Where next for GlaxoSmithKline shares after strong Q1 results?

GlaxoSmithKline's stock is up 2% today as the company announces strong first-quarter earnings at the start of what CEO Emma Walmsley expects will be a watershed year. In January 2020, GlaxoSmithKline (LON: GSK) shares were worth 1,846p. Then came the covid-19 epidemic, which caused the FTSE 100 mainstay to plummet by 35% to 1,191p by …

GlaxoSmithKline’s stock is up 2% today as the company announces strong first-quarter earnings at the start of what CEO Emma Walmsley expects will be a watershed year.

In January 2020, GlaxoSmithKline (LON: GSK) shares were worth 1,846p. Then came the covid-19 epidemic, which caused the FTSE 100 mainstay to plummet by 35% to 1,191p by February 2021.

GSK’s stock has since rebounded to 1,790p. And after today’s upbeat trading update, more gains could be on the way.

GlaxoSmithKline share price: Q1 2022 results

The pharmaceutical giant’s top-line performance were good, with sales increasing by 32% to £9.8 billion and operating profit rising by 65% to £2.8 billion. Meanwhile, cash flow from operations and free cash flow both surged by over 100%, despite the poorer comparable period in 2021.

The company’s specialist drugs sector saw a 98 percent growth in revenue to £3.1 billion, thanks to sales of covid-19 medication Xevuday, which brought in £1.3 billion.

Although the medicine has been clinically demonstrated to function against the Omicron variant, new research suggests it is useless against the BA.2 subvariant, which is now the most common in the United States. Accordingly, the Food and Drug Administration has pulled the treatment off the market in some states.

Profits from Xevuday are likely to stall because the United States is the drug’s main buyer.

In brighter news, vaccination sales increased by 36% to £1.7 billion, owing to’strong performance and the benefit of a favorable comparison in Q1 2021, principally driven by Shingrix (Shingles vaccine) in the US and Europe.’ Furthermore, GSK anticipates robust double-digit growth and record annual vaccine sales in 2022.

‘Key revenue driver Shingrix’s performance was encouraging,’ according to Third Bride analyst Sebastian Skeet, “but current data shows to prescription levels still well below pre-pandemic volumes.”

CEO Emma Walmsley hailed the first quarter’s results as the start of a “landmark year for GSK,” praising “continued solid momentum across specialty medicines and vaccines,” as well as “going pipeline advances.”

The CEO also emphasized the’very solid momentum’ of the company’s consumer healthcare division, which saw sales increase by 14% to £2.6 billion in the quarter. Prior to its projected demerger to become Haleon in July, Walmsley feels the company has’strong promise.’

Where next for GSK shares?

Despite a better-than-expected first quarter, GSK’s full-year outlook remains unchanged, indicating that the company is mindful of the tightening monetary environment and wider economic turmoil. In 2022, the FTSE 100 business forecasts sales to expand by 5-7 percent, with earnings rising by 12-14 percent.

It’s also set aside an undisclosed sum to deal with the impact from the Russia-Ukraine situation. GSK is not immune to the ongoing supply chain crisis, despite the fact that the region amounts for less than 1% of overall sales.

But things aren’t as they seem at Glaxo. As Walmsley points out, 2022 will be a watershed year. In December, the mammoth turned down a £50 billion offer from Unilever for its increasingly profitable consumer division. Bids from other parties are not out of the question.

And it’s under a lot of pressure from activist investor Elliott to ramp up pipeline activity, which Walmsley has underlined. Elliott has already chastised GSK for “years of under-management” and questioned the CEO’s qualifications.

GSK agreed to buy Sierra Oncology for £1.5 billion earlier this month in order to gain access to momelotinib, a medicine being studied on anaemic patients with myelofibrosis. With potential sales of £1.3 billion per year, GSK feels the medication has “great growth potential.”

GSK, on the other hand, has already had numerous disappointing trial setbacks with cancer medications bintrafusp alfa and feladilimab, which it had expected would generate billions in revenue. Of course, drug development is a famously dangerous endeavor.

This adds to the intrigue surrounding the company’s consumer healthcare division’s spin-off into Haleon. GSK will receive £7 billion in cash as a result of the deal, which it can use to pursue more acquisitions. Increased ‘targeted investment in R&D, to build on and invest behind our top-line momentum for key growth drivers’ was underlined as a strategic priority in forward guidance.

And there’s a lot of pressure to come up with new medications. GSK’s HIV medicine dolutegravir, which generates £3 billion yearly, will lose patent exclusivity by 2027.

However, revenue is increasing, and the company is gaining ground. Shareholders in GlaxoSmithKline may be willing to take on a bit more risk in exchange for bigger returns.

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*Based on income excluding foreign exchange (published financial statements, June 2021).

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