GlaxoSmithkline Pharmaceuticals Ltd (NS:GLAX) is an Indian subsidiary of MNC GlaxoSmithKline PLC (LON:GSK) (U.K.), one of the world's leading research-based pharmaceutical, healthcare companies and the world’s largest vaccine manufacturers (in terms of sales). GSK is one of the oldest pharmaceutical companies in India (since 1924). Its product portfolio includes prescription medicines, vaccines and OTC products, having an impeccable brand, trust, and the image of quality assurance at affordable prices in India. In brief, Glaxo is a household name in India, where it started its journey in 1924 as a distributor of baby food.
GSK has prescription drugs ranges across various therapeutics such as antibiotics (from 1st to 3rd or higher generations), dermatology, gynaecology, diabetes, oncology, cardiovascular and respiratory illness. Glaxo also offers a range of vaccines, for the prevention of Hepatitis-A/B, invasive disease caused by influenza, chickenpox, diphtheria, pertussis, tetanus, rotavirus, cervical cancer, and many others which are included in the Indian universal vaccination program. In short, Glaxo has many well-known pharma products in India (both prescription and OTC) like Augmentin 625 DUO, Calpol tabs- trusted by both doctors and patients.
GSK India is undergoing a restructuring, spinning off the consumer-health division, and has also started a two-year program to get it ready to set up two new leading companies in biopharma and consumer health care. In India, GSK has separately listed companies for its pharmaceutical and consumer businesses. Under consumer business, in April’20, GSK divested certain OTC healthcare products to HUL in India and also holds a minority stake of 5.7% in HUL.
Now HUL is distributing GSK consumer householdOTC healthcare brands like Horlicks, Cronin, Eno, Iodex, Otrivin, and Sensodyne in India, while GSK consumer will continue to be responsible for demand generation, portfolio strategy, R&D/product quality and marketing for these brands. As a reminder, HUL has an extensive FMCG distribution network all over India, including remote areas/villages.
As per the GSK India: India remains an important growth market for GSK and the company is committed to investing in both its listed Pharmaceuticals business and its OTC and Oral Health brands in this country. As part of the transaction, Hindustan Unilever Ltd. (NS:HLL) will distribute these Consumer Healthcare brands, which include market-leading Sensodyne, Crocin, Otrivin and Eno, for GSK in India. GSK will continue to be responsible for demand generation, portfolio strategy, R&D, and marketing for these brands.
In February-March’20, GSK scrip tumbled in line with global risk aversion (COVID-19) and after the guidance from its parent GlaxoSmithKline Plc (U.K.), that for the time being, the company is not in a COVID vaccine race; i.e. not planning to develop its own COVID vaccine at this point, despite being the world’s biggest vaccine makers by sales. The company supplies more than 85M flu vaccines alone globally.
But GSK (U.K.) is also planning to partner (JV) with several biotech organizations working on promising COVID-19 vaccines by providing access to its ‘Adjuvant Technology’ (AT).GSK (U.K.) is in a JV with Sanofi (PA:SASY), Canadian Medicago, and Chinese Clover Biopharmaceuticals COVID vaccine candidate, slated to finish its 3rd stage trials by Dec’20-June’21.
These vaccines are growing up protein antigen (COVID spike proteins, nucleic acid, or envelope proteins) in insect cells, and then injecting that protein antigen with an additional adjuvant which is something that stimulates the immune system further because proteins alone often are not very immunogenic or capable of eliciting robust immune responses. As per the GSK’s CEO, globally around at least 14B vaccine doses may be required to contain COVID-19.
As per the GSK CEO Walmsley:
The use of an adjuvant is of importance in a pandemic situation where there is significant demand for a vaccine, since it may allow more doses to be produced from fewer ingredients and therefore enable manufacturing at scale. We believe more than one vaccine will be needed and we’re hoping that there will be several successful vaccines developed with our adjuvant technology. Three of these collaborative projects have clinical trials underway. An adjuvant is added to some vaccines to enhance the immune response, thereby creating a stronger and longer-lasting immunity against infections than the vaccine alone.
We have joined forces with Sanofi, bringing together two of the world’s largest vaccine companies in an unprecedented collaboration. We have combined their vaccine candidate with our adjuvant technology to develop an adjuvanted COVID-19 vaccine candidate, which entered clinical trials in September 2020. We anticipate the first results in December 2020 and to start a phase 3 study before the end of the year. If the clinical trials are successful, we will request regulatory approval in the first half of 2021.
We are also collaborating with Canadian biopharmaceutical company, Medicago, to develop a COVID-19 vaccine by combining their plant-derived vaccine candidate with our adjuvant technology. Importantly, Medicago can support the production of large amounts of the vaccine in a significantly shortened timeline. The vaccine candidate entered phase 2/3 clinical trials in mid-November 2020 and, if successful, we aim to make the vaccine available, in the first half of 2021.
Our third collaboration in clinical trials is with China-based Clover Biopharmaceuticals. Again we are using our adjuvant in combination with their COVID-19 vaccine candidate, which moved into phase 1 clinical trials in June 2020 and is expected to enter late-stage clinical trials before the end of the year.
We have confirmed our intention to manufacture 1 billion doses of our adjuvant in 2021 to support the development of multiple adjuvanted COVID-19 vaccines. We will manufacture, fill, and finish adjuvant for use in COVID-19 vaccines at sites in the UK, US, Canada, and Europe.
Adjuvant ingredients are derived from a number of sources. Research to explore viable alternatives to fish-derived squalene, which is an essential ingredient of our pandemic adjuvant system- is ongoing. However, these alternatives are not currently available.
Overall, the JV between Sanofi-Glaxo on adjuvanted recombinant protein-based COVID vaccine is like between Oxford-Astra (vector vaccine) or BioNTech-Pfizer (m-RNA vaccine). Sanofi and GSK intend to make available 200M doses of their adjuvanted recombinant protein-based COVID-19 vaccine if approved by regulatory authorities and subject to contract, to the COVAX Facility. Through the COVAX Facility’s efforts, vaccines will be distributed in participating countries through the WHO and that may also include India, where GSK India has both manufacturing and distribution roles.
The GSK India MD Venkatesh said on Q2FY21 report card:
GSK continues to demonstrate resilience in these times, as we focus our efforts on the safety of our employees while ensuring patients have access to our medicines. This has been reflected in our results for the quarter, wherein sales have grown double digits since Q1FY21 bouncing back to prior-year levels. Most of GSK's key brands have outpaced their respective categories by gaining market share and our cost reduction/efficiency initiatives have helped drive margin expansion.
We also continued our focus as an innovation-driven, science-led biopharmaceutical company with the recent launch of Fluarix Tetra - the world's first inactivated Quadrivalent Influenza Vaccine during the quarter. After considering all the strategic options available with the company for its manufacturing site at Vemgal following the global voluntary recall of Zinetac, the Company has decided to proceed with the sale of the site and has classified the assets as held for sale.
Bottom line:
Globally, GSK may soon come to the limelight for its adjuvanted COVID vaccine JV with several biopharma majors including Sanofi, which is another brand of trust, especially after the recent manufacturing/trial error fiasco of Oxford-Astra COVID vaccine candidate. This will be positive for the Indian subsidiary of GSK. India’s own (indigenous) COVID vaccine development is already running quite late and the re-trial of the Oxford-Astra vaccine may delay further process towards mass-vaccinations. India may have to take the Russian Sputnik COVID vaccine after its trial in the country, which is also time-consuming.
Thus, if GSK-Sanofi or similar COVID vaccine can prove their efficacy and safety early by Dec.20-June’21, it may get a good response from India as the country needs at least 2B doses of COVID vaccines to vaccinate a minimum 60% of its population (two doses each), required for the herd immunity.
Apart from the COVID vaccine potential, GSK India is a symbol of trust in medicine/vaccines along with affordability. GSK India is now providing quality medicines/vaccines at affordable prices. This, along with a strong balance sheet with negligible debt, expanding EBITDA margin, robust revenue growth, prudent expenses, GSK India EBITDA and EPS may grow by around 25% CAGR in the coming years, and the FY24 valuation maybe around 2050.
Considering robust EBITDA and core revenue growth, the EPS may grow around 25% CAGR between FY21-25, and assuming no further equity dilution, the FY23 and FY24 fair valuation range under various scenarios maybe 1638-1433-1229 and 2048-1792-1536 (LTP: 1553).
As per GSK India, revenue for the Q2FY21 came around Rs. 879 crores recording a growth of 3% adjusting for the tail-end portfolio rationalization undertaken by the company in 2019. The revenue this quarter also saw a significant recovery clocking a growth of 35% sequentially (q/q). The EBITDA for Q2FY21 printed around Rs.205 cr, jumped sequentially by around 80%, while slips -2% on yearly basis (y/y).
Fair valuation of GSK India at a glance:
Q1FY21 P/L at a glance: GSK India-consolidated
FY20 P/L at a glance: GSK India (consolidated) 
Technical View: GSK India-Short/medium and long term 
