy sales of £123 million contributing ten percentage points of growth at AER and CER.

In Specialty Medicines, HIV sales were £336 million, up 15% at AER, 17% at CER. The performance predominantly reflected strong patient demand for Dovato with sales of £118 million during the period. Benlysta in immunology, Nucala in respiratory, and several Oncology medicines also delivered strong double-digit growth in the quarter.

Vaccine sales were £414 million, up 39% at AER, 42% at CER. Shingrix sales of £151 million, >100% at AER and CER, drove the growth particularly in Germany, which benefitted from strong demand.

General Medicines sales were £522 million, decreasing 3% at AER, 2% at CER, with ongoing generic competitive pressures adversely impacting Seretide in respiratory; the performance was partly offset by strong demand for Trelegy. Augmentin grew due to the post-pandemic rebound of the antibiotic market since Q3 2021.

International

International sales were £2,063 million, up 15% at AER, 14% at CER, including Xevudy sales of £320 million contributing 15 percentage points of growth.

In Specialty Medicines, HIV sales were £174 million, decreasing 23% at AER, 27% at CER driven by tender phasing. The performance, however, was partially offset by strong Dovato growth. Combined Tivicay and Triumeq sales were £130 million, declining 35% at AER, 40% at CER. Nucala in respiratory and Benlysta in immunology both continued to grow strongly reflecting growth in the biologics market in Japan and inclusion on China's National Reimbursement Drug List.

Vaccine sales were £404 million, decreasing 15% at AER, 18% at CER. Vaccine sales excluding the impact of COVID-19 vaccine adjuvant sales in Q2 2021 decreased 6% at AER, 8% at CER, primarily reflecting phasing of public tenders.

General Medicines sales were £1,055 million up 6% at AER, 5% at CER. Respiratory sales of £455 million were up 8% at AER, 7% at CER reflecting strong growth of Trelegy, particularly in Japan, China, and Canada. This performance offset the impact of generic competition and lower allergy season in Japan. Other General Medicines sales increased 4% at AER and at CER to £600 million, reflecting the growth of Augmentin following the post-pandemic rebound of the antibiotic market since Q3 2022.

Operating performance

Cost of sales

Total cost of sales as a percentage of turnover was 31.4%, and increased 2.1 percentage points higher at AER and 4.0 percentage points higher in CER terms than Q2 2021. Adjusted cost of sales as a percentage of turnover was 28.4%, up 2.4 percentage points AER and 4.1 at CER compared with Q2 2021. This primarily reflected higher sales of lower margin COVID-19 solutions (Xevudy) compared to Q2 2021, which included £258 million of pandemic adjuvant sales, increasing cost of sales margin by 4.7 percentage points at AER and at CER as well as the impact of increased commodity prices and freight costs. This was partially offset by a favourable mix primarily from increased sales of Shingrix in the US and Europe and increased sales of HIV medicines in the US.

Selling, general and administration

Total SG&A costs as a percentage of turnover were 29.8%, 0.9 percentage points higher at AER and 1.7 percentage points higher at CER than in Q2 2021 primarily reflected increased investment in the launch of innovative vaccines and medicines.

Adjusted SG&A costs as a percentage of turnover were 28.2%, stable at AER, 0.7 percentage points higher at CER. Adjusted SG&A costs increased 19% at AER, 16% at CER which primarily reflected an increased level of launch investment in Specialty Medicines particularly HIV and Vaccines including Shingrix to drive post-pandemic recovery demand and support market expansion. The growth in Adjusted SG&A also reflected increased freight and distribution costs and exchange losses on the Vir Biotechnology, Inc. collaboration profit share. This growth was partly offset by the continuing benefit of restructuring and tight control of ongoing costs.

Research and development

Group R&D expenditure from continuing operations was £1,242 million (17.9% of turnover), up 6% at AER and 2% at CER. Adjusted R&D expenditure increased in the quarter by 4% at AER, broadly stable at CER, to £1,155 million. This reflected the continued efficiencies delivered from the One R&D restructuring programme, the completion of several late-stage clinical development programmes, and a favourable comparator to Q2 2021, which saw increased levels of R&D investment due to COVID-19 pandemic solutions.

In the quarter, GSK increased investment across Vaccine clinical development, including its mRNA technology platforms, continued investment in the late-stage portfolio, and accelerated several early discovery programmes; these investments partly offset the decreases above. In addition, the level of investment increased in Specialty Medicines to support the early-stage HIV portfolio and in respiratory, the phase III programme for depemokimab, a potential new medicine to treat severe asthma. The expenditure in the quarter does not reflect the impact of the acquisition of Sierra Oncology, Inc. which completed on 1 July 2022.

Royalty income

Royalty income was £159 million (Q2 2021: £77 million), up >100% at AER, >100% at CER, primarily reflecting royalty income from Gilead under the settlement and licensing agreement with Gilead and higher sales of Gardasil.

Other operating income/(expense)

Net other operating expense was £523 million (Q2 2021: £76 million) primarily reflecting accounting charges of £699 million (Q2 2021: £101 million) arising from the re-measurement of contingent consideration liabilities and the liabilities for the Pfizer, Inc. (Pfizer) put option and Pfizer and Shionogi & Co., Ltd. (Shionogi) preferential dividends in ViiV Healthcare. This included a re-measurement charge of £585 million (Q2 2021: £125 million) for the contingent consideration liability due to Shionogi, including the unwinding of the discount for £95 million and a charge for £490 million primarily from changes to exchange rates as well as adjustments to sales forecasts. This was partly offset by increased milestone income.

Operating profit

Total operating profit was £1,081 million compared with £1,275 million in Q2 2021. The reduction primarily reflected the higher re-measurement charges for contingent consideration liabilities, partly offset by increased profits on turnover growth of 13% at CER and increased milestone income.

Adjusted operating profit was £2,008 million, 22% higher than Q2 2021 at AER and 7% at CER on a turnover increase of 13% at CER. The Adjusted operating margin of 29.0% was 0.9% percentage points higher at AER and 1.5% percentage points lower at CER than in Q2 2021. This primarily reflected the impact from low margin COVID-19 solutions sales (Xevudy), which reduced Adjusted Operating profit growth by approximately 16% at AER, 14% at CER and reduced the Adjusted operating margin by approximately 4.5 percentage points at AER and 4.4 percentage points at CER. This was offset by operating leverage from sales growth across all product groups, beneficial mix, and higher royalty income.

Contingent consideration cash payments made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in Q2 2022 amounted to £404 million (Q2 2021: £205 million). These included cash payments made to Shionogi of £395 million (Q2 2021: £203 million).

Adjusted operating profit by business

Commercial Operations operating profit was £3,304 million, up 15% at AER and 6% at CER on a turnover increase of 13% at CER. The operating margin of 47.7% was 1.5 percentage points lower at AER and 3.2 percentage points lower at CER than in Q2 2021. This primarily reflected sales of lower margin Xevudy in the quarter compared to Q2 2021 which included higher margin pandemic adjuvant sales. This also reflected increased investment behind launches in Specialty Medicines including HIV and Vaccines plus higher commodity, freight and distribution costs. This was partly offset by continued tight control of ongoing costs, benefits from continued restructuring and increased royalty income from Biktarvy sales following the settlement with Gilead in February 2022 and Gardasil sales.

R&D segment operating expenses were £1,152 million, up 3% at AER, down 2% at CER, primarily reflecting continued efficiencies delivered from the One R&D restructuring programme, the completion of several late-stage clinical development programmes, and a favourable comparator to Q2 2021, which saw increased levels of R&D investment due to COVID-19 pandemic solutions. This was partly offset by increased investment in Vaccines including priority investments for mRNA and late stage portfolio and Specialty in early stage HIV and depemokimab.

Net finance costs

Total net finance costs were £183 million compared with £185 million in Q2 2021. Adjusted net finance costs were £181 million compared with £185 million in Q2 2021.

Taxation

The charge of £150 million represented an effective tax rate on Total results of 16.7% (Q2 2021: 18.8% credit) and reflected the different tax effects of the various Adjusting items. Included in Q2 2021 was a credit of £325 million resulting from the revaluation of deferred tax assets following enactment of the proposed change of UK corporation tax from 19% to 25%. Tax on Adjusted profit amounted to £277 million and represented an effective Adjusted tax rate of 15.2% (Q2 2021: 16.6%).

Issues related to taxation are described in Note 14, 'Taxation' in the Annual Report 2021. The Group continues to believe it has made adequate provision for the liabilities likely to arise from periods that are open and not yet agreed by relevant tax authorities. The ultimate liability for such matters may vary from the amounts provided and is dependent upon the outcome of agreements with relevant tax authorities.

Non-controlling interests

The allocation of Total earnings to non-controlling interests amounted to £40 million (Q2 2021: £57 million). The decrease was primarily due to an reduced allocation of ViiV Healthcare profits of £41 million (Q2 2021: £60 million) including increased credits for re-measurement of contingent consideration liabilities.

The allocation of Adjusted earnings to non-controlling interests amounted to £150 million (Q2 2021: £99 million). The increase in allocation primarily reflected an increased allocation of ViiV Healthcare profits of £151 million (Q2 2021: £102 million).

Earnings per share from continuing operations

Total EPS was 17.5p compared with 30.3p in Q2 2021. The reduction primarily reflected increased charges for remeasurement of contingent consideration liabilities as well as an unfavourable comparison due to a credit of £325 million to Taxation in Q2 2021 resulting from the revaluation of deferred tax assets.

Adjusted EPS was 34.7p compared with 28.2p in Q2 2021, up 23% at AER, 6% at CER, on a 7% CER increase in Adjusted operating profit primarily reflecting higher COVID-19 solutions sales at low margin, with the reduction to growth from COVID-19 solutions being approximately 20% at AER, 18% at CER. Operating leverage from growth in sales of Specialty Medicines including HIV and Vaccines, beneficial mix, higher royalty income and a lower effective tax rate was partly offset by higher supply chain, freight and distribution costs and higher non-controlling interests.

Profit and earnings per share from discontinued operations

Discontinued operations include the Consumer Healthcare business and certain Corporate costs directly attributable to the Consumer Healthcare. Profit after taxation from discontinued operations amounted to £229 million (Q2 2021: £267 million) and EPS from discontinued operations was 3.3p, compared with 4.5p in Q2 2021. The reduction in profit and EPS primarily reflected increased separation costs and increased interest costs. For further details see page 52, discontinued operations.

Total earnings per share

Total EPS was 20.8p compared with 34.8p in Q2 2021. The reduction primarily reflects increased charges for remeasurement of contingent consideration liabilities as well as an unfavourable comparison due to a credit of £325 million to Taxation in Q2 2021 resulting from the revaluation of deferred tax assets.

Currency impact on Q2 2022 results

The results for Q2 2022 are based on average exchange rates, principally £1/$1.26, £1/€1.18 and £1/Yen 162. Comparative exchange rates are given on page 50. The period-end exchange rates were £1/$1.21, £1/€1.16 and £1/Yen 165.

In Q2 2022, turnover was up 19% at AER and 13% at CER. Total EPS from continuing operations was 17.5p compared with 30.3p in Q2 2021. Adjusted EPS was 34.7p compared with 28.2p in Q2 2021, up 23% at AER and 6% at CER. The favourable currency impact primarily reflected the weakening of Sterling against the US Dollar, partly offset by the strengthening in Sterling against the Euro and Japanese Yen. Exchange gains or losses on the settlement of intercompany transactions had a one percent favourable impact on the 17 percentage points currency impact on Adjusted EPS.

Adjusting items

The reconciliations between Total results and Adjusted results for Q2 2022 and Q2 2021 are set out below.

Three months ended 30 June 2022

Total

results

£m

Profit from

discon-

tinued

operations

£m

Intangible

amort-

isation

£m

Intangible

impair-

ment

£m

Major

restruct-

uring

£m

Trans-

action-

related

£m

Divest-

ments,

significant

legal and

other

items

£m

Adjusted

results

£m

Turnover

6,929 

6,929 

Cost of sales

(2,176)

166 

21 

10 

9 

(1,970)

Gross profit

4,753 

166 

21 

10 

9 

4,959 

Selling, general and

administration

(2,066)

107 

4 

(1,955)

Research and development

(1,242)

26 

55 

6 

(1,155)

Royalty income

159 

159 

Other operating

income/(expense)

(523)

675 

(152)

- 

Operating profit

1,081 

192 

55 

134 

685 

(139)

2,008 

Net finance cost

(183)

1 

1 

(181)

Share of after tax losses

of associates and joint

ventures

(2)

(2)

Profit before taxation

896 

192 

55 

135 

685 

(138)

1,825 

Taxation

(150)

(41)

(10)

(24)

(78)

26 

(277)

Tax rate %

16.7%

15.2%

Profit after taxation from

continuing operations

746 

151 

45 

111 

607 

(112)

1,548 

Profit after taxation from

discontinued operations

229 

(229)

-

Total profit after taxation

for the period

975 

(229)

151 

45 

111 

607 

(112)

1,548 

Profit attributable to non-

controlling interest from

continuing operations

40 

110 

150 

Profit attributable to

shareholders from

continuing operations

706 

151 

45