GSK plc (NYSE:GSK) Q4 2022 Earnings Call Transcript

GSK plc (NYSE:GSK) Q4 2022 Earnings Call Transcript February 1, 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to the analyst call of GSK Fourth Quarter 2020 Results. I will now hand you over to Nick Stone, Head of Global Investor Relations, who will introduce today’s session.

Nick Stone: Thank you, operator. Hello, everyone. Welcome to our full year and Q4 2022 conference call and webcast for investors and analysts. The presentation was sent to our distribution list by e-mail earlier today, and you can also find details under gsk.com. Please turn to Slide 2. This is the usual safe harbor statement. We will comment on our performance using constant exchange rates, or CER, unless stated otherwise. As a reminder, the Consumer Healthcare business was demerged on 18th of July 2022 to form Haleon. But today, we’re presenting continuing operations for GSK. Please turn to Slide 3. Today’s management presentation will last approximately 30 minutes with the remaining 30 minutes for your questions, and this is to ensure that we get you to your next call, given it’s such a busy day for those on the street.

. Our speakers are Emma Walmsley, Tony Wood, Luke Miels, Deborah Waterhouse, and Iain MacKay with David Redfern joining the rest of the team for Q&A. Please turn to Slide 4, and I’ll now hand the call over to Emma.

Emma Walmsley: Thanks, Nick, and welcome to everyone. Please turn to the next slide. 2022 was a landmark year for GSK. We successfully delivered the most significant corporate change in 20 years and began a new chapter of competitive and profitable growth. GSK is a most global biopharma company with the ambition and purpose to unite science, technology and talent to get ahead of disease together. We are a world leader in the prevention and treatment of infectious diseases with an industry-leading vaccines franchise that continues to strengthen and expertise in HIV that is pioneering in innovation, and we have an exciting emerging pipeline based on the science of the immune system. Through ongoing focus on R&D productivity and operating performance, we’re unlocking the potential of this company.

We are realizing our bold ambitions reflected in our commitment to attractive growth and a significant step change in delivery. And through the demerger of Haleon, our world leading consumer healthcare business in its own right, we’ve strengthened our balance sheet, creating additional flexibility to invest in continuing growth and innovation. Turning to Slide 6. I’m delighted with today’s results, which demonstrate that our strategy is driving the step change in financial performance we committed to with continued strong momentum as we enter 2023. In 2022, we delivered double-digit sales growth of 13%, 10% if you exclude COVID solutions, including the more than GBP 2 billion sales of Xevudy; adjusted operating profit growth of 14%, 17% excluding COVID solutions; adjusted EPS growth of 15% and strong free cash flow of GBP 3.3 billion, further strengthening our financial flexibility.

This outstanding performance was driven by strong sales growth across both Specialty Medicines and Vaccines, alongside continued pipeline progress and underpins our guidance today. In 2023, excluding COVID solutions, we expect sales to increase between 6% and 8%, adjusted operating profit to increase between 10% and 12% and adjusted EPS growth between 12% and 15%. Please turn to Slide 7. The strong delivery in 2022 and commitment to do so again this year supports our increased confidence in all dimensions of these 26 outlooks and demonstrate the continuing successful momentum in our transformation of GSK. Our portfolio mix has meaningfully shifted to Vaccines and Specialty Medicines, now approaching 2/3 of our sales in 2022 compared to 46% in 2017.

This evolving portfolio shape and our prioritized investments in innovation and product launches with good cost discipline are reflected in our continuing margin expansion. Please turn to Slide 8. Before handing over to Tony for more detail, I’d like to share a couple of headlines on our progress in reshaping and advancing our pipeline, our #1 priority. We’ve built a pipeline of 69 vaccines and medicines, many with the potential to be first or best-in-class. We’ve also had over 20 new approvals in the last 5 years, now representing nearly 1/3 of our 2022 sales, excluding COVID Solutions, and we anticipate more regulatory decisions this year. Our 2022 achievements include the launch of Apretude, first and only long act injectable for HIV prevention, alongside Cabenuva, the first and only complete long-acting HIV treatment regimen.

We intend to continue to lead in changing the landscape for people living with HIV around the world over the coming years. In Vaccines, the key highlight was our exceptional RSV older adult data that led to a prompt regulatory submission and priority review acceptance by the U.S. FDA. Our vaccine candidate has a potential best-in-class profile and represents a significant commercial opportunity with multibillion Shingrix life potential. We also made some important advances in the clinical development of 2 late-stage assets, gepotidacin and new novel antibiotic for uncomplicated UTIs and bepirovirsen, which has the potential to provide a first-in-class functional cure for chronic Hep B. Strategic business development also played an important role in reshaping our pipeline, the acquisitions of Sierra Oncology and Affinivax complement our portfolio, and in the case of Affinivax, give us access to not only a Phase II next-gen 24 million new COVID vaccine, but also the Novamax platform technology to target complex pathogens that have multiple serotypes.

We have a world-leading profile in infectious diseases and an exciting portfolio and pipeline based on the science of the immune system that we’re confident will sustain growth through this decade and beyond. I’ll now hand it over to Tony for more details.

Tony Wood: Thank you, Emma. Next slide, please. Today, I will talk about recent R&D developments and preview important events that will shape our pipeline. In 2022, nearly 1/3 of our sales came from assets launched in the prior 5 years, and we are confident that our early-stage pipeline is well positioned. In terms of continued strong commercial execution to deliver our 2031 ambitions. This slide illustrates our focus in 4 key therapeutic areas, shaped by our world-leading capabilities in infectious diseases, our understanding of the science of the immune system and human genetics. In 2022, we progressed 60 novel candidates into the clinic, added 9 to Phase II and started 5 Phase III programs, which reflected our core therapeutic focus, including the initiation of Phase III life cycle innovation trials for depemokimab in eosinophilic disease and cobolimab for the treatment of non-small cell lung cancer.

So today, our pipeline comprises 22 vaccines and 47 medicines, many of which are potential first or best in class. These novel programs will form the basis for our next wave of pipeline innovation and growth. I’m pleased with our continued progress and the next slide shows some highlights from last year. In 2022, our highest profile result was the publication of the Phase III data for our RSV older adult vaccine candidate. This demonstrated 94% protection against severe disease with consistent and sustained high efficacy against both RSV A and E strains in people in their 70s and in those with comorbidities. Our global regulatory submissions include data showing that the vaccine can be safely co-administered with a flu vaccine without diminishing the effect either.

Following regulatory submission, we received a priority review from the U.S. FDA, and we anticipate a regulatory decision in early May. Our ongoing Phase III trial continues to collect data and will determine if protection extends beyond one season. We anticipate generating second season data in time for the June ACIP meeting. Additionally, we’re also recruiting a Phase III trial examining effectiveness in protecting adults aged 50 and above who are at higher risk of developing severe disease. It’s important that I mention the ongoing development of Shingrix. We presented data last year showing that Shingrix provides overall efficacy of greater than 80% over a follow-up period of 6 to 10 years after the initial vaccination. These 10-year data were generated as part of our ongoing life cycle innovation, and we regularly review Shingrix’s duration of protection and the potential need for a booster.

These data will inform the next steps in clinical development, and I’ll keep you updated with progress. In HIV, we are committed to improving the existing treatment options for people living with HIV. We have an exciting pipeline including options for self-administration and ultra long-acting medicines. We’re also investigating new approaches to HIV treatment. Last year, we presented proof-of-concept data from the Phase II banner trial for N6LS, our broadly neutralizing antibody. This is one of several exciting opportunities within our HIV portfolio, and we remain on track to move this into Phase III development in 2024. Oncology is an emerging therapeutic area. We reported positive high-level results for Jemperli Phase III RUBY trial, which met its primary endpoint, the first trial to show a PFS benefit for an I-O agent in the treatment of women with primary advanced or recurrent endometrial cancer.

These data may support the use of Jemperli in the first-line setting. We also decided to progress all arms of the COSTAR lung trial into Phase III. This compares cobolimab and dostarlimab combinations in treating patients with advanced non-small cell lung cancer, a large patient population with significant unmet medical need, and we expect to see data from this trial in 2024. In 2022, we progressed several Phase I programs and reported positive proof-of-concept data. Revax last year, includes data from our randomized Phase Ib trial of CCL17 in osteoarthritis, demonstrating evidence of efficacy at the end of the 8-week dosing period. We plan to progress development and we’ll share more later this year. Our partner, CureVac also announced interim Phase I data for flu and COVID mRNA vaccines.

These preliminary data provide promising evidence of activity, which included a monovalent flu vaccine that successfully boosted antibody titers against a matching flu strain even at the lowest dose. Based on these promising data, we believe there is a significant opportunity to accelerate the development based on this technology. We’re excited about the potential of doublet vaccines, and we’re pleased with the progress we’re making on both the COVID and influenza projects. As Emma mentioned, we also completed several business development deals in 2022, enhancing our portfolio and platform technology. These deals supplement our late-stage pipeline to support further growth and deliver our R&D strategy. BD and capital allocation will be a strong focus in 2023 and beyond.

We also announced a collaboration with Wave Life Sciences to enhance our discovery and development capabilities using novel oligonucleotides. Now I’d like to provide a brief details on the progress of our most advanced oligonucleotide, bepirovirsen. Next slide, please. I’m particularly excited to disclose that the first patient has been recruited into the B-WELL Phase III program for bepirovirsen in the treatment of hepatitis B patients with low baseline surface antigen. Remember that in our Phase II trial B-CLEAR, we observed that an unprecedented number of patients treated with low baseline surface antigen experienced sustained Hep B surface antigen and DNA loss at the end of the 48-week study period. Hepatitis B infection is a significant unmet medical need with over 300 million people having this chronic disease and around 900,000 who die from liver disease-related consequences.

The current standard of care achieves functional cure in fewer than 5% of patients, and managing the disease places a significant burden on global health care systems. Our aim is for bepirovirsen to become a backbone of future therapy. Around Moderna, I also look forward to sharing data from B-TOGETHER. A Phase II trial that administers bepirovirsen followed by interferon therapy with the goal of improving functional cure rates still further. Next slide, please. In November, we reported that 2 Phase III gepotidacin trials for the treatment of uncomplicated urinary tract infections were stopped early for efficacy after a successful interim analysis. Data collection and analysis are ongoing, and we anticipate making a regulatory submission later this year.

The world needs new classes of antibiotics, treatment failure increasing community resistance rates and increasing safety warnings for existing medicines, including fluroquinolones are reducing the available oral options for uncomplicated UTIs. If approved, gepotidacin would become the first new oral antibiotic for the treatment of uncomplicated UTI for over 20 years. Unmet medical need is significant with around 15 million episodes of uncomplicated infection in the U.S. alone, a 1/4 of which occur or have some level of resistance. Gepotidacin would be positioned as an oral option for patients at risk of treatment failure. In September last year, to complement the development of our antimicrobial franchise, we announced a license agreement with Spero Therapeutics to commercialize tebipenem, a novel antibiotic in Phase III development for the treatment of complicated UTIs. There are around 3 billion complicated UTIs in the U.S. each year, and 40% of these infections are resistant to broad-spectrum oral antibiotics.

Tebipenem could be the first oral carbapenem approved for the treatment of complicated UTI reaching the market by 2026. Our goal is to develop 2 novel oral antibiotics that cover the spectrum of urinary tract infections and address increasing recurrence and community antimicrobials. Next slide, please. This slide illustrates some of the pipeline news we anticipate over the next year or so. We expect 2023 to be a busy year across the portfolio. We look forward to presenting our RSV older adult vaccine as the forthcoming U.S. FDA VRBPAC meeting in March, followed by a U.S. FDA regulatory decision in early May. We also anticipate Phase III data from our invasive meningococcal vaccine in the first half. There are around 1.2 million cases of invasive meningococcal disease each year, and if successful, this vaccine would target the 5 most common serotypes in 1 product.

As I mentioned earlier, we expect to present data from the gepotidacin Phase III program and data from the bepirovirsen Phase II trial B-TOGETHER around midyear. In oncology, momelotinib has been submitted with regulatory authorities, and we expect to hear from the U.S. FDA during the first half. We’ll also present the Jemperli RUBY data at a medical conference later this year. Finally, we also anticipate regulatory decision from the U.S. FDA on daprodustat for the treatment of anemia of chronic kidney disease, with a decision from European regulators around midyear. I’ll now hand over to Luke. Next slide, please.

Luke Miels: Thanks, Tony. Please turn to Slide 16. In 2022, we delivered 13% sales growth or 10% excluding COVID Solutions, and we’re proud to report that 10 products exceeded GBP 1 billion in sales for the year, including Shingrix, Trelegy, Nucala, Benlysta and Dovato. This is a great example of strong commercial execution. Benlysta remains the market leader with 85% of new patient starts in Q4, and we continue to see a strong growth globally in both SLE and lupus nephritis with only 25% buyer penetration in the U.S. Nucala continues to lead the IL-5 class across all major markets, and Nucala remains the first and only biologic approved for 4 esinophilic diseases with new indications driving growth and differentiation. And Xevudy delivered GBP 2.3 billion in sales, although based on the trajectory of the pandemic, we expect limited sales in 2023, and Deborah will comment on HIV shortly.

In oncology, sales were up 17% for the year, with label changes to BLENREP and Zejula in the U.S., we expect to see a short-term decline before oncology returns to growth in 2024. In General Medicines, Trelegy had an excellent year, up 32% versus last year, retaining leadership in key markets. This was also bolstered by the post-pandemic rebound of the antibiotic market globally and increased demand for Augmentin. Turning to our Vaccine’s performance on Slide 17. In 2022, Vaccines had a strong year, up 17%, excluding pandemic-adjuvant sales. This reflects strong commercial execution across the portfolio, including a record year for Shingrix and increased contributions from Bexsero in the U.S. with higher CDC demand and increased market share.

Shingrix sales grew significantly across all regions, reflecting post pandemic rebound and new market launches through geographic expansion. The U.S. saw higher demand in both the retail and non-retail setting and favorable channel inventory movements, while ex U.S. delivered around GBP 1 billion in sales for the year. Shingrix has launched now in 9 markets in 2022 and is now available in 26 countries, and we expect to continue to expand our geographic footprint in line with our goal to be in 35 countries by 2024. Turning to Slide 18. Here, you can see that prioritization of R&D and commercial investment in Specialty Medicines and Vaccines, plus optimization of the General Medicine portfolio is delivering strong growth and drive our progress.

Our ’22 results demonstrate that our strategy is working, and we’re delivering on the commitments we made at the investor update in 2021. And the data on the right-hand chart show this shift up from 7% to 42% today. Looking ahead to 2023, for the Specialty portfolio, including the short-term impact of oncology, we expect sales in 2023 to increase mid- to high single-digit percent, excluding Xevudy. In General Medicines, we expect 2023 sales to decrease slightly and remain on track with our broadly stable sales outlook between 2021 and 2026; and in Vaccines, overall, we expect to increase mid-teens percent, excluding pandemic-adjuvant sales and expect to see Shingrix momentum continued with double-digit growth with another record year of sales.

With that, let me now hand over to Deborah on Slide 19.

Deborah Waterhouse: Thank you, Luke. Our HIV business delivered sales of GBP 5.7 billion in 2022, growing 21% in Q4 and 12% for the year with our U.S. and European businesses both reporting significant growth. We achieved a notable acceleration in our innovation sales, delivering GBP 2.5 billion, representing 43% of our portfolio for the year and 48% in the quarter, up from 29% in full year 2021. Our performance benefited from strong patient demand for our innovation HIV medicines, Dovato, Cabenuva, Juluca, Rukobia and Apretude, contributing 9 percentage points of growth. U.S. pricing favorability and year-end inventory build together contributed 4 percentage points of growth, which was partially offset by international. Sales of Dovato delivered GBP 438 million in the quarter and GBP 1.4 billion for the full year, and this medicine is now firmly on track to become our biggest selling HIV product.

We see the opportunity for Dovato as being balanced globally with around 50% of the potential sales in the U.S. and the remainder split between Europe and the rest of the world. Turning to our portfolio. Cabenuva is our first-in-class long-acting treatment regimen for HIV. Sales for the quarter were GBP 129 million and GBP 340 million for the full year, reflecting strong patient demand with high levels of market access and reimbursement across the U.S. and Europe. Moving on to prevention. Apretude is the world’s first long-acting injectable for the prevention of HIV dosed every 2 months. Launched in the U.S. in January 2022 Apretude delivered GBP 21 million of sales in the quarter and GBP 41 million in the full year. HIV prevention is an area of significant unmet need as current options are associated with stigma and adherence issues.

Apretude addresses these challenges and has demonstrated superior efficacy over daily oral tablets. Looking ahead to 2023, we expect to see continued strong patient demand for our new HIV medicines. We expect the year-end inventory build to burn through the first half of 2023. We are confident of delivering mid-single-digit growth this year. We’re excited by our pipeline focused on innovative long-acting regimens, which we believe illustrates our ability to maintain our leadership beyond dolutegravir. By the second half of the decade, we expect cabotegravir to increasingly replace dolutegravir as the foundational integrated inhibitor in our portfolio. We have 3 clear target medicine profiles: to provide the world’s first self-administered long-acting regimen for treatment and to provide ultra long-acting regimen for treatment and prevention with dosing intervals of 3 months and longer.

We are looking forward to presenting further data on our pipeline, including the SOLAR study, a head-to-head trial between Cabenuva and ViiV and data on N6LS, our broadly neutralizing antibody at CROI in Seattle later this month. Our Q4 results demonstrate continued progress against our ambition to achieve a 5-year mid-single-digit sales CAGR to 2026. By 2026, we estimate that long-acting regimens will be generating around GBP 2 billion, which equates to around 1/3 of HIV sales. The changing mix of our portfolio towards long-acting and the success of our pipeline offers the potential to significantly replace the revenue from dolutegravir post loss of exclusivity. And with that, I will hand you over to Iain.

Iain Mackay: Thank you, Deborah. As I cover the financials, references to growth are at constant exchange rates unless stated otherwise. As Luke and Deborah covered the main revenue drivers, I’ll focus my comments on the income statement, including the main cost drivers, margins, cash flow and guidance for 2023. Turning to Slide 21. This slide shows the bridge from total to adjusted results includes the effect of the successful consumer health care demerger in 2022. Total earnings per share were 371.4p, which earnings per share from discontinued operations were 260.6p. This primarily reflected the gain on the demerger and the gain on the retained stake in Haleon. Turning now to continuing operations. For 2022, turnover was GBP 29.3 billion, up 13%, and adjusted operating profit was GBP 8.2 billion, up 14%.

Total earnings per share were 110.8p, up 18%, while adjusted earnings per share were 139.7p, up 15%. The main adjusting items of note between total and adjusted results for continuing operations in the year were in transaction-related, which primarily reflected the contingent consideration liability movements, the majority of which related to foreign exchange and in divestments significantly than other, which reflected the upfront income received from Gilead in the first quarter as well as a fair value mark-to-market gain and the retained stake in Haleon. Pandemic Solutions reduced growth of adjusted operating profit by approximately 3 percentage points and growth of adjusted earnings per share by around 3 points. The full year currency impact was a favorable 6% in sales and 12% in adjusted earnings per share.

Turning to Slide 22. The 2022 adjusted operating margin of 27.8% reflected an improvement versus last year. The positive margin dynamics reflected the sales growth with a favorable mix, excluding Xevudy, higher royalty income and favorable currency movements, which are a 1.2 percentage point benefit in the full year. These factors were offset by the impact of lower margin sales of Xevudy and commercial investment behind launches and key products. Overall adjusted operating profit grew 14%. COVID Solutions reduced adjusted operating profit growth by approximately 3 percentage points and adjusted operating margin excluding COVID Solutions, was approximately 1.3% higher constant exchange rates. Turning to key dynamics of the year. Within cost of goods sold, the increase primarily related to sales of lower margin Xevudy, which increased the cost of sales margin by around 2.5 percentage points, mainly reflecting the profit share pay away to biotechnology.

Excluding Xevudy, cost of goods sold benefited from a favorable business mix with Specialty Medicines and Vaccines comprising 62% of commercial operations sales ex pandemic. So this mix benefit was partly offset by increased supply chain costs, including in commodity prices and in freight. SG&A increased the rate slightly above sales, which primarily reflected launch investments in Specialty Medicines and Vaccines. We’re particularly focused on HIV and Shingrix to drive post-pandemic demand recovery and support market expansion. The SG&A growth also reflected an unfavorable comparison to a beneficial legal settlement in 2021. These factors were partly offset by continued delivery of restructuring benefits with around GBP 900 million of annualized savings to date from the separation preparation program and tight controlled ongoing costs.

R&D spend grew 6%, with increased investment across several programs, particularly in vaccines, clinical development, including in our mRNA technology platforms and MAPS following the Affinivax acquisition, along with investments in early discovery programs. In Specialty Medicines, with assets like depemokimab and bepirovirsen and within oncology, there was an increased investment in our early-stage immuno-oncology assets and momelotinib following the Sierra Oncology acquisition. These increases were partly offset by the lapping of now completed late-stage clinical programs and reduced investment in COVID-19 assets relative to 2021. Royalties benefited from the Gavi contribution and higher sales of Gardasil. Again, it should be noted that our Gardasil royalty stream will cease at the end of 2023.

Turning to Slide 23. Moving to bottom half of the P&L and highlight that net finance expense was higher, reflecting the net cost associated with the November sterling notes repurchased, higher interest on tax, partly offset by increased interest income due to higher interest rates and larger cash balances as a result of the consumer health care demerger. And the effective tax rate of 15.5% reflected the timing of settlements with various tax authorities, which was favorable versus the expectations set out of Q3. On the next slide, I’ll cover cash flow. In 2022, we generated GBP 3.3 billion of free cash flow from continuing operations. Within free cash flow, cash generated from operations increased around GBP 700 million, up 10% to GBP 7.9 billion, with higher operating profit being the key driver, partly offset by other factors, which you can see on this slide.

Below cash generated from operations, there were higher tax payments and lower proceeds from disposals along with higher CapEx, partly offset by reduced purchase of intangibles. In 2023, we expect cash generated from operations to be slightly lower, primarily due to the positive impact of the Gilead settlement in February 2022, partly offset by improved operating profit growth. We remain firmly on track with our medium-term outlook, driven by higher adjusted operating profit and working on improvements. Turning now to Slide 25 and guidance for 2023. We expect to build upon the step change in performance we delivered in ’22. As a reminder, all of our guidance excludes the contribution from pandemic COVID-related solutions and references to growth at constant exchange rates.

We expect sales to increase between 6% and 8%, and we expect adjusted operating profit to increase between 10% and 12%. This is influenced by expected cost dynamics where we expect cost of goods sold and expect to increase at rates slightly below sales, SG&A to grow broadly aligned to sales and for royalties to grow versus 22%. Below operating profit, net interest payable is expected to be between GBP 750 million and GBP 800 million and the effective tax rate is expected to be around 15%. In light of these dynamics, we expect adjusted earnings per share to increase between 12% and 15%. We do not expect any significant pandemic-related sales in 2023. With regards to phasing of the year, due to phasing in 2022 and resulting comparators, we would expect operating profit growth to be lower in the first half of the year and higher in the second half, relative to full year expectations.

This reflects strong comparisons in the first half, including stock build in ViiV and Shingrix U.S. channel inventory build in the first half of 2022. We would also expect SG&A to grow at a higher rate than sales, reflecting investments to support recent and anticipated launches. Q1 is expected to be a more challenging quarter in the ViiV stock building at the end of 2022. In the second half, we would expect the growth to be higher due to expected launches of new products, including RSV as well as momentum across existing product drivers. Regarding dividends to shareholders. We anticipate a 56.5p dividend per share aligned to our dividend policy and prior disclosure. We started 2020 with excellent momentum from a highly successful ’22 and remain firmly on track to deliver our medium-term financial commitments.

And with that, I’ll hand back to Emma.

Emma Walmsley: Thanks, Iain. Turning to Slide 27. We continue to be guided in this by our purpose: to unite science, technology to go ahead of disease together. Integral to this is running a responsible business, one which builds trust and reduces risk to deliver sustainable health impact at scale, shareholder returns and to support our people to thrive. To do so, we prioritize our resources to focus on the 6 material areas affected here. This quarter, our leadership and progress in Access were recognized once again as we top the Access to Medicines Index for the eighth consecutive time, and we continue to lead in innovation to address antimicrobial resistance. Also, we announced an investment of GBP 100 million to help strengthen health systems in lower-income countries, along with our commitment to invest GBP 1 billion in global health innovation where it’s needed, as evidenced by our progress with the new first-in-class candidate medicine for patients with tuberculosis.

Turning to Slide 28. So in closing, I do want to thank our people for delivering this tremendous performance, a landmark year for GSK as a newly focused global biopharma company with big ambitions. We are delivering a step change in performance, and we enter 2023 confident that we will keep delivering again this year for our medium-term outlook and with the momentum to sustain growth through this decade and beyond. So with that, operator, the team is ready. So let’s move into Q&A.

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Q&A Session

Operator: . And the first question is coming from the line of Kerry Holford.

Kerry Holford: So my real focus on the overall feedback specifically about the patient cohort. So I wonder if you can just use the commercial opportunity you see within that 50 to 59 year old group, if we assume the Phase III data that you are going to publish later this year is positive and the vaccine is ultimately approved in that age group. Do you think an age set recommendation population is a realistic scenario? And I’d be interested to know whether your existing in terms of target for that asset that brought us GBP 3 billion excludes any potential sales in that younger cohort.

Emma Walmsley: Thanks, Kerry. Well, I think we’ll come straight to Luke on that one. Obviously, an asset we’re very excited about a lot of opportunity here, but Luke.

Luke Miels: Thanks, Kerry. I mean, yes, it’s in that immunocompromised population. It’s a sizable population, but the primary benefit is from a contract negotiation point of view for the 2024 season because we’ll be the only one with that profile and evidence in that group, which, along with older individuals is obviously — bears a significant burden from RSV infection. The previous guidance we’ve given includes that study is the full life cycle program.

Operator: The next question is coming from Peter Welford from Jefferies.

Peter Welford: It’s on the outlook for Vaccines, for mid-teens. I wonder if Luke could give us some idea in terms of the usual sort of update into the Shingrix doses and where we are with returns to inventory and in terms of burning through that, particularly, I guess, given as well, presumably we’re back to a more normal seasonality, if you like, of Shingrix, presumably with the sort of flu season, if you like, towards the end of the year. And what have you assumed in that mid-teens for RSV in the outlook as well? Should we be assuming is any modest contribution? Or how should we think about mid-teens in the context of obviously this being the first potential year of RSV sales in the U.S.

Emma Walmsley: All right. Great. So I think as Luke said, it’s going to be — and I’m going straight to him, but another record year of Shingrix expected with double-digit growth and obviously, the first season for RSV, but for a major contributor to growth for the years ahead. But do you want to give a bit more shape on Shingrix, Luke?

Luke Miels: Sure, Emma. So Peter, thanks. I’ll give a sort of an overarching answer first and then give you more detail on the U.S. dynamics around stock levels, et cetera with Shingrix and then also incorporate RSV into that answer. So I mean, our strategy remains the same. I mean, we tried to decouple Shingrix from the flu season. And yes, there is still volume associated with that just with people coming into the pharmacy. I think the Inflation Reduction Act in the U.S., taking away the co-pay in that 65-plus group will be helpful. We know from our data, around 8% of patients reject a Shingrix shot based on co-pay concerns. It’s probably understated, but we’ll — because pharmacists may self-select into proposing that to patients, but we’ll see that in time.

I think for Europe and Japan, where really things are starting to move, we just had a record month in January in Germany. Things are moving in Italy and other European markets. And I think if you look at the rest of the world, as China starts to normalize, the potential for that over the next couple of years remains very, very sizable. And then ultimately, we’ve got the opportunity to go back and rechallenge these populations with a booster in the second half of this decade. In terms of short term now in the U.S., I mean, the retail-nonretail split has stabilized. It’s about 53% retail, 47% nonretail in Q4. The growth is evenly balanced between retail and nonretail. Stock levels have — they came down in Q4. They’re very much within the normal range of 1.1% to 0.9%, so we ended the year at 0.9 levels in the U.S. Now in terms of RSV, I don’t want to give too much color on RSV, but I think Pfizer has made statements around penetration similar to flu.

We agree with that. I think this product is going to build over multiple years in the U.S. and then as we follow a similar strategy that we’ve done with Shingrix, which is maintaining price discipline and then expanding into Europe and rest of world over the next few years.

Emma Walmsley: Thanks, Luke. I also like the fact that we published it. I think you said that we’re 15% more likely to get Shingrix post-COVID as well.

Luke Miels: Yes. Yes, it’s certainly observable.

Operator: Next one is coming from Dominic Lunn from Credit Suisse.

Dominic Lunn: My question is on pricing. So if you look at the January list price rises for GSK and indeed the industry as a whole, price rises have been in line with the historic price rises. So — and one could have expected price taking to be a bit stronger given the high levels of inflation. And it looks like there is still room to take further price throughout the year before you hit the limit imposed by the inflation price cap in Medicare as well. So how should we think about pricing through the rest of the year? Could we get maybe smaller, more frequent incremental price rises through the year?

Emma Walmsley: Thanks. So look, GSK has got a long track record of being very responsible around its pricing. Let’s hear, and as you know, on a net basis over the last few years, I think would be even very slightly down and really thoughtful about how we take this all. But Luke and maybe Deborah, a comment, please.

Luke Miels: Yes, completely agree, Emma. We’re playing the long game here. I think past patterns over the last 2 years are probably a good indicator of our behavior going forward.

Deborah Waterhouse: And I would just — obviously, I agree with what Luke said. I think the other thing that people should be giving some thought to is what’s happening outside the U.S. So if you look at our HIV business, for example, and many others will be experiencing the same thing, we’re seeing significant additional net price pressure from clawbacks and price cuts. So from a pricing perspective, I think we’ve priced fairly and appropriately and playing the long game in the U.S., and I think we need to be aware and very vigilant about what’s happening outside of the U.S. in terms of economic challenges leading countries to put pressure on pricing.

Operator: Next question is coming from James Quigley from Morgan Stanley.