GSK : Q2 2023 Results transcript

SECOND QUARTER RESULTS 2023

INVESTORS & ANALYSTS CALL

Wednesday, 26 July 2023 @ 12.00 hrs

Introduction | Nick Stone, SVP, Head of Investor Relations

Hello everyone. Welcome to our half-year and Q2 2023 conference call and webcast for investors and analysts. The presentation was sent to our distribution list via email and you can find us on GSK.com. Please turn to slide 2.

Cautionary statement regarding forward-looking statements

This is the usual safe harbour statement. We will comment on our performance using constant exchange rates (CER) unless stated otherwise. As a reminder, following the Consumer Healthcare demerger in 2022 to form Haleon, we are presenting performance and growth on the continuing operations for GSK.

Agenda

Today's call will last approximately one hour and management presentation will take between 30-35 minutes, with the remaining time for your questions. For those who wish to ask the question, please join the queue by raising your hand. We would request that you ask one question so that everyone has a chance to participate. Our speakers today are Emma Walmsley, Tony Wood, Luke Miels, Deborah Waterhouse and Julie Brown, with David Redfern joining the rest of the team for the Q&A portion of the call. I shall now hand the call over to Emma.

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Strong performance drives momentum | Emma Walmsley, CEO

Thanks, Nick, and a very warm welcome to everyone joining us today. I am delighted to be presenting to you all another set of excellent results for GSK. Please turn to the next slide.

Slide 5

Sales and profits grew at double digit levels for the quarter, our sixth consecutive quarter of strong growth. Sales were £7.2 billion, up 11% excluding pandemic solutions. Adjusted operating profit was up 12% to £2.2 billion and adjusted EPS was up 17% to 38.8 pence. 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 demonstrates the delivery of the strategic choices we have made to develop the portfolio and the R&D pipeline.

New products, notably in Vaccines and HIV, all made healthy contributions to growth and reflect the investments we have made to prioritise these parts of our business. Sixty-two percent of sales are now coming from Vaccines and Specialty Medicines, which we expect to provide durable and profitable growth through the decade, and New Products launched since 2017 have contributed sales of £4.6 billion so far this year, adding nearly one billion pounds of additional turnover compared to 2022. Equally, our General Meds business continues to perform alongside the other parts of our portfolio.

Delivering our commitments for attractive medium-term growth

We are deploying capital 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 invest in continued pipeline progress, and we know this is the key question for shareholders. At the core of our work is an aggressive pursuit of organic pipeline delivery and targeted business development. We are making good progress on both and there is more to come.

The approval of Arexvy this quarter is, we believe, transformational and set to bring enormous benefit to people aged over 60 who are at annual exposure to RSV. Arexvy is spearheading the next wave of vaccine innovation at GSK. This quarter we presented positive clinical data for our pentavalent meningitis vaccine, secured regulatory approval for Shingrix in Japan in at-risk populations and achieved US FDA fast-track designation for our candidate vaccine to prevent gonorrhoea, a bacterium that is considered a high priority pathogen by the WHO.

As you will have seen at our recent Meet the Management event, we have substantial innovation to come with potential new vaccines to prevent influenza, pneumococcal disease and herpes simplex

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virus. This all sits alongside other innovation in infectious diseases like bepirovirsen for Hep B and a new portfolio of much-needanti-infectives.

We are also very pleased with the progress we are making in our HIV portfolio. A key aspect here is, of course, to develop the portfolio to replace the loss of exclusivity for dolutegravir which, as a reminder, is not expected to start until 2028 in the US and 2029 in Europe. We are well on track to do this.

We expect sales from our new long-acting regimens of around £2 billion by 2026 and, to add to this, clinical development plans are advancing very well to support new ultra long-acting options launching from 2026. With these innovations, we aim to replace the majority of revenues from dolutegravir and support profitable growth for GSK well into the next decade. We are looking forward to talking to you more about all of this at our HIV Meet the Management event in late September.

Equally, we continue to make good progress in our business development. Here we are targeting acquisitions and partnerships to strengthen and complement our core therapy areas, to help deliver above and beyond our current long-term outlooks. You will 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 BELLUS Health, building upon our Respiratory expertise with the addition of camlipixant, a Phase III potential best-in-class treatment for refractory chronic cough. Our pipeline in broader Respiratory is developing well too across all three product areas and we are increasingly confident that we shall be a major source of new long-term growth.

Strong momentum supports confidence in short, medium and long-term commitments to profitable growth

Our focus is to deliver competitive performance and improved shareholder value in the short, medium and long term. 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 timeframes.

In 2023, we now expect to deliver sales growth of 8-10% and adjusted operating profit growth of 11- 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 2031 we are confident that we will have effectively absorbed any impact from the loss of exclusivity across the portfolio, to deliver our stated ambition of more than £33 billion in sales.

We know this ambition is significantly higher than current market expectations, and over the next year we will continue to give you more clarity and specificity on our building blocks to deliver profitable results, through a series of Meet the Management events, data readouts and more comprehensive updates against our 2021 long-term plan.

Let me now hand over to Tony, who will talk you through his latest thoughts on R&D priorities and performance.

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Innovation | Tony Wood, Chief Scientific Officer

Thank you, Emma and hello everyone, it's great to be with you today. Please turn to slide 9.

Three key R&D priorities

I'm pleased to report that we are making good progress in strengthening the pipeline, and we know there is more to come. Our absolute focus is to develop a robust programme that can drive sustainable, profitable growth.

I see this being achieved through a combination of organic delivery and disciplined business development, overlaid with continuous improvement in R&D productivity. This is reflected in my three priorities for R&D, shown on this slide, and in the delivery of our strategy, which is focused across four therapeutic areas, and they're used to leverage our deep understanding of the immune system and use of advanced technologies.

Effective capital allocation to support R&D investment priorities

It's important that we allocate our capital and resources effectively. I think about this from two perspectives: first, from a therapeutic area standpoint. Our priority is to build on our strengths and leadership in infectious diseases, HIV, respiratory, immunology and our emerging capabilities in oncology. This is by investing in both organic and targeted business development to deliver first- or best-in-class innovation, balancing probabilities of success and sales potential; and we apply the same discipline in returns criteria for both approaches. In addition, we also seek platform and data technology-enabled opportunities.

Second, from a time perspective, 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 part of this decade and beyond.

Ultimately, I want a portfolio of R&D innovation that offers a good balance of risk and return, and which can drive growth for GSK above and beyond the ambition Emma just talked about.

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Four focused therapeutic areas

Our pipeline today comprises 68 assets in clinical development. Two-thirds of the assets within our development portfolio are focused on infectious diseases and HIV. In infectious diseases, we are focused on seasonal respiratory viruses, bacterial, fungal and chronic viral infections. Vaccines are front and centre of this effort.

Emma has already mentioned Arexvy and some of the innovation that is behind it. Our pentavalent meningococcal vaccine candidate recently met all primary endpoints in the Phase III trial, and demonstrated immunological effectiveness against 110 diverse MenB strains. These count for 95% of circulating strains in the US. Five serogroups are responsible for most meningococcal infections and no single approved vaccine can yet protect against all five. If approved, MenABCWY would do so, offering a simplified immunisation schedule and supporting increased vaccine uptake. This is important when you consider that only 30% of adults currently receive full protection from all five meningococcal serogroups. We're on track to submit the vaccine to regulators in 2024.

Our novel 24-valent pneumoccocal vaccine candidate, acquired through the Affinivax transaction, has also shown very positive immune response across serotypes. We continue to examine the potential acceleration options in the 24- and 30-valent programmes in infants and adults.

With CureVac we are looking to disrupt the influenza market and deliver new multivalent combination vaccines, using next generation and RNA technology. Multivalent Phase 1 and 2 flu and cold trials are under way, 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 are looking at new growth opportunities for Shingrix. These include extending the population who might benefit from protection to a younger cohort, 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 the shingles vaccination may reduce the risk of dementia.

We are leveraging our expertise in herpes virus, varicella zoster virus, to develop a promising injectable treatment for the control of herpes simplex virus reactivation. Our plan is to initiate proof of concept studies later this year.

In anti-infectives, we have now signed a promising portfolio of new medicines. Gepotidacin, which we stopped early for efficacy and is anticipated to launch next year, has the potential to be the first oral antibiotic to treat uncomplicated urinary tract infections in more than 20 years.

Complementing this is tebipenem from Spero Therapeutics which, if approved, will provide us with access to a late-stage antibiotic with the potential to treat complicated urinary tract infections.

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