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Vaccines Segment Continues to Be Differentiator for GlaxoSmithKline

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Vaccines segment performance in 3Q17

In 3Q17, GlaxoSmithKline (GSK) reported revenues close to 1.7 billion pounds from vaccines sales, a year-over-year (or YoY) increase of 5% on a reported basis. The company witnessed sales worth 816 million pounds for its vaccines franchise in the US market in 3Q17, a YoY increase of 13% on a reported basis and 6% on a constant-exchange-rate (or CER) basis. GlaxoSmithKline earned revenues close to 431 million pounds from the sale of vaccines in Europe in 3Q17, which is a YoY rise of 11% on a reported basis and 6% on a CER basis. In 3Q17, the company witnessed vaccine sales close to 442 million pounds in international markets, which is a YoY decline of 11% on a reported basis and a drop of 14% on a CER basis.

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GlaxoSmithKline’s vaccines franchise earned revenues close to 4.0 billion pounds in the first nine months of 2017, which is 14% YoY growth on a reported basis and 5% growth on a CER basis. Revenues from the US market were close to 1.5 billion pounds, a YoY rise of 20% on a reported basis and 11% on a CER basis. The company also witnessed vaccine franchise sales worth 1.2 billion pounds in the European market, which is a YoY increase of 15% on a reported basis and 7% YoY growth on a CER basis. GlaxoSmithKline also earned revenues close to 1.2 billion pounds from the sale of its vaccines in international markets in the first nine months of 2017, which is a YoY rise of 7% on a reported basis and a decline of 1% on a CER basis. GlaxoSmithKline makes up about 1.8% of the Vanguard FTSE Europe ETF’s (VGK) total portfolio holdings.

 

The above diagram lists the key demand drivers for vaccines. GlaxoSmithKline is competing with Merck (MRK), Pfizer (PFE), and Sanofi (SNY) in this high growth business, which presents significant barriers to entry for new players.

Vaccine business profitability

In 3Q17, GlaxoSmithKline (GSK) reported operating profits close to 698 million pounds from the sale of its vaccines, which is year-over-year (or YoY) growth of 9% on a reported basis and a 5% YoY rise on a CER basis. The segment’s operating margin was around 41.3%, which is a YoY rise of 160 basis points on a reported basis and 190 basis points on a CER basis. The strong profitability was driven by product mix in the vaccines segment coupled with benefits from favorable inventory adjustments in the prior period as well as the impact of restructuring and integration with the acquired Novartis vaccines business. However, the increasing operating expenses required for supporting new product launches and the drop in royalty income, partly offset the growing profitability of GlaxoSmithKline’s vaccines segment.

The vaccines segment reported operating profit close to 1.4 billion pounds in the first nine months of 2017, which is a YoY rise of 23% on a reported basis and 14% on a CER basis.

In the next article, we’ll discuss growth prospects for GlaxoSmithKline’s meningitis vaccines business in greater detail.

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