GSK - Q4 2023

Transcript

Nick Stone (SVP and Head of Investor Relations)

Hello, everyone. It's Nick Stone, Head of Investor Relations. Welcome to today's call and webcast. The presentation was sent to our distribution list by email, and you can also find it on gsk.com. Please turn to slide two. This is the usual safe harbor statement. We'll comment on our performance using constant exchange rates or CER, unless stated otherwise. As a reminder, following the Consumer Healthcare demerger in 2022, we're presenting performance and growth of the continuing operations for GSK. Please turn to slide three. Today's call will last approximately one hour, with the presentation taking around 30 minutes and the remaining time for your questions. We request that you ask one to two questions so that everyone has a chance to participate. Turning to slide four, I will now hand the call over to Emma.

Emma Walmsley (CEO)

Hello, and a warm welcome to everybody joining this call. Today, we are updating you on our performance for 2023, giving guidance for 2024, and providing you with new, upgraded, longer-term outlooks. Please turn to the next slide. In 2021, we set out a series of commitments to shareholders, including for a step change in performance, following the significant transformation in GSK's structure, strategy, capital allocation, and culture. Since then, we've delivered 10 quarters of consecutive sales growth ex-COVID, and our priority to invest in new vaccines and specialty medicines to reshape GSK's portfolio is now strongly evident, with around 2/3 of sales now generated from these two product areas. At the same time, we've continued to strengthen our pipeline.

The majority of the late-stage assets that we highlighted in 2021 have moved forward positively, and we've added multiple new opportunities to this portfolio, including through targeted business development, where we've secured more than 16 acquisitions and alliances for innovative assets and new technologies. We have achieved all of this while maintaining a continued sharp focus on operating margins, cash flow, and capital allocation, mindful of the need to both invest for the future and to deliver attractive returns to shareholders. Next slide, please. Our performance for 2023 demonstrates all of this. Sales and profits ex-COVID solutions grew double-digit levels for the year. Sales were up 14% to over GBP 30 billion, a clear highlight being the exceptional launch of Arexvy. Adjusted operating profit was up 16% and adjusted EPS were up 22%.

All three of our product areas demonstrated good growth, with sales from new products since 2017 contributing more than GBP 11 billion in 2023. This level of performance helped to deliver two upgrades to guidance in 2023 and led to the increased dividend we've announced today of GBP 0.58 per share. We also sustained good progress with our trust and ESG goals, not least reflected in our sector leadership of the S&P's Global Corporate Sustainability Assessment. Highlights for the year included moving to phase III for our low-carbon Ventolin inhaler program, hitting our leadership diversity ambitions two years ahead of schedule, and extending rollout of our malaria vaccine to 12 new countries in Africa. Altogether, 2023 provided us with good momentum, which we're now carrying into this year. Next slide, please.

In 2024, we expect another year of meaningful growth. Sales growth of 5%-7%, adjusted operating profit growth of 7%-10%, and adjusted EPS growth of 6%-9%. For the period 2021 to 2026, we now expect sales to grow more than 7% on a CAGR basis and adjusted operating profit to increase more than 11% CAGR. For 2026 to 2031, with the progress we've made in our portfolio, we now believe that we can deliver more than GBP 38 billion of sales by 2031. This is an increase of GBP 5 billion versus the estimate we gave in 2021 and continues to exclude any contributions from early-stage pipeline assets and further anticipated business development. We've also not included any potential future sales contribution from Blenrep here either.

So this new outlook represents a marked sales acceleration, as in effect, we now expect to reach our original 2031 goal of more than GBP 33 billion by 2026, so five years earlier. Beyond sales, we expect a continued strong focus on margin improvements during this period while retaining flexibility to invest in growth. Recognizing that we'll likely face loss of exclusivity for dolutegravir from 2028 to 2030, we're also able to say today that we expect operating margins to be broadly stable through that three-year period. Julie and I will cover these outlooks in more detail shortly, but first, we're going to review our 2023 performance and 2024 guidance, starting with comments from Luke.

Luke Miels (Chief Commercial Officer)

Thanks, Emma. Please turn to the next slide. 2023 was a great year for operating performance with strong growth across all our product areas and regions up 14% for the full year. Please turn to slide 10. In vaccines, sales were up 24% for the year, with the outstanding launch performance of Arexvy contributing more than GBP 1.2 billion, together with the strong performances from Shingrix and our meningitis portfolio. I'll come to Arexvy in a minute, but first, a few points on the rest of the portfolio and specifically prospects for growth. We continue to expect strong growth for Shingrix this year and deliver more than GBP 4 billion in peak year sales.

In the U.S., our immunization rate is 35% in those people 50 years and older, which means close to 80 million people who are eligible are unvaccinated, with more than 4 million people joining this cohort each year. We expect 2024 growth to be driven outside the U.S., where the vaccine is now approved in 39 countries, most of which have less than 4% penetration, and we're really excited about our new partnership with Zhifei in China. Our meningitis portfolio supports a major public health need and continues to be an important contributor to growth. BEXSERO and MENVEO sales were up 14% and 12% in 2023. We're also excited to be submitting our MenABCWY vaccine for approval in the U.S. this year. Combined, this franchise is expected to deliver around GBP 2 billion in non-risk adjusted peak year sales.

Beyond the marketed portfolio, we expect to see further progress in 2024 for our mRNA vaccine, with phase II data in flu, the development of our pneumococcal MAPS vaccine candidates, and our potential HSV therapeutic vaccine. Next slide, please. As Emma said, the Arexvy launch has been exceptional, and we expect good growth this year, mainly driven by further penetration in the U.S., but also early adoption from the international rollout of the vaccine. We are currently approved in 39 countries, and in the U.S., our choice to emphasize our 94.6% efficacy in the comorbid population continues to resonate well. Script data shows strong brand preference, and market data tells us that two out of three HCPs prefer Arexvy, and we continue to have a strong position with all major pharmacies as we start 2024.

Looking into this year, we have a major opportunity subject to approval and ACIP recommendation, with a potential label for at-risk individuals in the 50- to 59-year-old cohort. This is around 15 million people, and on other dynamics for this year, we know we're facing a more competitive environment, and of course, we won't benefit from launch stocking. We'll also start to see how seasonality affects use patterns for Arexvy, but we are ready for all of this and are ambitious for 2024. We remain very confident this vaccine can achieve more than GBP 3 billion in peak year sales over time. Overall, looking across the vaccines portfolio, we expect sales to increase high single-digit to low double-digit percent in 2024, and we're also upgrading our vaccines outlook from 2021 to 2026, from high single digits to low double digits. Next slide, please. Moving to Specialty Medicines.

Here, overall sales were up 15% for the year, driven by strong performance from key products in HIV, which Deborah will cover shortly, respiratory, immunology, and oncology. In respiratory, our market-leading IL-5, Nucala, saw strong growth across all geographies and received severe asthma approval in China. And as we said at our recent Respiratory Meet the Management event, we expect pivotal COPD data for Nucala in the second half of this year. Before then, and excitingly for this class of respiratory medicines, we expect first pivotal trial results for depemokimab, our new six-monthly IL-5, a key new growth opportunity for our respiratory business. Blenrep was also a major contributor for 2023, with sales up 19% in oncology.

We are very pleased with the strong uptake for Ojjaara, and we're also seeing increasing usage in Jemperli and Zejula in patients with endometrial and ovarian cancers, driven by generation of compelling data and launch of new patient-valued formulations. A quick word on Blenrep. Sales decreased for the year as expected, but following positive headline results from a planned interim efficacy analysis of the DREAMM-7 trial, we are now waiting for further overall survival data from this study, and we continue to expect DREAMM-8 results later this year. Overall, we can expect another year of strong performance from our specialty medicines in 2024, with growth of low double-digit percent, and continue to expect double-digit growth between 2021 and 2026. Please turn to slide 13. Finally, our General Medicines portfolio.

Sales grew 5% in 2023, led by TRELEGY, which is now contributing over GBP 2 billion per year and is the world's top-selling brand in asthma and COPD. We are now using our respiratory expertise across both vaccines and medicines, with the benefit of TRELEGY and Arexvy co-promotion being recognized by HCPs who want to discuss both respiratory prevention and treatment. Overall, we expect general medicines to decrease mid-single-digit percentage in 2024, and this guidance takes into account the AMP cap removal in the U.S., which we previously highlighted as impacting the business by up to $700 million. We provided for around 20% of this in 2023 and continue to expect a broadly flat outlook between 2021 and 2026. I'll now hand over to Deborah to cover HIV.

Deborah Waterhouse (CEO)

Thank you, Luke. HIV sales grew 13% to GBP 6.4 billion in 2023, driven by a notable acceleration in our oral two drug and long-acting injectable regimens. Sales from these two areas represent 55% of our portfolio, compared to an exit of 46% in 2022. For the year, Dovato sales grew 33% to GBP 1.8 billion. Cabenuva grew more than 100%, with sales over GBP 700 million, and Apretude contributed sales of GBP 149 million. The growth of these products reflects strong patient demand and our deep commitment to innovation. For long-acting regimens, specifically, more than 80% of US healthcare prescribers now tell us they are convinced that these regimens will become a key part of HIV care.

Based on this demand and our growth and momentum, we're projecting a growth rate of high-single to low-double digits in 2024. We're excited by the potential of our early-stage pipeline to deliver more innovative, longer-acting injectable regimens. And as I said at last year's investor event, 2024 will be an important year for us as we select regimens for four-monthly treatment and self-administered treatment, as well as starting the registrational studies for our four-monthly PrEP. We will be presenting data on our early pipeline and our current portfolio at CROI in March. To conclude, 2023 was another positive year of performance and portfolio development. As such, we're looking forward to 2024 and are confident that we are well on track to deliver our 2021 to 2026 sales ambition of 6%-8%. With that, I shall hand to Julie.

Julie Brown (CFO)

Thank you, Deborah, and good morning, everyone. Next slide, please. Starting with the income statement, with growth rates stated at CER. Sales increased 14%, excluding COVID solutions, and were up 5% overall, reflecting continued strong business performance. Adjusted operating profit grew 16%, excluding COVID, and 12% overall. The margin increased to 29%, driven largely by favorable product mix and operational efficiencies as well as increased royalties. COGS and SG&A grew broadly in line with sales, excluding COVID. R&D costs increased due to the investment in late-stage programs in vaccines, respiratory immunology, and infectious diseases, with the step-up in Q4 due to reorganization costs and the acceleration of late-stage projects. Adjusted earnings per share grew 22%, excluding COVID solutions, and 16% overall, and this benefited also from lower net finance expense, down 15% following debt restructuring.

The effective tax rate was 15.5%, in line with our guidance. Turning to the reported results, total operating profit increased 10% to GBP 6.7 billion, driven by overall performance and favorable CCL movements. The reconciliation of total to adjusted results is included in the Appendix. On currency, there was an adverse 200 basis point impact on sales and 400 basis points on adjusted operating profit versus the prior year, primarily due to the strengthening of sterling against emerging market currencies. Next slide, please. Moving on to the adjusted operating margin dynamics for the year. On this slide, we have shared, including and excluding COVID, to provide an underlying review of margin dynamics. Excluding COVID solutions, the margin improved 60 basis points at CER to 29.1% due to improved product mix, productivity improvements, and increased royalty income.

Including COVID, there was a 180 basis point improvement, primarily reflecting reduced sales of lower margins of Xevudy. Regarding SG&A, growth was focused on investment in vaccines, including disease awareness and the launch of Arexvy, together with Shingrix, long-acting HIV, Jemperli, and Ojjaara. Royalty income also contributed to margin improvement. Next slide, please. Free cash flow increased to GBP 3.4 billion, and this despite annualizing the receipt of GBP 0.9 billion from Gilead in 2022. This increase was primarily driven by higher operating profit, together with favorable timing of Xevudy cash flows and a lower U.K. pension contribution. This was partly offset by higher trade receivables from sales of Arexvy in the last quarter.

Q4 CGFO performance was particularly strong, delivering GBP 3.7 billion versus GBP 2.1 billion last year, and this increase was primarily driven by higher collections following the strong launch of Arexvy in Q3. We expect cash generated from operations to remain strong, and we're fully committed to delivering more than GBP 10 billion by 2026. Next slide, please. Slide 19 shares our net debt position and how we've deployed capital in the business in line with the capital allocation framework. We look to deploy funds to enhance growth and deliver attractive shareholder returns. We started the year with net debt of GBP 17 billion, and strong free cash generation, in addition to the monetization of our stake in Haleon, supported GBP 3.8 billion pounds of investment in targeted business development and capital expenditure, and GBP 2.2 billion in returns to shareholders via the dividend.

Overall, this led to a further reduction in net debt to GBP 15 billion by the end of 2023, and a net debt to adjusted EBITDA ratio of 1.5x. Post the year-end, we conducted a further sale of 300 million Haleon shares, yielding proceeds of GBP 978 million and leaving our equity holding at just over 4%. Further, we reached a successful agreement to acquire Aiolos Bio, subject to customary regulatory clearances, and to further strengthen our respiratory portfolio. I'll now turn to our expectations for the coming year. Next slide, please. In 2024, we expect another year of meaningful growth for GSK. We expect sales to increase between 5% and 7%, adjusted operating profit to increase between 7% and 10%, and adjusted earnings per share to increase between 6% and 9%.

Important to note that the cessation of Gardasil royalties negatively impacts profit growth by 6 percentage points within our 2024 guidance. As a reminder, our guidance is provided at CER and excludes the impact of COVID-19 solutions. Some points to note for modeling purposes. Firstly, our sales composition. As Luke and Deborah have said, for vaccines, we expect high single-digit to low double-digit percent growth. For specialty medicines, we expect a low double-digit percent growth. For HIV, sales to grow high single-digit to low double-digit percent. And within general medicines, we expect sales will decrease by a mid-single-digit percent, largely as a result of the AMP cap removal in the U.S. We also do not anticipate any further revenue from COVID solutions, and this will reduce sales growth by 1% and operating profit growth by 2% in 2024. Secondly, turning to operating margin dynamics.

We have been in an investment cycle supporting our newly launched vaccines and medicines, and we now expect to move to a period of delivering increasing returns on our investment. In this new cycle, we expect to step down in SG&A growth to a low single-digit percentage, improving productivity and providing margin leverage while remaining competitive. We will continue to invest for growth, as established in our capital allocation framework, and we will continue to build a strong R&D pipeline for the longer term. Finally, we expect an increased tax rate of 17% for 2024. I'll now hand back to Emma.

Emma Walmsley (CEO)

Thanks, Julie. In this final section, we'd like to provide you with a bit more detail on the key elements that we see as underpinning our performance in 2026 to 2031. We know this period is a key area of focus for investors, with growth and profitability being two clear dynamics for us to manage. Next slide, please. First, growth and its most important driver, portfolio development. We start from a very healthy position, with a core set of marketed vaccines and specialty medicines driving significant growth. With the progress we're making, particularly in vaccines and HIV, these marketed assets now support an outlook of more than 7% sales growth on a five-year CAGR basis in 2026. These growth drivers will be supplemented by a planned set of near-term new product launches, each with peak year sales potential of GBP 2 billion or more.

Here we have new potential vaccines for meningitis, influenza, pneumococcal disease, and HSV, and new potential medicines for long-acting HIV treatment and prevention, a functional cure for hepatitis B, bepirovirsen, a new portfolio of anti-infective treatments, including gepotidacin, new medicines for respiratory diseases with high burden and unmet need, depemokimab and camlipixant, and in oncology, further indications for Jemperli and potentially CD226, targeting a variety of cancer types. Altogether, we are currently planning for at least 12 major product launches in the period 2025 to 2031. With these planned launches and our current marketed growth drivers, we expect to deliver more than GBP 38 billion in risk-adjusted sales for GSK by 2031. And beyond this, so not included in that GBP 38 billion, we continue to develop a promising early-stage pipeline, and we will continue to pursue targeted business development. Next slide, please.

Of course, we recognize that there is development risk and that refreshing and progressing our pipeline is a continual process. By definition, not everything will come through. Continued strong execution is needed, and we're committed to it. We forecast our sales on an RA, risk-adjusted, and NRA, non-risk-adjusted basis. As you can see here, there is significant potential for upside with successful development outcomes. Our highest adjustments are in specialty oncology, reflecting the development risk and the upside returns the assets we have in this space offer. Overall, our portfolio offers scale growth opportunity and has an attractive risk profile. More than 90% of those future sales come from products already approved or from planned launches of GBP 2 billion or more, most of which we plan to launch in the next four years. Next slide, please.

You'll be increasingly familiar with many of these assets following our Meet the Management events last year. We will, of course, continue to provide updates as we expect significant amounts of pipeline value to unlock this year, in 2025 and in 2026, as this growing late-stage portfolio matures. As shown here, you can see we have multi-billion pounds scale opportunities in all of our core product areas. These peak year sales estimates are given on a non-risk-adjusted basis, and all of them are at least GBP 2 billio, with many significantly higher. So let's now turn to the second dynamic for us to manage in 2026 to 2031, a continued focus on profitability and disciplined capital allocation. So over to Julie to comment on this.

Julie Brown (CFO)

Thanks, Emma. First, I will cover operating margins. Since 2021, we've delivered an increase in margin of 290 basis points, and we remain focused on delivering further margin improvements in the next three years to achieve an operating margin in excess of 31% by the end of 2026. This represents more than a 530 basis point improvement over the five years. Our margin is benefiting from the strategic shift we've made to invest in vaccines and specialty medicines, together with the significant productivity improvements across supply chain, commercial operations, and global functions. This margin progression is after absorbing various headwinds, including several already highlighted, such as Gardasil royalties and the impact from AMP cap. These are all factored into our outlooks. Moving to the period 2026 to 2031.

While we do not plan to guide on operating margin beyond 2026, we do understand that investors are concerned about the period when dolutegravir loses exclusivity. We would therefore like to set out our expectations for this three-year period, starting in 2028, with the majority impact in 2029, 2030. Offsetting this are a number of positive factors. First, and very importantly, the development of new long-acting and ultra-long-acting HIV treatment and prevention therapies, such that by the time the loss of exclusivity starts, we would expect around 40% of our HIV business to be in long-acting therapies. Second, the mixed benefit to the operating margin from growth in vaccines and specialty care products, which we anticipate to be around 3/4 of revenues by 2026.

Thirdly, accelerating productivity gains, notably in supply chain and in SG&A, with increased use of AI and analytics to underpin and further support GSK's profitability in this period. Taking all of this together, our expectation is for operating margins to be broadly stable through the three years where dolutegravir loses exclusivity. Known headwinds, including the impact of the IRA on certain products, are also incorporated into this expectation. And finally, we will continue to have a strong focus on margin improvement and ensure our P&L is both competitive and invested for growth. We remain ambitious and will seek further upside through progression of the early-stage pipeline, targeted business development, and a continued drive for efficiency. Next slide, please. Turning to capital allocation. Our first priority remains to invest in the business with capital allocated towards development of the pipeline, both organic and targeted business development.

We also remain committed to delivering attractive returns to shareholders and pursuing a progressive dividend policy. We are therefore pleased to announce an uplift in the fourth quarter dividend to bring the total for 2023 to GBP 0.58, allowing shareholders to benefit from the upgraded performance last year and our increased confidence in the future. In addition, we are announcing today that we expect to pay a dividend of GBP 0.60 for the year 2024, in line with our progressive policy and to be paid in equal quarterly installments. Next slide, please. It is important that we share our progress with you and that you're able to track our major milestones and value unlocks Emma referred to earlier.

Last year, we set out an IR roadmap for investors covering the next 18 months, inclusive of four major areas: execution, pipeline, capital allocation, and investor engagement. Our progress on this has been very positive and is available in our Appendix. Today, we are providing you with a new and updated roadmap for 2024 and extending this into 2025, outlining the milestones and potential inflection points we expect to deliver in the next 24 months. The phase III and regulatory decisions are highlighted and aligned to the planned major launches Emma referenced, and include expected progress for MenABCWY in vaccines, depemokimab, Nucala, COPD, and camlipixant in respiratory, gepotidacin in infectious disease, together with Blenrep and Jemperli in oncology.

We hope you'll find this useful, and we also look forward to providing you with updates at several scientific conferences this year, and we were also planning to hold two additional Meet the Management events covering oncology in the summer and selected early-stage pipeline assets towards the end of the year. I will now hand back to Emma to conclude.

Emma Walmsley (CEO)

Thanks, Julie. To summarize, GSK is delivering on its commitments and performing to a new standard. The excellent performance that we delivered in 2023 provides us with clear momentum, and we expect to deliver another year of meaningful growth in 2024 as we continue to focus on prevention and changing the course of disease for millions of people. Our progress means we're also upgrading our outlooks for 2026 and 2031. All of this bodes well, but equally, we also know there is much to be done. We remain very focused on delivering this potential and more at continued pace for patients, for shareholders, and for our people, combining science, technology, and talent to get ahead of disease together. With that, I will now open up the call for the Q&A with the team.

Nick Stone (SVP and Head of Investor Relations)

Thanks, Emma. We're going to take our first question from Peter Welford. Peter, over to you, please.

Peter Welford (Research Analyst)

Hi. Yes, thanks. You said one or two, so I'll stick to two if I may. Firstly, on Arexvy, I wonder if Luke can just talk a little bit about the contracting discussions that you've got in place for 2024, given comments from Pfizer about trying to become more competitive this year. And if you could give us any insights into the sort of levels of stocks that you have at the moment, and whether that is now a sort of sustainable level that you think going forward, given the apparent lack of seasonality, at least relative to flu, that we're seeing. And then the second, just a quick one, just on oncology. Looks as though you've got two over GBP 2 billion peak year sales potentials in oncology that you're including in the 2031 now.

Just, we're curious, when can we get some visibility, I guess, to increase the confidence in the oncology part of that GBP 38 billion? And to be clear, that presumably doesn't include a return of Blenrep. Thank you.

Emma Walmsley (CEO)

Right. Thanks, Peter. Well, we'll come to Luke first. On Arexvy, we're obviously delighted with doing the fastest ramp to blockbuster in four months that the company's ever done in 2023, and ambitious for the path forward. Then I'm gonna ask Tony to comment on oncology. Just to confirm, though, Blenrep isn't included in any of the outlooks, although we do have some more data to come. As a reminder, in one of the slides that I presented, this is the more heavily risk-adjusted portfolio in our outlook to 2031, and particularly with the 226 portfolio not starting right towards the end of that period. But Tony can give you more visibility on when we'll know what for Jemperli. But Luke, first to you.

Luke Miels (Chief Commercial Officer)

Yeah, sure. Thanks. Thanks, Emma. Thanks, Peter. Look, stocking levels are about 20% of what we've sold in, and if you remember, we had that initial loading with a launch. As you'd expect, you need to fill the shelves. But now we're at steady state. I think you know, agree with you in terms of shifting away from, I think we're increasingly confident this is not going to be a seasonal vaccine, and we're working very hard to do that. I think the certainties and data that we'll get in, you know, the middle of the year will also help to cement that.

In terms of contract, as you can imagine, I'm gonna be a little bit coy there, because, as we've said on the past call, people get up early to listen to these calls. But, you know, I would say we're very pleased with the launch so far, and the 2023 performance. But, you know, our mindset is this is the first round of a multi-round fight, and in 2024, of course, we've got a third boxer jumping into the ring to make things interesting. So, we're very focused on it. We're very confident. I think we've shown that we can compete with the best, and our aim is to have another good year in 2024.

Emma Walmsley (CEO)

Thanks, Luke. Tony, for oncology?

Tony Wood (Chief Scientific Officer)

Yeah, hi, Peter. So just to reiterate, first of all, Blenrep is not in the projections. For Jemperli, as you've called out, there are two areas, and the way to think about this is the continued development of value from Jemperli in areas where the underpinning genetics of the cancer support its activity. For example, building on the results that we have with RUBY and looking at other areas to which dMMR or MSI-High status are likely to generate transformative results. In addition, we've taken a careful look back on what we might call opportunities for which the PD-1 class is showing some effect, but adjustments in the approach would deliver potential long-term differentiated efficacy for Jemperli. That would be in the third line, head and neck.

And then broadly speaking, which you'll, and you'll hear more about this towards the end of the year, is the data that we have in the CD226 axis begin to mature, and we, we'll hold the meet-the-management session, is gonna be associated with exploring our combinations with TIGIT in particular, and that's a question of how those data play out in lung and other opportunities like head and neck.

Emma Walmsley (CEO)

Thanks, Tony. Next question, please.

Nick Stone (SVP and Head of Investor Relations)

Okay, so we're going to take our next question from Jo Walton at UBS. Jo, over to you, please.

Emma Walmsley (CEO)

Jo?

Nick Stone (SVP and Head of Investor Relations)

Looks like you're on mute at the moment, Jo. I'll come back to you, Jo. Bear with me. We'll take our next question from James Gordon at JPMorgan. James, over to you, please.

James Gordon (Executive Director of European Pharma Equity Research)

Hello, James Gordon, JPMorgan. Thanks for taking the questions. The first question was just about Arexvy and, and about the revaccination data that I think we're gonna get in the first half. So I remember one year there wasn't a, a revaccination benefit, even though the protection had fallen quite a long way. So my question is, confidence that we are gonna see a strong benefit, and how strong a benefit do you need to see? What would be a clinically meaningful benefit that would justify revaccinating people at two years? And is it right that the 2026 assumption is that there is a strong benefit from revaccinating people? So that's the, the first question, please. The second question was just on the longer-term margin. So I saw the comment about broadly stable operating margin as dolutegravir goes away.

I understand it's partly about productivity gains, but can you just remind us, what is the headroom? How much are you losing? 'Cause I think when you did break out ViiV before and dolutegravir, when it was really just dolutegravir, it was a margin north of 70%. And then presumably, the margin will be even higher, as that business has grown and you've got more operating leverage. So is that right, that you'll be losing a business that's more than 70% EBIT margin when it goes away? And is part of it that you think there's gonna be new pipeline that's gonna come in at a similarly high margin, or am I overestimating the profitability you'd lose?

Emma Walmsley (CEO)

Thanks, James. So, we'll come to Julie to give you a response on the building blocks to the margin. But first, Tony, to comment on revaccination. And just to be clear, the 2026 outlooks, we haven't given a specific 2026 outlook for RSV. We've given peak year sales for RSV and overall vaccines growth, upgraded outlook to 2026 as well. But this is obviously a key asset and very excited for the efficacy and more data to come. So Tony?

Tony Wood (Chief Scientific Officer)

Yeah, sure. So James, just of course, a reminder that the existing two-year data is what is supporting the deseasonalization of the product. I'll talk about the plan to get to the decision point for determining the seasonality of the product. We're on track with regards to the third season data that will be presented at ACIP. It's worthwhile reminding everybody, though, the season is called by CDC and the determination of attack rates. So on track for that as far as we stand at the moment, and that will include the boost comparison. If you ask me to make a best guess based on what we see from immunogenicity data in the 006 study and other smaller studies, then I think we're heading for a two-season vaccine.

Again, though, that and the data supporting it will be the basis of an ACIP decision and our conversations with ACIP, so I'll just leave you with the plan at this stage.

Emma Walmsley (CEO)

Yeah, and I think the other thing to say on deseasonalization, you know, as Luke presented, obviously RSV vaccination is holding up better than flu and pneumococcal, but it still came down between October and December, and we don't- we, you know, we've got work to do, and we will still soon discover more over the coming quarter on how those efforts play forward. Julie, margin building blocks.

Julie Brown (CFO)

Yeah. Thanks. Thanks, Emma, and thank you for the question. In terms of, obviously, we are conscious that people are concerned about the loss of margin from dolutegravir. It's not at the level of the HIV business of the 70% that you mentioned. We've continued to invest heavily in this franchise and build, in particular, the long-acting portfolio. And the reason for the confidence that we can hold it stable during that period, first of all, I draw attention to the 12, you know, launches that Emma called out in her review. We've got some of them near term. I mean, the majority of these will be launching within the next four years, so the inflections are coming quite quickly. But we've got meningitis, MenABCWY, we've got the mRNA influenza. We've also, very importantly, got HIV.

You know, we're confident of the four months, and we've got work going on on that already. So the long-acting portfolio, very importantly, at the time the dolutegravir patent expiry starts, we expect to have 40% of the business already in long-acting, so that's an important mechanism. In addition to that, as you know, we've got camlipixant launching, depemokimab, important readout coming out in the first half of this year, together with the anti-infective portfolio and others that Emma mentioned. So 12 major product launches just coming out now, the majority in the next four years. The other factors are the productivity gains. We're very confident. You see, we've stepped down SG&A growth into 2024. Luke and I have worked very closely together. We are very confident that we can leverage the great base that we've built.

And very importantly, some of those assets that are launching, particularly in respiratory, we've got very capable field forces in the areas where we're launching these assets, so the leverage capability is there. And you've seen us leverage the margin. You know, we're committing to more than 500 basis points already by 2026. You'll see, as we're never going to be satisfied. We are going to grow the top line, the, the GBP 38 billion. We're saying above the GBP 38 billion. That's a risk-adjusted number, very importantly. Secondly, we continue to do business development. We've got the balance sheet to do it. It's part and parcel of building the R&D pipeline further. And also, finally, that more than GBP 38 billion does not include those early-stage projects that Emma alluded to in her conversation. So we're very confident of withstanding the DTG patent expiry.

Emma Walmsley (CEO)

I mean, in the end, the outlooks that we're updating today, we have added GBP 5 billion top line versus where we were in the summer of 2021, and we know there's still more to do. So we're confident on making further progress with a lot of ambition. Next question, please.

Nick Stone (SVP and Head of Investor Relations)

We're going to come back to you, Jo. Hopefully you should be able to speak now.

Jo Walton (Pharma Analyst)

Thank you. Could I ask about U.S.? Patients are already beginning to see lower co-pays as we go into 2024. Is there any benefit that you have in terms of less charitable giving to support people on Medicare who might need your assistance, or any view that you have for some of your more expensive medications, that there would be an increase in volume coming through? And my second question would be, to look a bit more about Shingrix in China. If we look at how Merck has dealt with their relationship with Zhifei and Gardasil, which has obviously been extremely successful, Merck is promoting as well as Zhifei promoting.

So, given your relatively small base in China, can you tell us what you are doing to ensure that there is a strong uptake of Shingrix in China so that, over time, it'll be more than the minimum amount of sales Zhifei is taking from you? Thank you.

Emma Walmsley (CEO)

Thanks, Jo. And, you know, both of those questions we'll come to, to Luke on. We're after a record quarter on Shingrix again, we really do see the Zhifei deal as a very important building block for the ongoing growth of this great vaccine. So to you on that and any other comments you want to make.

Luke Miels (Chief Commercial Officer)

Sure. Thanks, Jo. I'll cover the China question first. The way the deal is structured, we still maintain the license in China, and we preserve 600 headcount. We are promoting the product in addition to Zhifei's structure, which is several orders of magnitude larger. We also partner with them in terms of profile positioning and life cycle work with Shingrix, so we're very engaged. I think the partnership has started very well. There's high levels of trust, and you mentioned the Merck structure, which has been in place, I think 11 years, nearly 12 years now, and that's been very successful. So our aim is to replicate or even exceed that. One thing to keep in mind with revenue recognition in China next year, it's driven by shipments.

So there'll be a bolus, which is between 60% and 80%, depending on how much we shift, which will be recognized in quarter two. So that's just one watch-out.

Jo Walton (Pharma Analyst)

Yeah.

Luke Miels (Chief Commercial Officer)

Yeah, we're very excited about the long-term potential for Shingrix in China and the partnership, and also the capacity to expand that to include RSV. In terms of co-pay assistance, indigent programs, et cetera, we do have extensive programs across the business in HIV, of course, oncology and other areas. We're not seeing an increase in those, Joe, but we do have extensive programs that people can take advantage of. Of course, the co-pay has now been removed from Shingrix and RSV, which is a big advantage for senior citizens.

Emma Walmsley (CEO)

Thanks. Next question, please.

Tony Wood (Chief Scientific Officer)

Our next question is gonna come from Simon Baker. Simon, over to you, please, at Redburn.

Simon Baker (Partner and Head of Global Biopharma Research)

Thank you. Thank you for taking my questions. Two if I may, please. Firstly, on Arexvy, but Arexvy ex U.S., you've said in the past that you expect a Shingrix-like broadly flat global pricing for Arexvy. Given that that's now beginning to roll out, I just wonder if you could confirm if that's still the case and give us any updates on how things are going outside of the U.S. in terms of those negotiations. And then, secondly, and forgive my pronunciation, I'll probably get this wrong. On the Aiolos acquisition, it's slightly earlier than we've seen from your acquisitions in the past, where you've been prepared to pay more for later-stage products.

So I just wonder if you could give us an idea of whether this marks a shift in your business development approach, or whether there was something particular about that TSLP which led you to go earlier than perhaps you've done in the past. Thanks so much.

Emma Walmsley (CEO)

Thanks very much. Well, let's come to Luke first on the globalization of Arexvy, although the U.S. will still be by far the biggest part of the business. But obviously that's going to be a key contributor for the future. And then, Tony, to comment on the Aiolos deal, and, you know, our consistent approach strategically to BD, which starts with getting a very good return on the investment of that because of the sizable assets and their differentiation, which is definitely what we're excited about here. But first to you, Luke.

Luke Miels (Chief Commercial Officer)

Thanks, Simon. Yeah, I mean, as I said, we're approved in 39 countries. If you look below that, and it's very similar to what we've seen with Shingrix. It just takes time to assemble the arguments for the infrastructure in those countries to review the data. We know that some governments are waiting for that third season, which we'll have shortly. But if you look within that, those 39 countries, we've got nine that have issued recommendations and four that have voluntary reimbursement. So, for example, I was in Germany yesterday. If you look at the 60+ population, we've already got reimbursement through the six funds on about 24% of that population. So it's early days, but and in terms of pricing, our aim in the private market is to preserve that pricing level.

Of course, always we are open if we can secure a contract, because the structural nature of those contracts is such that we don't have to do the DTC, et cetera, that we need to do in the U.S. We have smaller sales forces because the system itself will pull through those scripts, the U.K. being, a typical example. So early days, but exciting, and I mentioned, China before. There, we're working actively to get Arexvy to China as quickly as possible.

Emma Walmsley (CEO)

Thanks, Luke. Tony, comments on Aiolos and BD more broadly.

Tony Wood (Chief Scientific Officer)

Yeah, thanks. Hi, Simon. So first of all, the way to think about the Aiolos deal, let me just re-emphasize something to begin with, that this is in the low T2 population, so it gives us access to an additional 40% of the severe asthma population for which Nucala and depemokimab aren't addressed. Now, similarly to Nucala and depemokimab, the reason we were confident to go earlier with the Aiolos asset is we have a very clear understanding of the PK/PD proposition there. So you can learn an awful lot with regards to projected dosing and efficacy through phase I-B data, which is the case with the Aiolos, and we look upon that as being a best-in-class opportunity, which will appear in the market, potentially first in class with a Q6M profile and well-matched against depemokimab.

Those features, I would say, emphasize the continuing focus that we'll have on BD with deals of about that scale, that match our overall therapeutic area focus in an appropriate strategic way with the factors that Emma just mentioned. For earlier deals, what you should be expecting there is a focus more on the underpinning technologies that are transforming R&D for us.

Emma Walmsley (CEO)

Very clear. Thank you. And obviously, extremely clear as our top priority in the capital allocation framework. And as Julie laid out in her slides around allocation of capital, that's a consistent approach we're taking, and was all part of the demerger strategy to create that balance sheet, capacity for us to put BD as the way we do R&D at GSK now, as it is across the industry. Next question, please.

Nick Stone (SVP and Head of Investor Relations)

Okay, so we've got about seven people with their hands raised. We've got about 10 minutes left, so if I can ask people to keep their questions short, and equally, we'll try and keep answers concise. But our next question is gonna come from Tim Anderson at Wolfe Research. Tim, over to you, please.

Tim Anderson (Managing Director and Senior Equity Research Analyst for Pharmaceuticals and Biotechnology)

Thanks. If I could go back to Shingrix in China, and just drawing the analogy to Merck's Gardasil or even your Cervarix, the question I have is the disease awareness among the general population about shingles versus cervical cancer vaccine. 'Cause with Gardasil, it's been high consumer awareness that's really kind of created this classic pull demand at the consumer level. What I don't have a feel for is what is it like with shingles among consumers in China? Is the awareness, disease awareness high, or do you have to build that? Thank you.

Emma Walmsley (CEO)

Right, straight to you.

Luke Miels (Chief Commercial Officer)

Yeah. Thanks, Tim. It's relatively low. But, you know, I was in China at the stage when Gardasil did launch, and awareness around HPV vaccination was also very low. What we found through our market research is that people are receptive to it. The main challenge we had was just navigating the 30,000 points of vaccination in China, because all vaccines need to be administered in those centers. So I think we can build that awareness. Now, whether we can get to the level that Gardasil did, I think before COVID, it was actually the number one selling product in China, so a remarkable achievement.

But the key thing I took away from that is, one, you've got a company that partners well with multinational over many years, with extensions to that relationship, and two, they can build a market in partnership very successfully. So, yeah, I'm very optimistic about the long-term outlook there with China.

Emma Walmsley (CEO)

Thanks, Luke. Next question, please.

Nick Stone (SVP and Head of Investor Relations)

Take our next question from Richard Parkes at BNP Paribas. Richard, over to you, please.

Richard Parkes (Pharmaceuticals and Biotechnology Equity Analyst)

Hi. Thanks for taking my question. I'll just stick to one. Just wondered if you could just discuss the challenges to specifically growing RSV in the U.S. market next year. It looks like about 10% of the eligible population has been vaccinated with an RSV vaccine now, and obviously, clearly, that leaves a lot of room for growth, given the 35% penetration you've achieved with Shingrix, but it's, it's taking you six years to get to that level, and clearly, the RSV market competition is gonna intensify over the next 12 months. So, given the very strong start you've had, I'm just wondering how challenging it will be to grow RSV, specifically in the U.S. market, and to what extent we should expect growth to be more driven by ex-U.S. Thank you.

Emma Walmsley (CEO)

Luke?

Luke Miels (Chief Commercial Officer)

Sure, Richard, great question. So I think the pie is gonna grow. You've got three companies in there. The level of awareness is remarkable already. I think it's 86% awareness for individuals in the U.S. around RSV. The willingness to prescribe and recommend on the part of doctors and pharmacists is very, very positive. And your numbers are right. I mean, if you look at Shingrix, it was 4%, 11%, 17%, 23% in those first years. So hitting 11% immediately is encouraging, but we just don't know what the other two competitors, how they're gonna behave going into the year, so that's an unknown.

But again, if we look at the long term, if you look at 65+, individuals who are 65% and above, about 72%, 73%, typically every year, get a flu vaccine. So that's the potential here, and that's why we're very confident about our long-term GBP 3 billion peak revenue outlook. But, you know, let's see how we go in 2024. That's probably all I should say at this point.

Emma Walmsley (CEO)

Next question, please.

Tony Wood (Chief Scientific Officer)

It's worth by adding, of course, that the 50+ label adds another 15 million at-risk eligible individuals.

Emma Walmsley (CEO)

Yeah, great point.

Luke Miels (Chief Commercial Officer)

Yep.

Nick Stone (SVP and Head of Investor Relations)

Okay, next question is from Andrew Baum at Citi. Andrew, over to you.

Emma Walmsley (CEO)

Andrew, we can't hear you.

Andrew Baum (Head of Global Healthcare and Managing Director of Equity Research)

There we go. Sorry about that. I apologize.

Emma Walmsley (CEO)

Yep.

Andrew Baum (Head of Global Healthcare and Managing Director of Equity Research)

Two questions for Deborah, on HIV. First, given how important the switch is to long-acting for both the margin and the revenues, could you talk to what are the current barriers to adoption? Is it any evidence for step editing, given you've got 50% falling under PBMs? Is it clinical inertia? Is it access? I'm curious to understand that in terms of the risks and opportunities there. And then second, I note that there's been a pause placed on your litigation with Exavir for their cabo prodrug. Given the patent expiration on cabo, and I'm thinking particularly of Apretude, is there any interest in licensing this compound in order to secure the future of a once yearly long-acting, PrEP formulation? Thank you.

Deborah Waterhouse (CEO)

Thanks, Andrew. So in terms of barriers to switch in the long-acting market, actually, they're pretty typical to the barriers that you see across many long-acting injectables that are in a Medicare Part B. In part, it's about clinic capacity, so for us, that is a barrier, but we're seeing the belief in physicians increase, that long-acting is gonna be a bigger and be a bigger part of the way that they treat their HIV patient population. So we are seeing them expanding capacity, but it's a slow journey. The second thing is the ability to get physicians' offices ready and able to manage their way through the benefit verification, the element of specialty pharmacy versus buy and bill.

Again, we are seeing more and more uptake and more and more process flows within the clinician offices that are making this faster and slicker, but still, it is a learning journey as we are building a brand-new market for HIV physicians. So I would say complexity around payer and pharmacy buy and bill, and the capacity to inject in the clinics are the two biggest barriers. And we're seeing significant progress on all of those areas, which is why we're seeing the continued significant growth among long-acting injectables in both PrEP and in treatment, mainly because there is enormous patient demand, and that just keeps on, you know, growing as awareness grows.

I mean, in terms of Exavir, I'm not going to comment on any of the litigation, but, you know, we have our own in-house, long-acting injectable that, you know, we're formulating cabotegravir to get to every four, and hopefully we'll be able to get to a point where we can get to every six months, either with, VH184 or other options. And we've also got in-house options that can take us to every 12 months. But we keep an eye on the whole landscape from a BD perspective, of HIV, and if there is something to, you know, to do a deal on, we will absolutely do that.

Emma Walmsley (CEO)

Next question, please, Nick.

Tony Wood (Chief Scientific Officer)

Okay. Our next question is from Graham Parry at Bank of America. Over to you, Graham.

Emma Walmsley (CEO)

Hi, Graham.

Graham Parry (Senior European Pharmaceuticals and Healthcare Equity Analyst)

Great. Thanks for taking the questions. It's going back to Arexvy in the third season data, can you just confirm that there's no vaccine efficacy measurement to compare one-and-done vaccination with an every other year vaccination in either the RSV 006 or 004 trials? And if it is just immunogenicity data you're going to be using there, how do you go to the ACIP and convince them that a boost in immunogenicity in the third season would correlate with vaccine efficacy when we didn't see that in the first season data? And then second question, just any sense of what percentage of the high risk or comorbid population, so let's say over 80s or the comorbid population, has been vaccinated with Arexvy now, or has it been across a fairly broad age range? Thank you.

Emma Walmsley (CEO)

Very briefly, Luke, any comment on the penetration, and then Tony.

Luke Miels (Chief Commercial Officer)

Yeah, it's about 13% in the older individuals, so 65+. It's about 4% in the 60 to 64. That's the only data we have at this point, Graham, but we will get more in Q2.

Tony Wood (Chief Scientific Officer)

On the third season, the comparison will be exactly the same as the one we took in second season, Graham. So that is vaccine efficacy based on a three-year duration versus a three-year boost. Sorry, a two-year boost.

Emma Walmsley (CEO)

Yeah.

Nick Stone (SVP and Head of Investor Relations)

Okay, so I'm going to try and push us a little bit over. I'm mindful of the call starting, but can we take a next question from Mark Purcell at Morgan Stanley?

Mark Purcell (Managing Director)

Yeah, thanks very much, Nick. Just to quick on, sticking on, HIV, ahead of the CROI data, you know, historically, phase II data is translated very nicely into phase III profiles. So when it comes to assessing your combination options and the four-month formulations, how confidently should we be extrapolating phase II data into phase III and effectively the de-risking of the portfolio strategy?

Deborah Waterhouse (CEO)

So just to answer that very quickly. So we're incredibly confident in our ability to replace, you know, a significant proportion of the revenue that will be lost through the dolutegravir patent expiry. This is a big year for us, so we will, we'll be presenting, data at CROI, and we'll be starting the phase III study for, every four-month PrEP. We'll be regimen selecting, every four-month for treatment, and we'll also be regimen selecting for our self admin. So I would say we're extremely confident in the progression of our HIV pipeline and very confident in the statement that we've been making for some time, that we will be able to potentially replace a significant proportion of the revenue that we'll lose when dolutegravir goes off the patent.

Emma Walmsley (CEO)

Great. Nick?

Tony Wood (Chief Scientific Officer)

We've got two more questions. So I'm going to take the next question from Kerry Holford at Berenberg. Kerry, over to you.

Kerry Holford (Head of Global Pharmaceutical Equity Research)

Oh, hi. Thanks, Nick. Just one final pipeline question. Well, recently launched products question. Ojjaara, I know it's early days, but how is the U.S. launch progressing relative to expectations, and in which line of therapy are patients predominantly using this drug? Thank you.

Emma Walmsley (CEO)

Very well, Luke?

Luke Miels (Chief Commercial Officer)

I'll go quickly. So 750 patients since launch, 43% of them in academic centers, 57% are in community centers. Market research is very, very encouraging. Unaided awareness is well above benchmarks. Aided awareness is 99%. I'm not sure about that 1%. We've got around 15% patient share in patients with anemia, and about 25% share in second line. If you look at the intent to prescribe, one quarter of doctors have already prescribed it, and over 64% who have not prescribed it intend to prescribe it over the next few months. So, you know, very encouraging, very exciting launch.

Emma Walmsley (CEO)

Great. And so last question, Nick.

Tony Wood (Chief Scientific Officer)

Last question. So Steve Scala, TD Cowen. Over to you, please, Steve.

Steve Scala (Pharmaceutical Analyst)

Thank you. On Cabenuva, emerging resistance in 1%-2% of people is viewed by clinicians as a real risk, seems to occur in the obese population, but could tarnish prospects overall. So I'm just wondering, what is GSK's position on this? And secondly, pneumococcal vaccine, do you plan an efficacy study, and if not, is that because you think that is not important? Thank you.

Emma Walmsley (CEO)

Well, we do think the pneumococcal vaccine is very important, so Tony can comment on that, but Deborah, I'm not sure we'd characterize it quite as Steve has.

Deborah Waterhouse (CEO)

No. So, you've got less than 1% failure on Cabenuva. There are some risk factors that all physicians are aware of. Obesity is one of them. Being resistant to rilpivirine is the other, and then there is a relatively rare subtype. So we're clearly characterizing where people should not use the drug. It's a very, you know, limited population. And the real-world evidence is actually showing less than 1%, in fact, significantly less than 1% failure, because physicians have taken on board the multivariate analysis that guides where to use it. And when they use it in that population, you see very low levels of failure and very high satisfaction with the drug and continuity on the drug over time. That's why we're seeing significant growth with Cabenuva that we are.

Emma Walmsley (CEO)

Thanks. Tony.

Tony Wood (Chief Scientific Officer)

Just quickly then, on pneumococcal. Obviously, we're focused on using immunogenicity data and, in particular, restarting the INFANT-24 this year alongside the data that we have in adults and starting in adult 30+. In terms of our strategies with regards to vaccine efficacy and broader competitive context of that, I'll keep that to future discussions.

Emma Walmsley (CEO)

Great. So thank you very much, everyone, for the call. I'm very pleased to have been able to share with the team today how GSK is delivering on its commitments, strengthening our outlooks for growth. We are making great progress, we know there's always more to do, and we're looking forward to keeping you updated. Thanks to everybody for joining the call.