Zantac Recall And Its Impact On GlaxoSmithKline Plc

Profile – GlaxoSmithKline Plc (GSK) is a United Kingdom based global pharmaceutical major. The company’s portfolio of products includes prescription therapeutics, medicines and vaccines. Its prescription medications range across therapeutic value chain including medications for anti-infective, dermatological conditions, gynecology, diabetes mutatis, cardiovascular disorders and respiratory ailments. The company also provides a large number of vaccines for a range of diseases namely, for the prevention of hepatitis A, hepatitis B, invasive ailments as a result of Hemophilus influenza, chickenpox, diphtheria, pertussis, tetanus, rotavirus, cervical cancer and streptococcus pneumonia among others.

The company’s shares are primarily listed on the London Stock Exchange where they trade with the ticker name GSK. The company’s shares also have a secondary listing on the New York Stock Exchange where they trade with the ticker name GSK as well. The company’s shares are constituents of the FTSE 100 index.

Zantac Recall

The company on 8 October 2019 announced that it was recalling its popular gastrointestinal relief medicine Zantac from all markets as a precaution. The medicine, also known by its generic name Ranitidine, is the latest among several highly distributed drug in which cancer-causing impurities have been detected. The drug discovered in 1976 is a part of World Health Organization’s List of Essential Medicines and was considered as one of the safest and most effective therapeutics essential in a health system.

This recall comes after the United States Food and Drug Administration (FDA) in September 2019 found N-nitrosodimethylamine (NDMA) a probable human carcinogen at low levels in the medicine. This was immediately followed by advisories being released by Health Canada and The European Medicines Agency (EMA) ordering review of this medicine. Several generic manufacturers also immediately recalled this medicine as a precaution till there was more clarity from regulatory agencies degrading the drug.

The chemical compound at the heart of this controversy N-nitrosodimethylamine (NDMA), is found at very low levels in certain types of foods, like fish, meat beer and in tobacco smoke. It is a byproduct of several industrial processes and is also found in pharmaceuticals as impurities. The compound is water soluble and is toxic to the liver and other organs and is also suspected to be a human carcinogen.

Strategic overview of Glaxo SmithKline Plc

The company has a portfolio of very successful formulations which contribute significantly towards its bottom line, while some them forming part of the World Health Organizations list of essential medicines– amoxicillin, pyrimethamine, zidovudine and mercaptopurine are few of such essential medicines.

Other than that, the company has spent nearly £3.9 billion in Research and development in the year 2018 and had a portfolio of 44 new medicines under development by Q2 2019, out of which 17 are oncology therapeutic assets. Some of the important of the above new drug discoveries in the pipeline which could prove commercially significant in future are as follows:

 

In Oncology

Zejula (niraparib) – During the quarter the US FDA accepted this new therapeutic application as a substitute for Zejula for administration in late-stage ovarian cancer based on the QUADRA study with priority review and a target date of 24 October 2019

Bintrafusp alfa (M7824) – During the quarter bintrafusp alfa was administered for the first time on a patient in the pivotal study of its effects on biliary tract cancer.

In HIV/Infectious diseases

Cabotegravir + rilpivirine – This medicine combination is a once a month injectable, used for the treatment of adults living with HIV-1 infection. The company has already filed a regulatory application with the US FDA for this drug.

 Dovato (dolutegravir + lamivudine) – This therapeutic requires that a once daily, single-tablet, two-drug regimen be followed and is used for the treatment naive HIV-1 in adults and adolescents. The Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) had on 26 April 2019 given an affirmative mandate for this therapeutic for use in the treatment naive HIV-1.

Fostemsavir – A Positive 96-week data from the phase III study of investigational fostemsavir in heavily treatment-experienced patients with HIV was presented at the 10th International AIDS Society Conference on HIV Science.

Combinectin (GSK3732394) – During the quarter combinectin was administered for the first time on a patient in the phase I study of the drug to establish the effect in patients with HIV-1 infection.

GSK3389404/3228836 (HBV ASO) – The Proof of concept for GSK’404/836 was achieved during the quarter and the data is currently being reviewed in contemplation of the next steps.

Immuno-inflammation

Otilimab (GSK3196165) – The phase III clinical development programme with otilimab, an investigational anti-granulocyte macrophage colony-stimulating factor (anti-GM-CSF) monoclonal antibody, for patients with rheumatoid arthritis, started

Benlysta (belimumab) – This drug is for use in treatment of children aged 5 years and above with lupus. The intravenous formulation was approved for use in China.

Respiratory

Nucala (mepolizumab) – Nucala gained FDA approval for two new self-administration options. Nucala received a positive CHMP opinion for new self-administration options for patients with severe eosinophilic asthma.

Trelegy Ellipta – This drug is for use in the treatment of Chronic Obstructive Pulmonary Disease (COPD). The Japanese Ministry of Health, Labor and Welfare has granted marketing authorization to the company for this drug.

GSK3772847 (IL33 receptor antagonist) – Proof of concept for GSK’847 was achieved and the data is currently being reviewed to inform next steps

GSK3511294 (IL5 long acting antagonist) – Proof of concept for GSK’294 was achieved and the data is currently being reviewed to inform next steps.

Other pharmaceuticals

GSK3186899 (CRK-12 inhibitor) – The first patient was dosed in a phase I study to establish the effect of GSK’899 in patients with visceral leishmaniasis.

Vaccines

Therapeutic HBV vaccine – First time in human trials were started for a candidate therapeutic vaccine using the AS01 adjuvant for patients suffering from chronic hepatitis B infection with limited level of fibrosis or cirrhosis.

Hepatitis C vaccine – A candidate prophylactic hepatitis C virus (HCV) vaccine was terminated following the results of a phase I/IIb study that indicated low efficacy.

 

Q2 2019 Financial Overview.

The company on 24 July 2019, published the Q2 Results for the period ending 30 June 2019.

  • The total sales of the company for the quarter was £7.8 billion, an increase of 7 per cent (AER), or an increase of 5 per cent (CER). The Pharmaceuticals division sales was £4.3 billion, which is an increase of 2 per cent (AER), or a decrease of 1 per cent (CER). The Vaccines division sales was £1.6 billion which is an increase of 26 per cent (AER) or an increase of 23 per cent (CER). The Consumer Healthcare division sale for the period was £1.9 billion, which is an increase of 5 per cent (AER) or an increase of 4 per cent (CER).
  • The total operating margin of the group for the period stood at 19.0 per cent.
  • The Adjusted Group operating margin of the group for the quarter was at 27.8 per cent, which is a fall of 1.0 percentage point (AER) or a fall of 1.4 percentage points (CER). (The adjusted operating margin for the Pharmaceuticals division was 29.2 per cent, for the Vaccines division was 38.6 per cent and for the Consumer Healthcare division it was 20.4 per cent).
  • This quarter also saw an increase in investment in R&D, which was up 20 per cent (AER) or 16 per cent (CER).
  • The total EPS for the quarter stood at 19.5 pence, which is a growth of more than 100 per cent (AER) or also a growth of more than 100 per cent (CER), reflecting lower charge for quarterly revaluation of HIV business and the absence of Consumer Healthcare put option charge.
  • The board of the company declared a dividend of 19 pence per share for the quarter and it continues to expect to pay a total dividend of 80 pence per share for the full financial year 2019.
  • For 2019 the company now expects the Adjusted EPS to decline in the range of 3 per cent to 5 per cent at CER compared to the previous guidance of -5% to -9%.

      

 Source – Company Quarterly report published on 24 July 2019

Stock performance at the London stock exchange

Price Chart as on 9 October 2019, before the market close (Source: Thomson Reuters)

On 9 October 2019, at the time of writing the report (before the market close, GMT 09.35 AM), GSK shares were trading on the London Stock Exchange at GBX 1727.00.

The stock has a 52-week High of GBX 1770.60 and a 52-week low of GBX 1408.80. The total market capitalization of the company was £85.46 billion.

Outlook

The company’s fortunes in forthcoming periods could, however, be impacted by exchange rate movements in major currencies, giver the current macroeconomic scenario being played out at the world stage. If exchange rates were to remain as it is at the closing rates of 31 March 2019 for the remainder of the financial year 2019, the anticipated adverse impact on financial year 2019 Sterling turnover increase would be in the range of 0- 1 per cent. Should the exchange rates gain or lose in accordance with the same level as witnessed in 2018, the anticipated effect on 2019 Sterling Adjusted Earnings Per Share growth rate would be miniscule.