GSK Pharma's growth challenges to remain in near term as Covid dents sales

Even as the benchmark indices and the BSE Healthcare indices have gained between 3 per cent and 5 per cent since September 15, GlaxoSm-ithKline Pharmaceuticals (GSK) is down 12 per cent over this period. The near-term outlook is expected to remain muted if the drug sales in September are anything to go by.

Though the overall pharma market was up 5 per cent over the year-ago period, GSK’s sales for the month were down 8 per cent. The dip in September was led by a 12-21 per cent dip in sales of top brands in the anti-infectives and analgesics segments, such as Augmentin and Calpol.

Sales of anti-infectives have been muted both for GSK and the  market in the since the start of lockdown, given lower incidence of infections amid social distancing norms.
For GSK, the decline was not limited to September; it remains the only pharma company among the top 15 to have underperformed the domestic pharma market every month since the start of CY20. Part of the muted growth is also due to product discontinuation and brand rationalisation measures taken over the past couple of years.

To drive growth, the company is looking at new product launches, expanding its vaccine base, and growing faster than the market in key or focus therapies. One of the focus areas is vaccines. The company is looking at improving margins in this segment through volume growth, new introductions, and operating leverage. 

However, new competition could impact its revenues. Analysts at Motilal Oswal Research believe the pending launch of the pneumococcal conjugate vaccine of Bharat Serum can be the key headwind for GSK’s Synflorix brand. Synflorix, which protects from pneumococcal disease, is the second-largest brand for GSK with annual sales of over Rs 281 crore.  The pricing of the vaccine by Bharat Serum is expected to be at a considerable discount to that of Synflorix. While the focus on top 20 brands, specialty product portfolio, as well as cost-control measures, should improve revenue growth and margins, the near-term challenges for anti-infectives and dermatology products would make it difficult to outperform peers. Investors should wait for growth levels to improve, as well as the outcome of the plans to sell its Vemgal unit before taking an exposure to the stock. Valuations at over 41x its FY22 earnings estimates, too, are on the expensive side.

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