GlaxoSmithKline Pipeline Analysis: Robust Or Going Bust?

| About: GlaxoSmithKline (GSK)


Critics regard the Glaxo phase 3 pipeline as among the most risky.

Pipeline analysis indicates a deep phase 3 and phase 2 presence that might indicate where new markets will emerge.

Will Glaxo rely on acquisitions to make up ground?

GlaxoSmithKline (NYSE:GSK) is a British, world-leading research-based biopharmaceutical and healthcare company committed to improving the quality of human life by enabling people to do more, feel better, and live longer, according to the company website. Analysts have noted that GSK revenues have declined over recent years as patents expire, but have conceded that it has a robust pipeline (Strong Bio defines a robust pipeline as a pipeline that requires a search engine on its website). However, its 2017 quarter-one report indicates growth of sales across all three businesses: Pharmaceuticals +17% AER, +4% CER; Vaccines +31% AER, +16% CER, and Consumer Healthcare +16% AER, +2% CER. Concurrent with this, one analyst, Exane BNP Paribas, has changed its rating from underperform to neutral in April 2017. As this turnaround (and Strong Bio likes to cover turnaround stories) may be in play as picked by some analysts, now is a good time to assess its future prospects to see if entering at the approximate current 4.85% dividend is likely to be cut or improve. The company expects the dividend to remain constant for 2017.

Critics of the Glaxo pipeline have said that it is among the riskiest in all of biopharma in 2016. They even go so far as to say that even if everything goes right for GSK, there will still be losses. Glaxo is certainly in a good position to acquire new products developed by small biotechnology companies to pick up the slack if this is the case. But does any shortfall really exist? From a scientific standpoint, Strong Bio sometimes picks up on things that other analysts do not (novel approaches to fill niche markets or creation of new markets), thus the reason for performing our own analysis for our portfolio in the first place. GSK may be more stable than peer AstraZeneca (NYSE:AZN) in managing the boom-bust cycle of pharma, but real growth (as compared to competitive displacement or loss of markets driven by generics) is determined by pipeline-driven revenues in new markets. GSK has expanded its vaccine and consumer healthcare segments, comprising about 40% of total company revenue.

In a nice article by Seeking Alpha author Dividend Drive, analysis of GSK pipeline indicated that its phase 3 pipeline was on par with several U.S. drug-makers in terms of its risk of phase 3 failure to sustaining revenue ratio, but its phase 2 studies were notably outpacing its peers. For this reason, an in-depth look at the phase 2 and phase 3 GSK pipeline highlights is in order to examine and evaluate the directions the company is intending to grow in the intermediate to long term as a short-term turnaround seems less likely, with immuno-inflammation franchise increasing 23% and drug Benlysta driving 22% growth, but most existing drug sales losing ground to competitors and generics. Avodart (prostate cancer treatment prevents conversion of testosterone to dihydrotestosterone) sales notably increased 6%. As GSK restructures its pharmaceutical segment to cater for needs of innovative products over 150 markets, and a research and development portfolio that includes nearly 40 products focused on oncology, immuno-inflammation, vaccines and infectious, respiratory, and rare diseases, a comprehensive analysis would be too large of a task, so we will focus only on notables (in no particular order) here.

Progress on the HIV front was made in December 2016 for two key phase 3 trials, showing that the combination of GSK's dolutagravir and J&J's (NYSE:JNJ) rilpivirine worked as well as existing three- or four-drug regimens (led by Gilead (NASDAQ:GILD)). Regulatory approval for the new two-drug treatment approach, which changes the way HIV can be treated and therefore may expand the market into tough-to-treat patients, is set for 2017. Tivicay has a $5 billion peak sales estimate. GSK claims it will be less harmful than current HIV treatments.

Deep within the phase 2 archives, Novartis's (NYSE:NVS) 12-week Fevipiprant treatment regimen for asthma showed an 80% reduction in inflammation (significant decrease in sputum eosinophils) in people with moderate to severe asthma. Because this is an oral asthma medication in a market dominated by inhalants, it has a uniqueness and long-lasting effect after treatment that Strong Bio can respect as a preventative for sufferers of asthmatic attacks. Phase 3 studies are underway for Fevipiprant.

In COPD, a three-combination therapy by GSK of fluticasone furoate + umeclidinium + vilanterol showed a meaningful benefit (and met its primary endpoints in a phase 3 trial) for lung function and health related quality of life. It also was shown to reduce the rate of moderate to severe exacerbations by 35% compared to budesonide/formoterol. A phase 3 study for the three-combo therapy in asthma has also been initiated in December of 2016, as GSK tries to squeeze more indications out of this therapy. GSK also stands out in that it is making efforts to customize therapies for specific patient's needs.

GSK announced successful phase 3 trial for sirukumab, a human anti-interleukin-6 monoclonal antibody, in treating severe rheumatoid arthritis in November 2016. This study investigated sirukumab in adult patients with moderate to severe rheumatoid arthritis who were refractory to one or more anti-TNF agents, the most common anti-arthritic treatment mechanism.

GSK stands out in its efforts against shingles (caused by the chickenpox virus) with its Shingrix vaccine. With its one-billion-dollar market and outstanding 90% to 97% efficacy results compared to Merck's (NYSE:MRK) attenuated shingles vaccine therapy, Zostavax, with a 51% efficacy (that gets as low as 18% in elderly patients). Strong Bio recognizes this as the definition of growth as a large patient population of 500,000 to 700,000 people each year are now reachable with functional treatment.

The hepatitis C and chronic HCV battle with AbbVie (NYSE:ABBV) might heat up as Regulus (NASDAQ:RGLS) and GSK advance 2878175+RG-101 in mid-stage clinical trials testing its potential single-visit cure with its long-acting anti viral. Key readouts are due for this phase 2 study in second-half 2017, enabling a pivotal trial by end 2017. Utilizing microRNA regulation of gene activity in disease states, anti-miRs offer a unique approach to treating disease and may become a major class of drugs with broad therapeutic application. Injection and daily oral doses are being tested in 12-week regimens.

In Oncology, Strong Bio has previously written about an exciting partnership of GSK and Adaptimmune (NASDAQ:ADAP) and its NY-ESO T-cell technology for treating various sarcomas, now in phase 1/2. This novel mechanism involves screening patients for specific cancer antigen NY-ESO-1 and treating patients who are positive for the antigen with populations of T cells developed against the cancer proteins of interest. This therapy can be a game-changer for stubborn cancers, as Strong Bio finds it logical to believe that once the cancer is controlled, which might require transient and safe chemotherapy, the T cell therapy may help control metastases and extend remission.

In December 2016, phase 1 results of multiple myeloma (a tough cancer) candidate, 2857916+, were reported. Although higher doses might be needed to induce maximum efficacy, eight of 24 patients showed a clinical benefit. Though early in development, this therapy is a humanized anti-BCMA antibody conjugated to microtubule disrupting agent auristatin F via a maleimidocaproyl linker. Upon binding to BCMA (specific for long-lived B cells implicated in multiple myeloma), it is rapidly internalized, and the drug is released in the cell. Interestingly the Fc domain of the antibody assists in cell-mediated cytotoxicity resulting from afucosylation. Strong Bio believes that carriers and linkers are becoming a key to focusing therapeutic effects on a variety of cancer targets.

Small cell lung cancer (SCLC) represents about 15% of lung cancer patients with no great treatment option. GSK and OncoMed (NASDAQ:OMED) initiated a phase 2 study of Tarextumab, a Notch 2/3 targeting fully human antibody, in August 2016. Unfortunately the drug missed its endpoints in phase 2 and might be looking for another candidate to try soon. It also has candidate 2879552, a potent selective mechanism-based inactivator of Lysine Specific Demethylase 1/CoRepressor for Element-1-Silencing Transcription factor activity, in phase 1 study for SCLC. Though the method is unique, results are not yet reported for the early study. SCLC, with its limited treatment options, offers an opportunity for true growth in market.

GSK is also evaluating an early-stage candidate (June 2016), ICOS agonist antibody. ICOS is a co-stimulatory receptor that enhances T-cell responses and results in increased anti-tumor responses from the immune system. With multiple uses as a checkpoint inhibitor, it remains to be seen if it increases efficacy for cancer while keeping safety in check. Strong Bio regards this potential cancer cocktail booster as huge.

Autoimmune disorders can result from unchecked immune system stimulus. But GSK is in a good place to make decisions on such mechanisms as its pipeline is enormous in immunomodulatory treatments. Included in this group is Belimumab, a human monoclonal antibody, which targets B-lymphocyte stimulator and is used to treat lupus and other auto-immune diseases. In December 2016, it filed for approval in Japan for Belimumab, based upon two phase 3 studies in Asia and the U.S., for lupus, expanding its range of territory.

Along the lines of autoimmune disorders, GSK started a phase 3 study in March 2017 for mepolizumab (part of its respiratory portfolio), an interleukin-5 antagonist (IL5 is necessary for proliferation and activity of eosinophils), in patients with severe hypereosinophilic syndrome (HES). HES can result in organ damage and get progressively more severe if untreated. Though limited treatments exist, current options for a majority are either inadequate or come with undesired side effects. The antibody is also being tested for severe dermatitis and has shown to be effective against vasculitis in phase 3 trials.

Glaxo has plenty in its pipeline that it does not have to rely on acquisitions to bolster its position. Speculation on what it might find valuable is nearly impossible, but SCLC would be a good place to start should a company show strong SCLC efficacy in the near future.

Strong Bio has only begun to describe the exciting projects underway at GSK. With a 4% dividend, what is not to like as its growth prospects are overwhelming. As with all investments, there is always risk. Biotechnology risks are regarded as higher than average for stocks, and include standard risks associated with failed FDA approval, regulatory, scientific, or business delays, dilutive events, and volatile markets. New and rare unforeseen setbacks and obstacles are always possible. Strong Bio encourages investors to discuss investment options with financial professionals and always maintain a diverse portfolio to help account for unforeseen potential losses. Strong Bio assumes no responsibility for losses due to investments based in part on this report or recommendation. And as always fellow investors, diversify your portfolios! That's why we do all of this work to find good candidates.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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