葛蘭素史克 (GSK) 2019 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Analyst Call on the GSK Third Quarter 2019 Results.

I will now hand you over to Sarah Elton-Farr, Head of Investor Relations, who will introduce today's session.

Thank you.

Good morning, and good afternoon.

Thank you for joining us on our Q3 2019 results, which were issued earlier today.

You should have received our press release and can view the presentation on GSK's website.

For those not able to view the webcast, slides that accompany today's call are located on the Investors section of our website.

Before we begin, please refer to Slide 2 of our presentation for our cautionary statement.

Our speakers today are Chief Executive Officer, Emma Walmsley; Iain Mackay, Chief Financial Officer; Luke Miels, President, Global Pharmaceuticals; and David Redfern, Chief Strategy Officer and Chairman of ViiV.

Hal Barron, Brian McNamara and Roger Connor are joining us for the Q&A section of the call.

(Operator Instructions)

And with that, I will hand the floor over to Emma.

Thank you, SEF.

2019 is an important year of execution for GSK, and I'm pleased that we've made continued good progress this quarter with growth in sales in constant exchange rates across the group.

Group sales growth of 11% in CER terms or 6% on a pro forma basis reflected an increase in sales in all 3 of our global businesses, with a particularly strong performance in Vaccines.

The Pharma business continues to shift its portfolio shape with strong growth from our newer Respiratory products and Benlysta.

Consumer benefited this quarter from the consolidation of the Pfizer Consumer Healthcare business, powering sales growth of 25%.

On a pro forma basis, the consumer business grew at 3%, in line with our expectations.

Group adjusted operating margin this quarter was down 2 percentage points on a CER basis, primarily due to the impact of generic competition to Advair in the U.S. while also substantially increasing investments in R&D and support for new launches.

This was partially offset by a strong contribution from Vaccines.

On a total basis, earnings per share declined 1% to 31.4p, and adjusted earnings per share increased 1% to 38.6p, reflecting both our operating performance and a lower tax rate.

Iain will give you more detail in a moment.

But based on this delivery and our outlook, I'm pleased that we are able to again update our 2019 earnings guidance.

Our free cash flow year-to-date was GBP 2.5 billion, in line with our expectations.

And as guided previously, cash flows are weighted to the second half of the year.

For this quarter, we continued to make progress against our priorities of the whole company: innovation, performance and trust, all to be powered by an ongoing culture change.

We've continued to execute on new product launches and have demonstrated strong growth with Nucala and Trelegy in Respiratory and most notably, in Vaccines with Shingrix, now expected to deliver high-teens million of doses this year with continued improvement in supply.

This has been a very important quarter of progress against our top priority of strengthening our pipeline, including 3 positive readouts in 3 pivotal oncology studies.

In August, we reported positive headline results from our DREAMM-2 study of our BCMA antibody drug conjugate, belantamad mafodotin, in fourth-line multiple myeloma.

We're on track here with regulatory submissions, supporting potential first launches next year to help patients who are refractory to daratumumab and are running out of treatment options.

In September, we presented positive data at ESMO supporting the use of Zejula monotherapy for women with ovarian cancer in the first-line maintenance setting, irrespective of biomarker status.

And we're on track here to make regulatory submissions by the end of the year.

We also last week received approval for Zejula in the later-line treatment setting.

We also presented at ESMO encouraging data on our ICOS agonist, supporting a move into Phase III studies in head and neck cancer, in combination with pembrolizumab by the end of the year.

And we now have positive data in house in our PD-1 inhibitor, dostarlimab.

We plan to make a U.S. reg submission for use in second-line endometrial cancer by the end of this year, too.

Beyond oncology, it's also been a busy pipeline quarter.

In Respiratory, we recently made a U.S. submission for Trelegy in the treatment of asthma and received European approval for Nucala self-administration.

In HIV, we received positive data in the ATLAS 2-month study, looking at 8-week dosing now for our long-acting HIV treatment.

This builds on what has already been a very strong year of data supporting the 2-drug regimen in HIV.

We also recently started Phase III studies of our novel antibiotic, gepotidacin, the first in a new class of antibiotics in uncomplicated urinary tract infections and urogenital gonorrhea.

Moving to performance.

I'm pleased with our delivery on sales growth, on cost control and on strength in cash flow.

We completed the creation of the joint venture with Pfizer and have started work on integrating these 2 businesses under Brian's leadership, building a world leader in consumer health with a strong and exciting portfolio of brands.

And in Pharma, we continue to build our specialty capabilities, ready to support the 3 oncology launches we anticipate next year.

We're hiring people with the right oncology experience in the key markets and doing so at pace.

And finally, on trust.

We want GSK to continue to lead with a broader contribution to society.

And this quarter, I was delighted to see that ambition reflected in the Dow Jones Sustainability Index, where GSK was listed for the first time as the top-ranked company in the pharma sector.

And this week, we were pleased to see the final results of our Phase II study for our candidate TB vaccine published in the NEJM, potentially providing the global health community with a new tool to help provide protection against TB.

So in summary, Q3 represents another quarter of strategic progress and good growth with all our priorities remaining on track.

I'll now hand you over to Iain, who's going to give you some more detail on our Q3 financial performance.

Thanks, Emma.

All the comments I make today will be on a constant currency basis, except where I specify otherwise.

And I'll cover both total and adjusted results.

On Slide 8 is a summary of the group's results for Q3, which was a strong quarter across all 3 businesses.

Reported turnover growth was 11%, reflecting the closure of the consumer joint venture with Pfizer on 31st July, with group revenue growth at 6% on a pro forma basis.

Total operating profit is up 3%, with total EPS down 1%.

On an adjusted basis, operating profit was up 3% reported and was down 1% pro forma, while adjusted EPS was up 1%.

I'll go through the drivers behind these in more detail in a moment.

We delivered GBP 1.9 billion free cash flow in the quarter, in line with our expectations, reflecting higher operating cash flows and improvements in working capital.

On currency, a weaker sterling, particularly against U.S. dollar and Japanese yen, resulted in a tailwind of 5% in sales and 8% to adjusted EPS.

Slide 9 summarizes the reconciliation of our total to adjusted results.

The main adjusting items in the quarter were major restructuring focused on the supply chain but also some initial charges for the integration of the Consumer Healthcare JV with Pfizer.

Within transaction related, a remeasurement of the ViiV contingent consideration liability, primarily driven by changes in exchange rates as well as the unwind of the fair value uplift on inventory taken on as part of the Consumer Healthcare JV.

And within the disposals column, the main contributor is a gain from the revaluation of the embedded derivative in respect of GSK's exposure to movements in the Hindustan Unilever share price.

Our comments from here onwards are on an adjusted results unless stated otherwise.

Slide 10 summarizes the Pharmaceutical business, where revenues were up 3%.

Luke and David will take you through the performance of some of our key products shortly, so I'll just point out a couple of important considerations.

Starting with Respiratory.

Sales were up 19% with continued growth from Trelegy and Nucala across all regions.

This was partly offset by Relvar/Breo, which declined 8% globally, driven by a 32% decline in the U.S., reflecting the impact of generic Advair on pricing in the ICS/LABA class.

We continued to have good growth expectations outside the U.S. And this quarter, sales grew 19% in Europe and 22% in international.

Overall revenues in HIV were flat with the dolutegravir franchise up 2% globally.

The dynamics in this market reflect the impact of competition as well as the shift within our portfolio towards our 2-drug regimen, with growth in Juluca and Dovato offsetting declines in Tivicay and Triumeq.

At a regional level, dolutegravir grew in Europe and international and was flat in the U.S.

We've seen an encouraging start for Dovato, both in the U.S. and in Europe, where we had our first launches this quarter.

We continue to build momentum with the 2-drug regimens, but as anticipated, it will take several quarters for them to become a significant contributor to growth.

Our Established Pharmaceuticals portfolio declined 5% overall driven by U.S. Advair sales, which were down 64%, as expected, given generic competition.

This was offset by a continued upside on Ventolin from the authorized generic launched in the U.S. earlier in the year, which, you will remember, is an in-year benefit ahead of the introduction of the substitutable generics expected in 2020.

We also saw favorable RAR true-ups in the U.S., primarily on Flovent.

Outside Respiratory, the remainder of the Established Pharma portfolio grew by 1% in the quarter, helped by the phasing of some tenders in Europe.

Our expectation for the longer term for this part of Established Products portfolio, excluding Respiratory, remains a mid- to high single-digit decline.

Overall, benefiting from some in-Europe sales, we now expect to see Pharma sales broadly flat in 2019.

Turning to the operating margin.

We saw a decline in the quarter, mainly driven by unfavorable product mix and price impacts, including, notably, the impact of generic Advair; TESARO dilution, which in line with previous guidance, we expect to have a sustained impact over 2019; in SG&A, some provisions for ongoing legal cases as well as investments in promotional activity for new launches; and in Pharma R&D spend, which increased by 19%, reflecting our investment behind priority assets.

Slide 11 gives you an overview of Vaccines performance in Q3 with sales up 15% driven mainly by Shingrix but also by meningitis and flu vaccines.

Shingrix continues to benefit from our actions to increase our supply capacity with revenues in the quarter of GBP 535 million driven by continued strong uptake in the U.S. as well as in Germany and Canada.

With our strengthened supply position, we now expect to achieve high-teens of millions of doses this year.

We expect to be able to supply slightly more doses in 2020 than in 2019.

But as we've said before, we do not expect a significant step change in doses until we bring a new facility online.

In our meningitis portfolio, Bexsero continued to perform well, growing 19% in the quarter, with share gains in the U.S. and strong demand across all regions.

Flu was up 15%, which was helped by an earlier season compared with last year, but also reflected share gains given our speed to market and the favorable impact from a prior year returns provision reversal.

The phasing benefit will wash through in Q4, where we expect a decline in flu given the higher comparator.

Overall, I expect our full year volumes to be slightly ahead of last year.

The Q3 operating margin of 50% reflects enhanced operating leverage from seasonality of the business as well as product mix, including Shingrix and Bexsero, and higher royalties.

Looking forward, Q4 is normally one of our lower-margin quarters for Vaccines given mix and seasonality trends throughout the year, but we expect to see a Vaccines margin this year above the mid-30s.

In the longer term, we'll increase investment in SG&A as we expand Shingrix geographically and in R&D, as we invest behind priority assets.

Also note that this quarter, we announced the divestment of travel vaccines, Rabipur and Encepur, reflecting actions to further simplify our supply chain and increase focus on and investment in innovation.

Turning to Slide 12.

Consumer now includes the Pfizer portfolio after the closure of the JV at the end of July, with sales of the new JV up 3% in a pro forma basis, despite a drag of around 1% from the combined impact of divestments and the phasing of low-margin contract manufacturing.

We saw a good performance from our power brands, particularly in the U.S. and international.

We also saw Europe return to growth this quarter.

In oral health, Sensodyne grew double digits in the quarter, while in wellness, Panadol continues to perform strongly.

And Advil was flat, reflecting a partial recovery from historical supply issues.

The integration has started well, and we expect to have a revised external category reporting structure in place from Q1 2020 to appropriately reflect key drivers of the combined business and to take into account divestments.

The divestment of the India Nutrition business to Hindustan Unilever is progressing, and we now expect closure in Q1 2020, subject to receipt of regulatory approvals.

We're also moving forward with other divestments, which will continue through next year, proceeds of which will help fund integration and restructuring activities.

Operating margin in Q3 was 24%, higher as expected, reflecting the benefits of sales of seasonal cold and flu products as well as the strong ongoing focus on cost control and benefits from restructuring and manufacturing.

Worth bearing in mind that Q3 is usually our highest quarter given this seasonality.

And therefore, in Q4, we expect higher costs and lower margin as we promote to drive consumption.

On Slide 13, we summarize sales and adjusted operating margins.

At a group level, SG&A increased, reflecting investments in TESARO and new product launches, alongside continued tight cost control, while R&D increased as we invest in developing our pipeline, including the TESARO assets.

And royalties, these were higher, driven by Gardasil, and we now expect royalties for the year to be around GBP 350 million.

Moving to the bottom half of the P&L, I'd highlight the following.

Interest expense, we continued to see the benefits of our refinancing activities.

Also note that this quarter also included a fair value gain in interest rate swaps.

We now expect an interest expense of between GBP 850 million and GBP 900 million for the year.

Effective tax rate in the quarter of 15.8% reflects our ongoing progress in settling historic tax matters in key jurisdictions and now have a rate of 16.9% year-to-date.

The changing shape of our business and the transformational M&A we've undertaken, together with the progress in settling historic tax disputes, means that we now expect an effective tax rate of around 17% for the full year.

We continue to expect to see an average effective tax rate of 19% over the medium term.

On noncontrolling interest, we saw the initial impact of Pfizer's share of profits of the new Consumer Healthcare JV.

And in Q4, we'll see the first full quarter impact on this line.

On free cash flow, we remain focused on driving greater cash discipline across the group and generated GBP 2.4 billion of free cash flow in the first 9 months of the year, very much in line with our expectations.

This was driven by improved operating profits and working capital management as well as a benefit from FX so far this year, offset by the launch of generic Advair and related phasing of rebates and the upfront payment of GBP 300 million to Merck KGaA.

We're pleased with the progress on cash flow, but as previously noted, we do expect to see a step-down overall this year versus 2018 as the impact of Advair genericization flows through.

A number of the factors that we incorporated into our previous guidance are playing out very much as we expected.

However, we are seeing better operational performance in Pharma and Vaccines businesses and are benefiting from lower interest expense and a lower effective tax rate.

In the remainder of the year, we'll see continued impact from generic competition to Advair, higher noncontrolling interests, increased targeted promotion in priority markets and R&D spend continuing to grow.

Taking these factors into account, we now expect adjusted 2019 earnings per share to be around flat compared to 2018.

With that, I'll hand over to Luke.

Thanks, Iain.

Good morning, and good afternoon.

So within Pharma and Vaccines, our focus on improved commercial execution continued.

But as on -- overall, our growth this year is clearly impacted by the launch of generic Advair.

We're seeing a strong performance from our new products.

Now I'm going to take you through a few examples of where we've made changes to refocus our resources and are seeing positive results.

So starting with Respiratory on Slide 18.

Trelegy, I'm pleased to tell you, continued to do well with sales of GBP 139 million in Q3.

Globally, launches have had a good start, and we continue to drive uptake.

We have submitted the data from the CAPTAIN study in asthma to the FDA and hope to get approval next year.

Around 30% of asthma patients taking an ICS/LABA still experience symptoms, so this filing is an important step towards giving them an additional treatment option.

Trelegy is now launched in 38 markets around the world, including Japan.

We're planning for a launch in China later this year.

In asthma biologics, Nucala remains the market leader in total sales in major markets around the world and continues to grow quarter-over-quarter.

The launch of the at-home administration, combined with improved execution, has increased our performance in the U.S. retail segment and assisted in our ability to remain the market leader despite competition.

Also, this quarter, we presented data from the real-world evidence study at ERS, demonstrating highly positive results on reduction in exacerbation and reduction in oral corticosteroid use.

We're the first biologic agent to present this data and further reinforcing our leading market position.

At this conference, we were pleased to hear feedback that indicated that our monthly at-home dosing is seen by physicians as a very positive in terms of patient compliance, and the opportunity with biologics remains significant, with slightly more than 25% of suitable patients receiving therapy today.

Moving to Slide 19.

I want to highlight that our PARP inhibitor Zejula remains an important treatment option for ovarian cancer patients in the second-line maintenance study.

We're maintaining our leading position in this indication and are now focused on the opportunity to expand the reach of Zejula to women in the first-line maintenance setting through our PRIMA data, which we presented at ESMO last month.

The PRIMA data show a clear benefit in using Zejula across all biomarker subgroups, providing a unique opportunity to help patients in the first-line setting regardless of HRD status.

We think the PARP inhibitors are an underutilized class.

In the U.S., only 31% of patients currently receive one in the second-line maintenance setting, falling to 12% in the first-line setting.

With the data presented at ESMO, I'm confident that this will change.

We've now shown that Zejula is proven to be a better option than watch and wait and anticipate filing based on this data by the end of the year.

And finally, we are pleased to receive approval of our sNDA for Zejula in late-stage ovarian cancer based on our QUADRA data.

This approval allows us to address an unmet clinical need of patients and demonstrates that Zejula is active as a late-line therapy for women beyond those with BRCA mutation.

We're making rapid and material progress on building our oncology commercial capability, and the acquisition of TESARO has catalyzed this process.

We've also rebalanced our sales force structure in the U.S. and have been actively recruiting people with a great track record of success in oncology in key markets.

And we're already seeing some of this benefit come through and expect to see this reflected in our sales performance, starting from the end of this year as our refocused approach flows through.

Moving to the next slide.

I think it's fair to say Benlysta is a good example of how we are investing more broadly in specialty care and accelerating our growth.

With the approval of a subcut formulation in 2017 and increased support behind the product and a new team, we have driven strong performance this year.

Benlysta remains the first and only medicine for SLE in over 50 years, and yet this condition remains significantly undertreated.

We're also working hard to generate more data to support the increased use of Benlysta.

On the back of an investigator-sponsored pilot study, we're evaluating Benlysta with a single cycle of rituximab in the Phase III BLISS-BELIEVE study, which started in March last year.

The 2 agents have different but complementary mechanisms of action, and early data suggest that a single priming coadministration of rituximab could enhance the treatment effect of Benlysta to provide sustained disease control and could also eventually lead to remission.

We'll have the headline results from the study by the end of 2020.

And we also expect to see lupus nephritis -- our data from lupus nephritis at the end of the year.

And if positive, these studies could become key contributors to future growth.

Moving on to Vaccine.

We continue to be delighted with the performance of our business, particularly the contributions to growth from our shingles vaccine, Shingrix, and our meningitis B vaccine, Bexsero.

We're pleased with the commercial execution of Shingrix, particularly in the U.S. market, where we've had good progress in accelerating our supply, delivered sales of GBP 535 million this quarter.

We look forward to our phased launches in China and Japan next year.

Bexsero has also made a meaningful contribution to growth.

We saw strong demand across the regions, share gains in the U.S. market, where we are benefiting from the convenience of our dosing schedule relative to competition.

And in Europe, where the disease burden is higher in infants, we're also differentiated by our label, where we have the only meningitis B vaccine indicated for this age group.

And now to David to take you through performance in our HIV business.

Thanks, Luke.

Good afternoon, good morning, everyone.

In Q3, sales of dolutegravir grew 2%, while declines in the mature products resulted in HIV sales overall being flat during the quarter.

In the U.S., total dolutegravir was flat, reflecting a slight year-on-year share decline as we transition to the new 2-drug portfolio.

However, Juluca and Dovato combined now account for approximately 3% of TRx and over 5.5% of NBRx, with weekly scripts of approximately 2,700 and 900, respectively.

In particular, we are encouraged by the progress of Dovato, where NBRx is now approximately 3.5% ahead of the Juluca launch trajectory and with positive feedback received from the early physician and patient adopters.

In Europe, we started the launch of Dovato during the quarter and saw dolutegravir up 3% with good volume growth and market share gains across all major markets, offsetting some price cuts.

In international, we continued to see strong dolutegravir growth, which was up 9%, although slightly lower than previous quarters due to the timing of certain tenders.

The launch of Dovato and the strong flow 2-drug regimen clinical data will help support the ongoing growth of the portfolio.

In addition to the important 96-week GEMINI data for Dovato and the TANGO switch study that we presented at IAS in July and which was very well received, during the quarter, we also announced the positive ATLAS 8-week data for cabotegravir, which shows the potential of this medicine to be a once every 2 months treatment.

We expect a regulatory decision on cabotegravir from the FDA by the end of this year.

The fostemsavir filing with the FDA by the end of 2019 is also on track.

Overall, we continue to be confident in the growth potential of our HIV portfolio.

With that, I'll hand back to Emma.

Thanks, David.

So as a reminder, we've seen good growth in all 3 businesses this quarter and have made excellent progress on our 3 priorities of innovation, performance and trust.

We're on track with our key areas of focus.

We're progressing our pipeline with a number of positive data readouts in hand, importantly, in our 3 key pivotal oncology studies, where we have regulatory submissions to come, but also in HIV with our long-acting HIV treatment, where we filed for approval for 4-week dosing and also have data in hand for 8 weeks.

We've also filed for approval for Trelegy in asthma and received European approval for Nucala self-administration.

And we progressed other assets, too, with a Phase III study started in gepotidacin and plans to start pivotal studies with ICOS in head and neck also by year-end.

We're continuing to drive improvements in our operating performance and our specialty capability.

And we're working towards a successful integration with Pfizer now that the consumer JV has completed.

Successfully delivering these priorities over the coming years will provide a clear pathway for the creation of 2 great businesses: one focused on Pharma and Vaccines; the other, on Consumer Health.

So we're now joined for Q&A by Hal on the phone and Brian and Roger.

And so with that, operator, the team also here in the room is ready to take your questions.

(Operator Instructions) Your first question comes from the line of Andrew Baum, Citi.

A couple of questions, please.

Firstly, to Luke, the Senate Finance Committee recently proposed a step-up in funding by the industry and PPMs, catastrophic coverage in Part D, in exchange for a cap on out-of-pocket payments.

Thinking about Zejula and more broadly, your oncology pipeline of small molecules, is this a proposal that GSK supports, thinking about both the direct and indirect potential hit to net revenues, although offset by volumes?

That's the first question.

Second question, much shorter.

I didn't see any commentary on GSK Pharma in China.

Perhaps, you could talk to that performance.

Thanks, Andrew.

So I'll ask Luke to comment both on China and then add anything on what's happening in the sort of pricing and regulatory environment in the U.S. So just to say that it's obviously extremely dynamic at the moment.

There are a lot of different proposals potentially under review.

As you know, we're monitoring all of them very carefully.

In terms of -- and obviously, also engaging with the administration on them.

I mean just in terms of big-picture principles, what GSK supports is working towards addressing some of the real challenges in terms of patient out-of-pocket, where we're particularly supportive of rebate reform overall and being able to pass on -- pass through to patients some of the discounts there.

And in that sense, a cap on out-of-pocket is potentially a sensible idea.

We also support transparency and anything that simultaneously drives access and innovation.

And we continue to monitor which bits will come through in some of the direct impact overall for us.

So Luke, I don't know if there's anything you want to add on that, but then specifically answer the China question.

Yes.

Sure.

So on China, Andrew, if you look at [RDPAC] we -- quarter 2 was the latest information we have, our growth was around 20%.

So that's respectable.

It's in the middle of the pack there.

I think in terms of the future, the key thing is we're putting the building blocks in place now with the launch of Trelegy coming, where a key component of that will be to build acceptance on the part of Chinese physicians to treat COPD more aggressive.

The background population is significant.

It's enormous, actually.

And you have background things such as pollution and smoking, et cetera, which drive this.

So that's one product that we're very interested in.

I think with Cervarix, things are starting to improve, been a bit lumpy, but we're now getting about 120,000 in arm shots per month, and the trend is upwards there.

If you look at Benlysta, which we're now in the process of launching in China, that again is something that will take some time to build, but again, it's an innovative product with limited direct competition.

And also, we are increasingly competitive with Seretide, Flovent and Ventolin.

So I think it's, again, off a smaller base than some of our competitors, but the features are falling into place.

We then have the launch of Shingrix next year, which will be a very targeted initial launch because of the supply elements that you know well.

And we are also looking right now in terms of negotiations through our access for Anoro and Relvar in China.

So hopefully, over time, we can get a few of these things lining up, and we'll start to grow our base business in China.

Next question comes from the line of Steve Scala, Cowen.

Two questions.

The first is a follow-up on reform.

But in GSK's 19-year history, this could be the first time it raised guidance twice in 1 year, let alone the first time in -- let alone the first 3 quarters.

This obviously shows the strength of the business.

But Emma, what does it tell us about your real concerns around U.S. health care reforms and Brexit?

It would seem GSK would not want to show its full strength if it were truly concerned about upcoming changes, either in Washington or London.

Secondly, on Shingrix, the company continues to say that we should not expect a significant increase in doses produced in the near term.

But the high-teens number of doses GSK will deliver this year was to have been achieved in 2 to 3 years.

So some major gains have been achieved despite management's cautions.

Are you saying that a year from now, the number of doses produced absolutely will not exceed 20 million?

Thanks, Steve, very much.

And I mean actually, your 2 questions are linked to a degree in terms of what we've been able to over-deliver in terms of -- the initial expectations in terms of operating performance because, obviously, Shingrix is going extremely well.

This is very much a supply-driven business for us, but it is a fantastic product, and we do expect it to be a material contributor to growth for the company for quite some years yet.

But once we got the preferential recommendation and could see that demand was going to very swiftly outstrip supply, we did mobilize very materially across all of Roger's team to try and increase our supply.

It's very complicated to produce a vaccine.

And I think whether it be through -- I mean all across that value chain, we've been quite successful in making that progress, which is why we were allowed to bring forward that delivery to high teens.

Now I am not going to put an additional number on -- specifically on the doses for next year.

But if you listen to Iain's outline, we said we would expect slightly more doses in 2020.

But we don't expect a step change until we have that new facility in place, which, we've said externally, we talk about around 2024.

So at this stage, that is the -- I suppose the overall commentary I can provide on Shingrix.

And in terms of your point on guidance for this year, I mean again, as I think Iain worked to step you through on his presentation, we -- the upgrade this quarter is in part because of operating performance in both Vaccines and in Pharma, but also, we are benefiting from a shift in our guidance around tax rate, which contributes again this quarter.

But it's both aspects of it.

The link around that in terms of impacts of Brexit and the U.S. reform, obviously, in terms of materiality, the U.K. is less than 4% of our global business, and the U.S. remains our biggest market and the most important market for innovation still at the moment.

Brexit, we've been long prepared for operationally, and all of that has been in place, frankly, because we have to secure supply both in the U.K. and in Europe, and what we're more focused on is securing, regardless of the new government, a life sciences-friendly environment for our heavy investments still in the U.K. beyond the upcoming election.

And I'm quite confident about that on the basis that it is a strategic industry for this country, whether it's us or other large-cap companies or, indeed, the sort of biotech and education environment here.

For the U.S., I see it -- it's, as you all know, extremely dynamic.

As we've already said, we're watching it carefully.

But in some ways, it's -- in some ways, it's uncomplicated because as long as we innovate differentially and price responsibly, that will be our best opportunity for driving growth.

And we'll just monitor it live as it lands and respond as impact comes through.

That was too long an answer to your 2 detailed questions.

Next question comes from the line of Peter Welford, Jefferies.

Firstly, I just wonder if you can talk a little bit about 2020.

I appreciate it's early to give guidance for this year already, but can you just perhaps give us some broad terms what the potential pushes and pulls we should think of, I guess aside from Shingrix where, obviously, I think you've outlined that pretty clearly, but just in terms of both the top line but also in terms of the earnings momentum?

And then just secondly, for how perhaps on the pipeline, I noticed daprodustat, looks as though it's slightly earlier than we had anticipated, now we should get those reads.

Just wondering is there's anything we should read into that?

And then also, 772, the RIP1K, if you could just perhaps give us some insight into why that's gone back into research phase, it would be much appreciated.

Okay.

So I'll come to Hal in a second on the dapro and the RIP1, 2 questions.

But the short answer on 2020 is we'll tell you in February.

There's no expected change, although there are puts and takes in the overall outlook for the -- for 2020 that we've guided to previously, and we'll give more detail on that in Feb.

So Hal, do you want to pick up the other 2 questions, please?

Yes.

Thank you for the question, Peter.

In regards to dapro, you say we've moved up the interim analysis.

But I should say that that's an analysis we're doing for internal purposes only.

As you know, we have a very robust program.

And while we, I think, have very, very high confidence that the drug and probably the class is useful in terms of improving hematocrit, the real question is compared to gepo, whether the cardiovascular profile will be equivalent or superior.

And so we thought it prudent to do an interim analysis.

And based on events, we thought that we could move up the timing of that.

But again, that's internal and more of a safety look.

So that's why that is.

As you know, the full data will be later, and that's event-driven, and so we'll put that out when we can.

The other question was about RIP1 kinase.

We have decided, based on an examination of the data generated in 3 different clinical trials, small Phase IIa-type trials, to move the molecule back to research.

We haven't killed the program, but we felt that based on the data, there is a number of outstanding research questions that need to be addressed to understand why the effect was less than we had hoped for.

And we have a number of hypotheses that we're not willing to share at this time, but we'll be exploring them either in research studies or even possibly, should some of those hypotheses bear out preclinically, potentially even moving it back to Phase I. But that'll be dependent on some research studies that we're going to undertake to understand why the molecule was unfortunately not as active as we had hoped.

Next question comes from the line of Graham Parry, Bank of America Merrill Lynch.

So firstly, on Shingrix, could you just help us quantify slightly more in 2020?

And is that slightly more each year out to 2024 when the capacity kicks in?

So for example, have you taken all the Cervarix capacity out of the glycoprotein bioreactors already, or is that still an improvement you've got to come?

And when you bring more capacity online in 2024, will you have the adjuvant capacity to match?

Or is that going to start becoming constrained at that time?

And then secondly, on the ASO HBV, I see you've got data coming on that now at AASLD, the Phase II data.

Is this a game-changer?

I think how you called this out as 1 of the 2 most exciting assets with a proof-of-concept readout at your first R&D day.

Do you still think that's the case?

Thanks, Graham.

So I'll come to Hal on the second question.

And the short answer, I'm afraid, to your first question, is we can't give you any more details than we've just outlined.

We reconfirmed slightly more in 2020, but obviously, we're working on this continuously, and it remains fluid.

But we wouldn't commit to any step change until 2024 with a new site.

And obviously, we work on all aspects concurrently to make sure that, that step change can be delivered.

But I'll then come back to Hal, please, HBV.

Graham, thanks for the question.

I think we remain excited about the potential for the ASO HBV program for a lot of reasons.

First of all, it's an incredibly important medical problem.

There is, I think, somewhere over 200 million people chronically infected with HBV.

And many of them, probably over 1 million, will die of hepatic failures, cirrhosis or even hepatic cellular carcinoma.

So -- and available treatments are very limited in terms of the efficacy, and they're certainly not without the toxicity.

So a novel therapy can be a significant advance for patients and a very important asset for GSK should it work.

We reported that the Phase IIa data did show significant activity with a reasonable, well-tolerated safety profile, that is the 836 molecule, and we'll be sharing that data within the next, I think, 3 to 4 weeks at the AASLD.

It's also important that it's a very novel approach using ASOs, as we mentioned, so that opens up an opportunity for us to think about that as a novel modality for intervening, particularly in liver disease, so we're excited about that.

But it's early days, and we're working with the regulators in multiple countries, actually, to figure out how to move the asset forward into a Phase IIb study.

But as I said, the data will be forthcoming at the liver meeting next month.

Thanks, Hal.

And the only other thing about that, whilst reiterating the early days point, is the relevance potentially of that asset should the data be -- make it worth progressing for the China market.

Really, to reinforce what Luke was saying earlier, that is obviously a deregulating, increasing the innovation-focused market, where we're starting from a low base, but we're thoughtful about the pipeline we may be able to bring over the years ahead.

Next question comes from the line of Richard Parkes, Deutsche Bank.

First, a financial one and then a pipeline one.

So I thought I'd give another try to Peter's question on outlook for 2020.

Just more whether you could give us some kind of directional steer on the pushes and pulls on the margin in 2020.

I think you've already highlighted there's likely to be pressure on the Vaccines margin, so given the need to reinvest.

So I'm wondering what are the positives or negatives there might be and kind of direction where R&D spend as a percent of sales might be moving.

So just detail there.

Second question, I wonder if you could give us some clarity on when we might see the efficacy data from the PRIMA study by starting dose.

And if you could help us understand how confident you are you can get that individualized dosing in the label, given that only 1/3 of patients in the PRIMA study were eligible for that revised starting dose.

Thank you.

So we'll come to Hal in a minute on PRIMA and dosing.

On 2020, I'm going to reiterate that we'll update you on 2020 in 2020.

Iain might want to add a couple of comments really repeating what he said in his introductory remarks around some of the dynamics between Vaccines and our choice to invest in R&D.

The only thing that I would say quite firmly is we do not believe in targeting a fixed percentage of R&D spend.

We are very clear on our capital allocation priorities, and right at the top of that list is strengthening our pipeline for future growth, and that means investing behind new launches as we have been in our execution, but also investing in R&D, and that's been a big driver as you've seen with increases this year.

And as data demands, we would expect to continue to do so, but certainly not as just some kind of target, because people can always spend money.

So the discipline and the how is driving around that.

And likewise, in Vaccines, and as Iain also mentioned, over the next few years, as proof-of-concepts come through for our next wave of Vaccines pipeline, should that data merit it, we will want to back those.

So long may the Shingrix contribution continue, but we're obviously very thoughtful about what may come in the longer life cycle of Vaccines development.

Iain, would you like to be any more generous in the insights for 2020?

I won't use up too much of the clock talking about things that we will do and talk about it when we do the full year results in 2020.

But I think if you reflect on what we talked about as we walked through the numbers and the priorities of the company from an innovation, performance and trust, it's clearly focused on growth.

And an important part of that is supporting launches of assets in priority markets and investing behind R&D.

So the broad shape of where we will allocate capital and our energy and resources will not be significantly different to where we've invested those resources over the course of 2019.

But we will give you guidance that you can sink your teeth into when we get the full year results out in February next year.

Next question comes from the line of Keyur Parekh, Goldman Sachs.

Oh, sorry.

Sorry, sorry, sorry.

I forgot.

Hold on, this is extremely important.

Can I come back to Hal on PRIMA?

Sorry.

Okay.

Yes.

Thanks, Richard, if you can still hear me, so thanks for the question.

And I think it was related to the subgroup that received the Weights and Plates in a prospective manner.

We're in the midst of evaluating that data right now.

As you can imagine, as you said, it's a smaller subset, so that's challenging to do, both the analyses overall but more importantly, in each of the subgroups.

But we're mostly through that.

Once that data is analyzed, we will be submitting that to regulatory authorities and publishing that in a meeting, although we don't have it -- a date set for that.

I should point out that -- 2 things.

First, the clinicians, I think, are very cognizant of the fact that using the Weights and Plates dosing regimen, where you adjust the dose down to 200 milligrams when the body weight is in excess of 77 kilograms or the platelet count is below 150.

And I think we're pretty confident that, that does reduce the incidence of thrombocytopenia.

The prospective analysis is looking at how similar the treatment effect is.

But -- and as I said, we'll have that data soon.

But the -- most of the clinicians are already sort of using that kind of dosing paradigm as they treat their patients today.

Thank you, Hal.

I apologize.

Back to the next questioner, please.

Keyur Parekh.

Good afternoon.

Keyur, we lost you.

Hello?

Okay.

I think we've lost Keyur.

Maybe I can come back and ask for another question, please.

And then we'll come back to Keyur in a minute.

Next question comes from the line of Geoff Porges, SVB Leerink.

Just a pipeline question, if I may.

Could you give us a sense of when your pentavalent men vaccine -- when we'll see that Phase II data?

You haven't given a time line.

And what would be the criteria for proceeding to Phase III?

Sure.

So Roger, over to you.

Yes.

Thanks for the question.

I think from an ABCWY point of view, we're obviously committed to developing that product.

As you know, we're bringing together Bexsero, the world's leading MenB vaccine, with Menveo.

We are just -- just completed Phase II in terms of studies.

We've looked at 1,400 subjects in that study.

We expect to see the final Phase II data during the first half of next year.

And actually, at the moment, we're engaged in regulatory discussions around the pathway and how we take it forward into Phase III.

So this -- through the first half of next year, we'll be looking at the data from the Phase II.

Thanks, Roger.

Do we have Keyur back yet?

No.

The next question comes from Laura Sutcliffe, UBS.

Two questions, please, both on HIV.

I think you've talked about the business transitioning to a new portfolio in terms of HIV drugs.

And so whilst Triumeq, obviously, is still going to be an important drug for many patients, how should we be thinking about the resources you'll be putting behind that versus other drugs in the portfolio in future?

So in other words, should we be looking at this as more of a legacy product from now on?

And also, you should, all being well, be able to launch your injectable product next year.

Assuming it becomes a product that has a once every 8-week option further down the line, is that ultimately the optimal profile for that sort of product?

Or would you try to refine this or any other injectable any further?

Thanks.

So both of those for David, please.

Yes.

Laura, so I think we've said several times that we really see the future growth of the HIV portfolio coming from the 2-drug regimens, whether that's oral or, as you say, hopefully the first long-acting on the market next year.

In the case of oral, and principally Dovato, that, of course, is powered by dolutegravir.

And our efforts are really promoting 2-drug regimen, so that is where we're putting our resource.

So this year, behind Dovato and Juluca; and next year, including cabotegravir.

As I said in my remarks, it's relatively early days, but we're pleased with the progress, sales of the 2-drug regimen of GBP 119 million in the quarter and hopefully more to come as we get the guidelines updated and the label updated in the U.S. for the positive TANGO data.

And I would also say that weight gain is -- on the [path] side is becoming a growing issue.

We saw a bit of that with the advanced study at IAS, but more recently, the full path meta-analysis of, I think, about 5,700 patients from 8 studies.

Meta-analysis is never perfect, as you know, but there is growing noise around that, so we'll have to see how that plays out.

I think on cabotegravir, look, we're excited about this.

Great data, the FLAIR and ATLAS studies, and then we supplemented that with the 8-week data this quarter.

It won't be for every patient.

I think there have been a lot of patients happy to continue on oral therapy.

But for those patients that are interested in moving, they're very passionate about it.

Clearly, every 8 weeks, I think, will be preferable to every month.

Ultimately, if we could move it up to coincide with patient visits, which is typically now every 6 months, that would be better.

But every 8 weeks is a major step forward, and we're very excited to produce the first long-acting medicine on the market.

Thanks, David.

Next question comes from the line of Keyur Parekh, Goldman Sachs.

Can you guys hear me okay now?

Oh, just perfectly, Keyur.

Two questions, please.

One for Luke, on Zejula, look, given the data we have seen at ESMO, would you expect Zejula to be on the NCCN Guidelines?

And if so, can you help us think about the time lines associated with that previously approval?

And then, secondly, on China, and I know you've made some comments about the growth rate, but clearly, the base of business still remains to be very small.

Merck has reported a 90% growth for Gardasil this quarter.

When do you think China will become a relevant/substantive part of the business?

Is it likely in 2020?

Or should I think of it as an opportunity beyond that?

Keyur, so we'll give both those questions to Luke.

So I think in terms of China, beyond [the data], I mean I think you are going to need to see assets like Shingrix under full supply to materially shift our base business in China.

In Cervarix, again, our target right now, think about 60% of our business from school-age girls, and that's a program which we only launched a couple of quarters away -- ago, and it's been very successful.

So again, it's an interesting battle there.

We do have some age advantages versus Cervarix, and we're now concentrating on that.

We've also made changes to the team in China, which, again, I think will become more visible in time.

But material change of significant scale is further out.

In terms of Zejula, so we believe the NCCN Guidelines committee is going to be meeting around the 31st of October.

I guess the question is we have published PRIMA in the New England Journal.

We have yet to see a publication from the other study, and we have not filed the PRIMA data with the FDA, as you said at this point.

So I guess the open question is going to be will the committee move ahead and signal their support for PRIMA based on that scenario?

Or will they wait to either we file or the second study is published?

It's hard to speculate.

As you can imagine, we're certainly making our case that we believe the guidelines should change.

And whether they change in October or whether they change in a couple of months' time, I still think the days of watch and wait are going to be increasingly difficult to justify.

And again, when we announced the deal, that was a key assumption of ours, that as Hal has said, the PARP class is underutilized.

So I think it's a matter of time, but we would like it to come sooner, obviously, for the benefit of those patients, and we see that flow through in Zejula.

Thanks very much, Luke.

Tim Anderson, Wolfe Research.

I have a Vaccines R&D question.

So with Shingrix, you've shown that you can go into an existing market with a better product and do quite well.

And I'm wondering if that is capable of being repeated in a couple of other areas where you already have a presence.

So with Gardasil, for example, with Merck, that can be a $7 billion or $8 billion product over time.

You have a product in this space, didn't gain much traction.

But what about trying to come up with a new version that is more competitive?

Same question in the Prevnar space, too, where you have Synflorix.

So should we assume that you will not try to reenter these areas with new-and-improved products?

Or could this be a possibility?

And then second question on consumer, now that the transaction is closed with Pfizer, just an update on timing of the spin.

I guess the real question is why it really needs to take 3 years.

Could it be pulled forward?

And is that guidance of 3 years overly conservative?

Okay.

Thanks very much, Tim.

So I'll ask Roger to talk to you about the Vaccines pipeline, and then I'll come back on the -- finally, on the group demerger.

Listen, thanks very much for the question.

I have to say there's a high degree of excitement in Vaccines about the pipeline that we've got.

A couple of general comments.

First, obviously, we're pleased with the breadth that we have and the shift that we're making into therapeutic vaccination, treating disease rather than simply preventing.

I think a backbone of that strategy is our adjuvant -- technology in our adjuvant platform.

As many of you know, that adjuvant system is a key part of what has made Shingrix so successful.

And in our Vaccines pipeline, we're really looking to maximize that.

A couple of assets that I would draw you to, that I think we can really use to optimize that, our COPD vaccine for chronic obstructive pulmonary disease.

An exciting year next year when in the second half, we should see the proof-of-concept data that has AS01 in it as well.

That's the only vaccine really in development for COPD.

Huge opportunity there, just given GSK's legacy in this space.

And particularly, U.S. alone, where there are 16 million people suffering from COPD, we really believe that, that vaccine could have a real -- really significant impact to reduce acute exacerbation and disease progression with such a proportion of exacerbation linked to infection that the vaccine will treat.

On RSV as well, I think we're looking to use our platform technology and our science, again, to differentiate.

I've mentioned before, we've got 3 vaccines in the RSV space.

Again, maternal, we think, just linking to your question about where can we exploit our knowledge and experience, we have maternal vaccination experience with Boostrix, for example, and we really feel that with that experience, we can drive our maternal vaccination in RSV.

Our older adult vaccine I'm excited about as well, again, it builds off the adjuvant platform also.

Big opportunity there, again, in the U.S., 70 million people over the age of 60.

And then we have a pediatric vaccine in RSV2, which builds off another platform we have, which is our viral vector platform, too.

So lots going on in the Vaccines space.

And others -- other assets in the early stage, like our hepatitis B vaccine, our C. diff vaccine, again, that builds off our adjuvant platform.

Thanks, Roger.

And then on Consumer Health, there's no change to our declared intent to separate the consumer business around 3 years from close.

That is not a rolling 3 years.

We've already clocked down a quarter.

And the reason that we think that is around the right time is because we have the experience of doing this before.

And both Brian and I and the Board believe and know how big a job it is to integrate 2 companies successfully whilst continuing to perform competitively and extract the synergies that we're confident and committed to delivering.

But also, at the same time, is making sure that, that business is set up for success and a great start independently.

It is during this period that we're continuing to work to make progress on our pipeline, both in Pharma and in Vaccines, and the build of our specialty capability as well.

So we think this is around the right time line.

Obviously, that is, this time around, a decision that GSK is in control of, up to 5 years.

And should we ever change our view on the target data there, we'll update things, but for now, there's certainly no change to that at all, and we think about right.

So with that, thank you very much, everybody, for joining the call today, and we shall look forward to talking to you soon.

Thank you.

Thank you.