Earnings Call Transcript - GSK Q3 2024

Operator, Operator

Hello, everyone. Welcome to today's call and webcast. The Q3 presentation was sent to our distribution list by e-mail and you can also find it on 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. Please turn to Slide 3. Today's call will last approximately 1 hour, with the presentation taking around 30 minutes and the remaining time for your questions. Our speakers today are Emma Walmsley, Luke Miels, Deb Waterhouse, and Julie Brown, with Tony Wood and David Redfern joining for Q&A. Please ask only one to two questions, so that everyone has a chance to participate. Turning to Slide 4. I will now hand the call to Emma.

Emma Walmsley, CEO

Welcome to everybody joining us today. Please turn to the next slide. I'm pleased to report that despite some challenges, this has been a positive quarter for GSK, and we're delivering 9% sales growth, and 19% profit growth year-to-date. This growth reflects the accelerating momentum we have in Specialty Medicines and the overall resilience we have built in our portfolio, which underpins continued high confidence in our outlooks for 2026 and beyond. Importantly, we've made considerable progress in our pipeline this quarter. And with no admitted fault or failure, I'm delighted that we've also drawn a line under the vast majority of Zantac litigation, removing a clear perceived risk for the company and allowing us to focus on the future. Overall, excluding COVID, sales for the quarter grew 2%, 9% year-to-date, with Specialty Medicines up 19%, and double-digit growth reported in HIV, respiratory immunology, and oncology. We were particularly pleased to see the momentum now being established in our oncology business, and I'm delighted that we filed Blenrep in Europe, Japan, and the U.S. in the quarter. We also continue to see strong progress in the transition of our HIV portfolio to long-acting medicines, now 18% of HIV sales and where we plan to continue to lead the way. General Medicines also performed strongly this quarter with growth up 7% led by another outstanding performance from Trelegy. Total vaccine sales were down due to lower sales of Arexvy and Shingrix. Recent guideline changes and prioritization of COVID vaccines in the U.S. were key factors, but market shares for both these vaccines remain very strong. Although both vaccines face market circumstances that will limit their growth potential in the near-term, over the medium and longer-term, the fundamental benefits these two best-in-class vaccines offer to protect people from disease and to take pressure off health care systems remain. And with appropriate recommendations from public health authorities, we fully expect them and our vaccines pipeline to deliver significant future sales growth for GSK. Back to this quarter, we continue to deliver strong operating performance and leverage. Excluding COVID, core operating profit and core EPS growth were both up 5%, reflecting the positive margin benefit of Specialty Medicines and sustained focus on cost management. Year-to-date, operating profit was up 19%, supporting double-digit profit growth for the year. Lastly, we're reporting further improvements in cash flow with cash generated from operations of GBP5.3 billion year-to-date. This is providing increased funds for pipeline investment and returns to shareholders. Our dividend for the quarter is 15p, up 7%. Next slide, please. Pipeline progress was strongly evident in the quarter with a series of filings and data readouts supporting future product momentum. So far this year, we've had 11 positive phase III readouts, and we're currently planning launches for five major new product approval opportunities next year with Blenrep, Depemokimab, Nucala for COPD, Gepotidacin, and our new meningitis vaccine, MenABCWY. In the quarter, pivotal data from our ultra-long-acting biologic, Depemokimab in severe asthma was front and center at the European Respiratory Society Congress and simultaneously published in the New England Journal of Medicine. Additionally, we announced positive results from our phase III trial of Nucala in COPD. In oncology, we were delighted that Jemperli received an expanded approval by the FDA for all adult patients with primary advanced or recurrent endometrial cancer. And Blenrep is now filed with multiple regulators, including the U.S. I was also delighted to see the positive headline data from our mRNA influenza vaccine candidate, demonstrating positive A and B strain immune responses relative to standard of care, enabling us to progress to phase III clinical trials next year and build another key vaccine platform. We also received a number of breakthrough regulatory designations recognizing the importance of our innovation for unmet medical needs. This included Bepirovirsen or antisense oligonucleotide for chronic hepatitis B, and B7-H3, our antibody-drug conjugate for extensive stage small-cell lung cancer. B7-H3 is one of two promising ADCs we have in clinical development and part of the next wave portfolio now emerging in R&D, which Tony is going to update you on at our next Meet the Management event in December. Next slide, please. Building trust by delivering sustainable health impact remains a clear priority for all of us at GSK. We continue to make progress across our six key areas, and I'd particularly like to recognize our HIV business for its commitment to make at least 2 million doses of Cabotegravir long-acting for prevention available in low and middle-income countries during ‘25 and ‘26. This further commitment builds on long-standing action to deliver sustainable access and triple supply compared to 2024. Please turn to the next slide. GSK is delivering consistent financial performance. Looking to the end of this year and beyond, we're even more confident that the progress we're making in portfolio development and in R&D support the delivery of our growth outlooks. For 2024, we continue to anticipate sales growth of 7% to 9% with double-digit profit growth. We also remain very confident in our outlooks for ‘26 and ‘31 and our investment choices to drive competitive growth in Specialty and Vaccines. It's also worth remembering that these outlooks do not yet include Blenrep or progress in our early-stage pipeline. And we'll continue to pursue bolt-on business development to further enhance our pipeline and our technology platforms with a focus on our core therapeutic areas. So with that, I'll now hand over to Luke and Deborah to talk you through our commercial performance.

Luke Miels, Chief Commercial Officer

Thanks, Emma. Please turn to the next slide. Third quarter sales were up 2% to GBP8 billion and year-to-date sales were up 9%. As you can see from the chart here, Q3 sales growth reflected a tough comparison with strong growth from Specialty and General Medicines offsetting the lower sales of vaccines. Specialty Medicines, the largest part of our business grew 19%, reflecting strong performance of new products and the investment we've put into recent launches, particularly in oncology and HIV. We expect this momentum to continue with growth from these assets and several material launch opportunities in respiratory, oncology, and other disease areas coming later next year. General Medicines, pleased to say, sales were up 7%, driven by strong performance of respiratory. And as has already been mentioned, lower demand for Shingrix and Arexvy this quarter led to an overall sales decline of 15% for Vaccines, and I'll cover this in more detail in a minute. All of these dynamics were broadly reflected in the performance of our regions, with good growth internationally, and the U.S., unsurprisingly, was more impacted by the lower vaccine demand we saw this quarter. Please turn to Slide 11 to look at Vaccines in more detail. So I'll focus the commentary on Arexvy and Shingrix. Arexvy performance was impacted by three factors. Firstly, by changes in ACIP guidelines that restricted the recommended populations of older adults receiving RSV vaccinations. Secondly, by prioritization of COVID vaccinations in the U.S. And thirdly, by a lower seasonal rate of RSV infections. In addition, it was a tough comparator given two-thirds of sales in Q3 last year were related to stocking. Despite these dynamics, we retained our strong leadership market share. Now we're still in the foothills of this vaccine's availability and usage. In the U.S., we continue to make data available to ACIP and to support them as they move towards making longer-term recommendations on the use of RSV vaccines, including requirements for revaccination and cohort expansion. Beyond the U.S., Arexvy is now launched in 35 markets, 16 with national recommendations, and six with national reimbursement programs. More rollouts across Europe and internationally will come in 2025. For Shingrix, year-to-date growth was driven outside the U.S., now 58% of the business, and the average immunization rate across the top 10 markets, excluding the U.S. is still around 6%. So there's still a large opportunity here. Growth outside the U.S. was 9% this quarter, and U.S. penetration was 39% at the end of the second quarter. Adding to U.S. penetration remains a key focus, but the pace is slowing from around 6 points to 7 points per year to around 3 points to 5 points per year, making incremental growth more challenging. And if you take a look, the visual on this slide also shows how U.S. sales moderate as the immunization rate slows. Next slide, please. So, looking ahead on Vaccines, this year, we now expect vaccine sales to decline low to single digits. And in 2025, we expect limited growth, reflecting the assumption that there will be no Arexvy revaccination or expansion of age cohorts next year. Beyond 2025, for Arexvy, we expect further successful rollout and that public health recommendations for cohort expansion and revaccination will be confirmed, alongside international penetration given the patient need and the protection this vaccine can offer against RSV. And so, on this basis, we continue to expect Arexvy to make a significant contribution to future sales, and we continue to believe it can achieve peak sales of more than GBP3 billion. For Shingrix, our ambition remains to achieve more than GBP4 billion in sales. And finally, beyond Arexvy and Shingrix, we also have material growth opportunities with mRNA and our MAPS technology where we've decided to prioritize a Pneumococcal 30+valent asset in adults to pursue the broadest potential coverage, and further build out of our meningitis portfolio, the next step of which will be the launch of our MenABCWY vaccine in 2025. Next slide, please. Specialty Medicines is an increasingly important driver of our growth for GSK, reflecting the combination of successful R&D and BD investment over the recent years, and it's delivered another quarter of excellent growth, including HIV, which Deborah will cover shortly. Respiratory and immunology products were up 14%, and Nucala IL5 biologic treatment was up 12%. In September, we announced positive headline results from MATINEE, a phase III trial evaluating Nucala in adults with COPD, a disease which affects more than 300 million people. We also presented SWIFT phase III data for our ultra long-acting IL5 treatment, Depemokimab in the quarter, and Depemokimab demonstrated a 54% reduction in exacerbations versus placebo, plus standard of care for patients with severe asthma after only two injections in a 12-month period. This is a major benefit for providers and patients. In addition, positive data from the phase III ANCHOR study evaluating Depemokimab in patients with chronic rhinosinusitis with nasal polyps was also announced this month. Alongside SWIFT, these data will support expected filing before the end of the year with a view to a dual indication launch in 2025. And to remind you, combined we expect our IL5 portfolio to deliver more than GBP4 billion in peak year sales. Benlysta was up 16% in the quarter with strong demand and volume growth in all regions, and oncology almost doubled, which I'll cover in more detail on the next slide. We expect momentum in this part of our portfolio to continue, especially given the launch opportunities we have in front of us. And for this year, we're upgrading sales expectations for Specialty Medicines to high-teens percentage growth.

Deborah Waterhouse, CEO, GSK Vaccines

Thank you, Luke. Now turning to HIV. We continue to deliver strong performance and sustained double-digit growth with Q3 sales up 12%. This growth was driven by strong patient demand as well as favorable pricing dynamics. For 2025, we do not expect the favorable pricing dynamics to continue, in part due to the introduction of the Inflation Reduction Act. However, we are confident that the underlying demand for our medicines will remain strong. As leaders in oral 2-drug regimens and long-acting injectables, it is positive to see this continued momentum delivering 2 percentage points of market share gain versus the previous year. Dovato grew 23% for the quarter. This positive growth was supported by results announced in July from the PASO DOBLE study, a large head-to-head randomized clinical trial of Dovato compared against the 3-drug regimen Biktarvy. This study demonstrates Dovato's non-inferior efficacy and significantly less weight gain versus Biktarvy. This is important because we know people living with HIV are concerned about taking more medicines as they age, as well as the long-term risk of metabolic diseases that can come with weight gain. The performance of our long-acting portfolio also remains positive, delivering GBP314 million of sales and representing more than 50% of total growth for the quarter and year-to-date. Cabenuva grew 40%, driven by patient preference and proven and durable efficacy. The medicine now holds a market share of 5% or more in the majority of our key markets, demonstrating sustained quarter-on-quarter growth. Apretude, the first and only approved long-acting option for HIV prevention, delivered 95% growth in the quarter. At the ID Week conference earlier this month, we shared real-world evidence reinforcing the more than 99% effectiveness for Apretude, as well as an implementation study highlighting patient-reported results with a reduction in stigma and anxiety. Looking further ahead, we are strongly focused on developing our ultra-long-acting pipeline. This includes the development of new regimens for four-monthly dosing with ambitions to extend to six-monthly dosing. The potential for the long-acting market remains significant. The total HIV market today for treatment and PrEP together is worth more than GBP22 billion, with treatment accounting for around 90% of this. And we believe treatment will continue to be the larger market going forward. We are the leaders in long-acting innovation and are confident in our innovative pipeline for the future, as well as the competitive profile of our medicines today, offering strong safety, efficacy, and overall tolerability for people living with HIV and those who could benefit from PrEP. With that, I will hand to Julie.

Julie Brown, CFO

Thank you, Deborah, and good morning, everyone. Next slide, please. Building on the comments made by Luke and Deborah, this slide shows Specialty Medicines is an increasingly important growth driver for the Group, having delivered more than 70% of year-to-date growth. This is being supported by building scale and momentum in our respiratory, immunology, and oncology businesses. And although vaccine growth has been limited this year, as Luke outlined, longer-term, we are very confident in this opportunity. Next slide, please. Moving to the income statement for the third quarter with growth rates stated at CER. Sales increased 2%, reflecting continued strong momentum, especially from Specialty Medicines, but also General Medicines more than offsetting the decline in Vaccines. Core operating profit grew 5% despite the significant decrease in Gardasil royalties. Gross margin benefited from the outperformance of high-margin Specialty Medicines, pricing benefits, and the annualization of prior year inventory provisions. The decline in SG&A spend resulted from our disciplined approach to investment, the annualization of high prior year launch investments, and the phasing of spend across half two. The Gardasil royalty loss impacted profit growth by minus 8% this quarter, meaning underlying operating profit was up 13%, demonstrating considerable productivity improvements in Q3. Core EPS grew 5%, excluding COVID, in line with the operating profit growth. And turning to the total results, operating profit decreased materially year-on-year from GBP1.9 billion last year to GBP0.2 billion this year. The reduction predominantly reflected a GBP1.8 billion charge relating to the resolution of the Zantac litigation. Next slide, please. Moving to our margin bridge with commentary including COVID. Our Q3 core operating margin increased 100 basis points year-on-year at CER to 35%, despite a 180 basis point headwind from the loss of royalties, as we continue to deliver on our financial commitments and drive leverage within the business. The strong underlying accretion was supported by three factors. First, the outperformance of Specialty Medicines where the portfolio has driven a positive mix impact in gross margin and considerable operating leverage resulting from the strong sales growth. Secondly, the annualization of prior year inventory provisions and cost of goods and launch investments within SG&A. And third, the phasing of SG&A spending with a greater weighting expected towards Q4 this year. Next slide, please. Year-to-date, cash generated from operations was GBP5.3 billion, representing an improvement of GBP0.9 billion compared with last year. And this was primarily driven by improved operating profits and a working capital benefit compared with last year, benefiting from higher Arexvy collections earlier in the year. Although CGFO was lower due to returns and rebates, partly offset by lower pension contributions. Free cash flow was GBP1.9 billion, improving compared with the GBP1.3 billion last year with improved CGFO, partly offset by higher tax and higher business development, including acquiring full rights to flu and COVID mRNA from CureVac. Next slide, please. Slide 22 shows our net debt position since the 31st of December and how we've actively deployed capital in the business in line with our framework. Net debt in September was GBP13 billion, a reduction of GBP2 billion compared with December '23, given the strong free cash generation and the Haleon monetization. Through the nine months, we have deployed capital to strengthen the pipeline and platforms through business development. And as recently announced, we have expedited retiring the risk for Zantac. We expect this to result in a GBP0.8 billion cash outflow in Q4 '24, with the remaining GBP1 billion being paid in the first half of 2025 and included in CGFO. There is no change to our capital allocation priorities. We have a strong balance sheet, which provides optionality to accelerate further growth organically and through business development, as we look to deploy funds to enhance growth and deliver attractive shareholder returns. And with that, I will now turn to our full-year expectations. Next slide, please. For full year 2024, we confirm our guidance range of 7% to 9% sales growth, and 11% to 13% profit growth and expect to land broadly around the middle of these ranges, notwithstanding the loss of Gardasil royalties, which we expect to reduce profit growth by 6 percentage points this year. Core earnings per share is expected to grow at 10% to 12%, slightly below operating profit due to an increase in the tax rate under the OECD legislation. The gross margin has been strong in the first nine months of the year, driven by mix and efficiencies. In Q4, we expect gross margin to be down year-on-year, as we plan to make further investments to drive future supply chain efficiencies, with additional charges of around GBP100 million. For the full year, we expect gross margin to be slightly ahead of 2023. There is no change to our expectations for R&D to increase slightly below sales growth and for royalties to be around GBP600 million for the full year. SG&A is expected to grow ahead of sales in Q4 due to the phasing of spend between the quarters, investments in new launches and the drive for efficiencies through increased digitization. For the full year, we maintain our guidance of SG&A growth at a low-single digit percentage given our focus on sharp resource allocation and improved productivity. We will update you on our view of 2025 next year. But importantly, we remain very confident in achieving our group growth outlook for '21 to '26 of more than 7% sales growth, and more than 11% core operating profit growth, albeit the shape of this could be more weighted to Specialty Medicines, reflecting expected performance. In summary, we have delivered another quarter of growth, reflecting the breadth of our portfolio and the building momentum in Specialty. This and our pipeline progress mean we are very confident in achieving our full-year guidance, as well as our medium and longer-term outlooks. Next slide, please. Turning to our IR roadmap. Significant progress has been made towards major milestones and value unlocks. I've also highlighted here the five major regulatory approvals expected next year across three therapeutic areas. We also look forward to our next Meet the Management event at the end of the year, which will be the first introduction to some of our early-stage pipeline. And with that, I am pleased to hand back to Emma to conclude.

Emma Walmsley, CEO

Thanks, Julie. So, to summarize, while Q3 has presented some challenges, our business has responded well, and we are on track to deliver our strong sales and profit guidance for 2024. Looking ahead, we have a best-in-class Vaccine business, an increasingly strong and growing Specialty Business and a very profitable General Medicines business. Together and combined with the momentum we continue to see in our pipeline and our careful, but meaningful deployment of capital into business development, this means we're well-positioned to deliver and sustain profitable growth through the decade with scale health impact and attractive returns for shareholders. All of this by combining science, technology, and the talent of GSK's people to get ahead of disease together. With that, let's now open up the call for Q&A with the team.

Operator, Operator

Okay. Thank you. For the Q&A portion of our call, please use the hand raise feature in the Zoom webcast, if you would like to ask a question. And as a reminder, we ask that you limit yourself to only one to two questions, so that we may accommodate as many participants as possible. For our first question, we will go to James Gordon. James, please unmute yourself.

James Gordon, Analyst

Hello. James Gordon…

Emma Walmsley, CEO

Good morning, James.

James Gordon, Analyst

Hello. Thank you for the question. I have a question regarding the pneumococcal vaccine for Affinivax. I believe you initially had a 24-valent adult vaccine, which has now been replaced by a 30-valent version. Can you provide an update on when we can expect the Affinivax product to be available? Additionally, I've heard that Affinivax has some competitor data involving a 31-valent vaccine. Is this development aimed at both pediatric and adult populations? That's my first question. My second question pertains to 2025. Looking ahead, should we anticipate that Shingrix and Arexvy might see a decline, but at the same time, you could achieve significant SG&A leverage due to good performance today? Or will we need to consider increased spending on SG&A because of new launches planned for next year?

Emma Walmsley, CEO

Great. Well, let's come firstly to Tony on the new pneumococcal update, very much focused on getting to best-in-class vaccines as we have with our current portfolio. And then, myself and Julie will come back on guidance questions.

Tony Wood, Chief Scientific Officer

Yeah. So, thanks for the question, James. Let me just start by sort of underscoring the platform in general. And I would say that, as we learn more about our platform, we become more and more confident in the fact that it presents a unique proposition to Emma's comment about best-in-class. And it does so, because it provides both coverage of antigens in particular serotype 3 because of the carrier protein proposition. And it does so without the diminishing immunogenicity that you see in the CRM-based platforms for which, as you add antigen coverage, immunogenicity diminishes. We have strong comparisons for our platform versus both the 20 and 30-valent PCB vaccines. You're right, we have shifted our prioritization in the adult vaccine towards a 30-plus proposition, and that is initially, you will recall, of course, the backsides are in a similar position. The Merck 21-valent vaccine, which carefully chose serotypes established vaccine efficacy sealing against those chosen serotypes in the adult population that we believe makes the 30-plus proposition the most effective one. I think you see that reflected in the Pfizer strategy, Tom, described yesterday as well. As I say, I remain confident in the properties of our platform based on the data that we're accruing, and I expect to be able to start a 30-plus adult first-in-human study next year. As far as the pediatric proposition is concerned, we remain developing both 24 and 30 plus vaccines in that context, and we're confident about the competitive setting for both the 24 and 30 plus vaccines with regards to ultimate launch date. Well we've not disclosed those in detail.

Emma Walmsley, CEO

Thanks, Tony. So, in terms of looking into '25, I mean, obviously, we're going to guide for '25 in '25. But I'll ask Julie in a moment just to recap a little bit on some of the points we've made on the individual product areas to help you, but also our confidence in the shape of the P&L, too, because make no mistake, we expect '25 to be another year of profitable growth for the company. And we are very confident in our '26 outlooks and our '31 outlook of more than 7% top-line growth, more than 11% bottom-line growth, more than GBP38 billion. And again, that doesn't yet include Blenrep, where we've made great progress both on the data. We're looking forward to getting overall survival later on this year, too, and we filed in multi-regions this quarter. As we look into 2025, per the commentary, we expect the growth from our largest product area, Specialty, to continue to lead the way. And we have, per Luke's comments, made assumptions to be conservative around any ACIP judgments and that there will be no change for next year. Obviously, we're dependent on them. But in terms of either revax or kind of we hope that we continue to bring data. We can comment more on that, if you like. But make no mistake, medium-term, whether it be in our confidence of growth both for Shingrix, ex-U.S. or for RSV, which is really in the very early days of its life cycle or because of the pipeline that's coming through per pneumococcal commentary or mRNA or very excitingly, all of that value unlocked we're seeing across Specialty Medicines with five, hopefully, approvals that are not about just coming through in '25, but driving more growth for that chapter beyond in the decade. So Julie, I think there are other specifics worth you recapping and particularly also, those lines in the P&L where we're starting to drive some powerful leverage.

Julie Brown, CFO

Yeah. Sure. Thank you very much. Thanks for the question. So, I think Emma's articulated and Luke earlier the overall approach for vaccines. I would just like to draw attention to the Specialty Medicines business. It's now our biggest business. It's 37% of our business, and it drove more than 70% of our growth year-to-date. And it's been one of the major contributors to the point you raised about the leverage in leveraging the P&L. So, we've just delivered year-to-date 9% on the top line, 19% on the profit, and that is absorbing the Gardasil loss as well. And there are a number of important therapeutic areas driving that. Obviously, HIV, respiratory, immunology, and oncology, as mentioned, our oncology business has more than doubled year-to-date to over GBP1 billion. So turning to 2025, we do see growth coming from Nucala, Benlysta. We've obviously got COPD to come for Nucala having just been submitted. And then we've got the oncology strength coming from Jemperli expanded population and Ojjaara, and then, hopefully, Blenrep following the recent submission. In terms of the P&L leverage, as you can see year-to-date, we've delivered very strong gross margin leverage. Again, this has been benefited from Specialty Care, and we continue to see the gross margin being strong apart from this fourth quarter, where we're going to put these additional charges through to drive future supply chain efficiencies. And then, in terms of the launches next year, as Emma mentioned, we've got five regulatory approvals and launches coming across Vaccines, Specialty, and General Medicines. They are in our four key therapeutic areas where we've already got a strong presence, be it respiratory, be it vaccines, or albeit also now in oncology. So therefore, you can expect us to continue to deliver profitable growth in 2025, as Emma clearly mentioned.

Emma Walmsley, CEO

Thank you. Next question, please.

Operator, Operator

The next question is going to be from Kerry Holford. Please unmute yourself.

Kerry Holford, Analyst

Thanks, Jeff. Yes. Kerry Holford from Berenberg. I have a couple of questions. First, regarding Shingrix in China, could you comment on the sales contribution in Q3? Also, could you remind us of the details of the contract with Zhifei in that market? Are the numbers you've previously mentioned for year one and two to three fixed, or is there some flexibility? Secondly, concerning respiratory issues, specifically in COPD, when can we expect to see the detailed Phase III Nucala data? You had previously indicated that a positive result would lead to moving Depemokimab into Phase III quickly. Is that still your plan, or is the TCEP opportunity now going to play a more significant role? Thank you.

Emma Walmsley, CEO

Well, I’ll come to Tony first on the IL-5 pipeline, which we are very excited about. And then we'll come to Luke to comment on where we're at with China. Remembering that there are degree of macro pressures here. So obviously, we've got a great partnership there, and we're trying to take a long-term view on it. But Luke, it would be good if you could update on where we're at, and the view forward. First, Tony, to you.

Tony Wood, Chief Scientific Officer

Thank you for the question, Kerry. I want to remind everyone that Nucala is the first and only biologic approved for four different ER mediated diseases. The headline data from the MATINEE study demonstrates that it reduces exacerbations across the entire range of COPD patients. We will provide more details on this in the first half of next year at a suitable conference, pending the approval of the abstract. A key point to emphasize is the overall performance of Nucala shown in MATINEE among the COPD population. Additionally, I want to note that in comparison to Dupixent, the populations studied in the metrics and MATINEE trials differ from those in the Dupixent studies, which involve a broader COPD population, including emphysematous patients. This distinction is significant, particularly considering that COPD is the third leading cause of death globally, affecting approximately 300 million people, with about 30% of them being emphysemic. We will provide more information on Nucala at the beginning or middle of next year as mentioned. Regarding our upcoming portfolio plans, Depemokimab is favorably positioned given its two injections per year compared to the 26 for Dupixent. I'm also pleased to share that we have long-acting options in both TSLP and IL-33, and we will disclose our thoughts on how to position these three long-acting options in relation to the evolving understanding of COPD subgroups.

Emma Walmsley, CEO

Thanks, Tony.

Luke Miels, Chief Commercial Officer

Thanks, Kerry. So on the Q2 call, I did flag that we're concerned about and would watch closely what's occurring in China, particularly in terms of the tighter POB budgets and just some of the flow of funding around those. And of course, the macro, which is very broadly covered across many industries. And so, we're actually seeing that it definitely impacts a broader slowdown in the economy definitely impacts us all, pay market, and also just the capacity of local governments to then restock, purchase vaccines, which are then subsequently purchased by individuals. So these are having an effect on our volumes. We're working closely with Zhifei. Again, if we look at the medium to long-term, I mean the partnership has started extremely well. These are impressive operators. They've got to a far number of points of vaccination than we could ever hope to get to with our infrastructure. You asked what we've sold, we've sold around 240 million out of the 0.4 that we had in the contract. There is flex in the contract, I’ll call a spade to spade. So our intent is to be practical here and work through this with Zhifei, but we have our eyes on the long-term opportunity of about 0.5 million people in China who are 50-plus, that's where the focus is at this point.

Emma Walmsley, CEO

Thanks, Luke. Next question, please.

Operator, Operator

Great. Our next question is from Jo Walton. Jo?

Emma Walmsley, CEO

Hi, Jo.

Jo Walton, Analyst

Thank you. I would like to ask a broader question about IRA and the pressures we might face next year, considering some of the factors involved. We've already observed certain companies reporting increased prescription growth as the year progresses, with Benlysta showing notable increases of 6%, 9%, and then 14%. Is any of this attributed to individuals experiencing lower co-pays? Could this be an advantage for you moving forward? You've mentioned past pressures in the respiratory sector related to authorized generics, and it seems you're performing well, which might indicate that payers aren't receiving the rebates they desire. Are you encountering increased rebate pressures in other areas? Since your negotiations for next year should be well underway, can you share your expectations regarding access moving forward? Additionally, could you provide some insight about RSV outside of the U.S.? Is it truly not viable until the dosing situation is resolved? Thank you.

Emma Walmsley, CEO

Thanks. So Luke, let's come to you. And we did flag 400 to 500 overall on IRA and then RSV ex-U.S.

Luke Miels, Chief Commercial Officer

There is growing pressure in the market, and I believe Pharmacy Benefit Managers will attempt to compensate for this. We're beginning to notice that physicians are making tactical decisions to maximize coverage. This trend seems to apply to our entire portfolio. Regarding 340B, we currently have legislation in about nine states, with another ten states considering similar actions, which affects our Specialty products. Vaccines are somewhat impacted as well, but they tend to benefit overall from the elimination of co-pays. Specifically, with Trelegy, the $35 co-pay will influence our results next year. In the long term, we anticipate Trelegy will be listed next year. The government has gained insights from the initial phase, particularly concerning the coverage gap's dynamics. Thus, we foresee continued pricing pressure, which will affect Trelegy in 2026 and 2027, but we believe we can begin to return to growth with Trelegy thereafter. Outside the U.S., Trelegy remains strong. We do see challenges with 340B products like Zejula and Nucala. For Nucala, we are shifting our focus to nasal polyps, an area where it has been quite successful in Europe, although we've been slow to adapt in the U.S. We're now proactively targeting that area and receiving positive feedback. Emergency Medical Technicians are eager to try this molecule, and our trials in markets like Italy have shown a significant increase in Nucala usage. We are now intensifying our efforts in all major global markets for Nucala.

Emma Walmsley, CEO

And RSV ex-U.S.

Luke Miels, Chief Commercial Officer

Sure. I think now we know enough about this vaccine that we need to move forward. The feedback we're getting is very encouraging. STECO just did a broad RSV vaccine contract in Germany at about EUR180 for both us and the other guys, so that's encouraging. We should see good adoption there. And then the rest of the world, the basic elements of RSV, the morbidity, mortality, these are very apparent. I think one thing that we're watching is just different geographies emphasizing older adults; other ones are more focused on maternal. So for example, in Latin America is more focused on maternal as is Australia, whereas the European markets are more focused on older adults, including Japan. So early days, but I think we've got a pretty good idea of the pricing point. As I said earlier, we did set out the U.K. tender. Canada was very, very price intensive. So our whole strategy here is, as I said in Q2, we want to play the longer-term game. We have the best-in-class vaccine. We've accumulated a very clear picture on the benefit-risk and the potency and the duration of effect. So now we're moving to contract.

Emma Walmsley, CEO

Thank you, Luke. As you can see in our reported sales, international RSV sales remain a small portion. In the U.S., about 80% of those eligible according to ACIP have not yet received the vaccine. This year poses some challenges, but the benefits of this vaccine are clear. We expect revax to arrive around year three, and it will be up to ACIP to determine timing. Looking at Shingrix, which has nearly 60% of its business coming from international markets, there is significant potential for this effective vaccine to increase its market presence over time. Next question, please.

Operator, Operator

The next question is from Simon Baker. Simon?

Simon Baker, Analyst

Thank you, Jeff. Thanks for the call, everyone. Two questions, if I may, please. Firstly, on Depemokimab. Could you remind us what assumptions in terms of severity of asthma is assumed within the peak sales number, how far down the continuum of severity do you expect to go to get that number? And then secondly, a question on RSV, which may be a slightly naive one. But if we have more tunnel congestion in pharmacies, and we have a vaccine that has multiyear efficacy, what is the feasibility of shifting the time of vaccination from the autumn to earlier in the year to at least mitigate that issue that you've run into at the moment? Thanks a lot.

Emma Walmsley, CEO

Thanks. So Luke, to you on deseasonalizing, if that's the word. By the way, I think when we get to combo vaccines, which obviously GSK wants to compete in, that would also help in terms of share of arm space. But Luke, perhaps you can comment on that. And then Tony, we'll come to you in terms of the profile of asthmatics. With that, Luke?

Luke Miels, Chief Commercial Officer

I think you’ve accurately identified the challenge we’re facing with Arexvy and the current vaccination class due to the recent recommendations from ACIP, which have narrowed eligibility based on a benefit-risk evaluation. However, we believe this situation will evolve positively over time for several reasons I'll explain shortly. During the FDA presentation at ACIP, Tony and I exchanged messages and noted a significant benefit-risk slide that indicated for every million people vaccinated over three years in the target age groups, we could expect around 2,000 fewer deaths and 15,000 fewer hospitalizations, with a trade-off of almost 9 cases of GBS. This data will likely influence vaccination trends moving forward. Looking at co-administration with RSV, we’ve seen a noticeable increase. In August, Arexvy was administered alongside another vaccine 56% of the time, which rose to 71% in September. Interestingly, the combination with flu dropped from 24% to 12% during that time, while the COVID combination increased from 3% to 10%. The triplet of COVID and flu went from 5% to 27%. This suggests that there’s a significant opportunity to deseasonalize this vaccine, similar to our approach with Shingrix, and this longer administration timeframe aligns with what pharmacists are seeking in terms of managing their workload. I’m optimistic we will achieve this in the medium to long term. Regarding depemokimab, the peak penetration rate hasn’t been established yet, but currently, only around a third of eligible patients are receiving biologics. This isn't due to access but rather the willingness of pulmonologists and allergists to prescribe them. Market research indicates that depemokimab has an appealing buy-and-bill component, which is less significant with Nucala. Our findings show that around 80% of healthcare professionals are very interested in the six-month dosing schedule, and about 58% said they would use it for new patients, with two-thirds considering a switch for current patients. Approximately 60% of patients find the six-month schedule much more attractive, and nearly 90% would consider it if recommended by their doctor. This could lead to about a 20% increase in biologic use according to our models. Additionally, unlike Nucala, we have most lifecycle events occurring within two years of the initial approval, which is encouraging.

Emma Walmsley, CEO

Yeah. Tony, I don't know if you've got anything to add to that?

Tony Wood, Chief Scientific Officer

Well, just sort of, Simon, the way to think about it was on the SWIFT-1 and SWIFT-2 studies, of course, we're designed to look at reduction of exacerbations on top of standard of care. The primary endpoint across both of those was a method of 54% reduction, that's what we should have expected. Remember, we were matching exposure relative to Nucala, but just a few tidbits to dig into the details a little further to emphasize the quality of depemokimab in terms of administration frequency, to build on Luke's point. What we also see from, for example, in the prespecified analysis of secondaries through exacerbations requiring hospitalization or an ER visit is a 72% reduction. And actually, if you look across, both SWIFT-1 and SWIFT-2, it's important to realize that in those studies, 68% of the patients on that experience no exacerbations at all.

Emma Walmsley, CEO

Luke, I believe this demonstration of GSK's capabilities regarding the value of long-acting medicine for patients and healthcare professionals, as evidenced in our HIV business, is significant for keeping people out of the hospital and improving medication compliance, as well as enhancing user-friendliness. This is an exciting area for us to explore further and will lead to meaningful growth. Please proceed to the next question.

Operator, Operator

Great. The next question is from Graham Perry from Bank of America. Graham?

Graham Parry, Analyst

Thank you for taking my question. Regarding Arexvy, looking into 2025 without a booster, I’m curious about what kind of first dose penetration we should expect. Should we anticipate increases similar to the 6% to 7% seen with Shingrix in the addressable populations, assuming the market expands? Would this result in a decline in the U.S. next year? Additionally, how do you believe international markets can help offset this if you're planning to fully launch in those territories based on pricing or assuming a duration of at least three seasons since you have the data for that? Also, on Shingrix, could you clarify the current inventory levels held by Zhifei and whether you foresee any additional sales into Zhifei's inventory in 2024, or if the minimum contracted volume of 400 will not be met? Lastly, how confident are you in reaching the targets of GBP800 million and GBP1.2 billion moving forward? Thank you.

Emma Walmsley, CEO

Thank you, Graham. I'll reiterate our position on China regarding the contracts we have, emphasizing our commitment to a long-term, ambitious partnership. Luke, could you provide some insights on Arexvy and our future goals? We are still in the early stages of both international and U.S. market penetration. It's important to note, Graham, that this is an unusually slow season, and I don’t believe we should use this as a long-term benchmark when considering the last 15 years. Luke, do you want to share your thoughts on penetration?

Luke Miels, Chief Commercial Officer

I think the unpredictable factor is what ACIP will decide, and they are being cautious. The FDA figures are significant, but the main concern is how this year's season will play out. Traditionally, November marks the peak for RSV, though that has shifted since COVID, which is noteworthy. It's important to consider if ACIP will feel confident about the benefit-risk balance as they analyze more data from this season. Looking at the penetration rates in December '23, the rate for those aged 75 and above was 17% in August, which has increased by 21%. This reflects the effects of ACIP's June guidance on a population of 29 million. In the 60 to 74 age group, the uptake is slowing, rising from 10% at the end of last year to about 14% in August '23. This group is critical to monitor. We indicated in the second quarter that the situation wasn't promising regarding ACIP's views on this group. There were differing opinions, but we believed improvement would occur. The evidence supports this. Additionally, the 50 to 59 and 18-plus age groups are key factors to consider. Forecasting for 2025 with Arexvy is quite complex due to these variables, but I feel optimistic about the mid to long term based on everything we've discussed. However, 2025 will be challenging until ACIP stabilizes its guidance. There is a clear message out there that I believe healthcare professionals have picked up on. Hopefully, as time goes on, the evidence regarding the benefit-risk will be recognized, and uptake will begin to improve. Tony, do you have anything to add?

Tony Wood, Chief Scientific Officer

No, I just want to expand on that and highlight some of the key conclusions from the ACIP discussions. To begin with, they determined that the benefit-risk is evident and well-established. The commentary indicated that the confidence interval did not overlap when evaluating benefit versus risk. The FDA also concluded that while the GPS signal has reached statistical significance, it remains rare, occurring in less than 10 cases per million. Therefore, this population is clearly justified, and as we mentioned earlier, there is still a need for further penetration to protect individuals. There is also potential to expand the label to include the originally indicated population of those aged 60 and older, and we have data for the 50 to 59 age group as well as those 18 and older. Additionally, clarity regarding revaccination will improve over time.

Emma Walmsley, CEO

To clarify your question, we have taken a cautious approach regarding our 2025 outlook for vaccines overall, meaning no revaccination and no expansion of cohorts. The decision will ultimately rest with ACIP. We will continue to provide data and remain confident in the medium and long-term impact of vaccines. The strong performance of our Specialty business this year demonstrates our ability to generate robust profitable growth in 2025, which supports our high confidence, especially alongside the five approvals we anticipate by year-end. This reinforces our confidence in all the long-term commitments we made at the beginning of this year. While we face a short-term challenge to manage, the strength of our portfolio and progress in our pipeline indicates that both our Specialty and Vaccines businesses will keep driving the transformation of GSK and its performance. Next question, please.

Operator, Operator

Thanks. The next question is from Emmanuel Papadakis. Emmanuel?

Emmanuel Papadakis, Analyst

Thank you, sir. I'm sorry, I'm going to ask another question on Arexvy. How are you going to get to 3 billion peak? I mean, even with a modest degree of late revaccination in the U.S., it doesn't seem like we'll return to blockbuster territory in the U.S.A. So, is this really a statement about international potential or are we missing something on the U.S.? Or what are the assumptions that lead should you think we can get to 3 billion? And perhaps a question on Blenrep, maybe a more favorable topic. Just talk to us about the timelines in the U.S., Are you anticipating priority review either out of the FDA's generosity or use of a voucher? Can you comment on the relaunch expectations commercially for next year? We've got a relatively modest set of consensus expectations. We'd love to hear what you think about those? Thank you.

Emma Walmsley, CEO

Thanks, Emmanuel. So Luke, I think you can pick on both of these. But I'm just going to reiterate very briefly, there are 64 million people that suffer from RSV on a seasonal basis, 14,000, 15,000 people die every year in America. This is a brand-new vaccine with a cautious ACIP, but we are in their hands in terms of how and when they come back on revaccination, which we are very confident they will be considering the waning to below 50% in season 3 over time and extension in cohorts and the penetration because as Luke said, there isn't really good reason to expect this to be very different from flu over time, and we're still in the early days of that and international expansion. So Luke, I don't know if there's anything else you'd like to repeat on that one. But we are being cautious in the near term, right? We're not banking that near term. But Luke, I don't know if you want to add anything and then obviously, very ambitious for Blenrep.

Luke Miels, Chief Commercial Officer

No. Regarding Blenrep, we've covered everything essential. There's a focus on peak sales, but it's important to note that the volatility between a multiyear vaccine and an annual vaccine is much higher. We should concentrate on the area under the curve, which has changed. The market research and expert feedback show increasing respect for the product's profile, along with a broader understanding of the challenges with employing bispecifics, including infection risk, concomitant infusions, admission, CRS, and neurotoxicity. The DREAMM-7 and DREAMM-8 studies have been positively received. Supporting physicians during the initial treatment of their first five patients is critical, particularly regarding infusion strategy and dose adjustments, while also educating them that efficacy is not compromised with dose holds. We now have a more realistic understanding of product elements and their impact on patients, along with flexibility in dosing. There is significant opportunity in the second-line setting due to the progression of CD38 into the first line. Combining all these insights and our growing clinical and commercial experience over the years enhances our position. The designs of DREAMM-7 and DREAMM-8 and the product launch reflect this growth. We are cautious and humble in our approach, collaborating with experts to ensure we do justice to the product, pending FDA approval. If we achieve survival metrics by year-end, that will further support the product in the second-line setting.

Emma Walmsley, CEO

Next question, please.

Operator, Operator

The next question is from Richard Parkes. Richard.

Richard Parkes, Analyst

Hi, thanks for taking my questions. Firstly, I just like to push a little bit on the confidence in the Arexvy revaccination market because you seem very confident about that. But it looks like the decline in vaccine efficacy somewhat stabilized in the third year? And it sounds like ACIP wasn't fully convinced by your revaccination immunogenicity data. So just can you just underline why you're so confident about that? And maybe what impact that would have on your peak sales assumption if that didn't materialize? And then secondly, on Apretude, and that launch looks like it's lost a little bit of momentum. And could you just discuss what drives it from here and what the current PrEP market penetration is? And are you thinking has evolved over the contribution of PrEP deal long-acting sales target? Thank you very much.

Emma Walmsley, CEO

So Tony, on revax and then Deborah please.

Tony Wood, Chief Scientific Officer

Yeah. So just quickly on revax, as you see the data particularly in the lower respiratory tract disease population show that there is a decline from Season 1 to Season 3 of 83%. In Season 1 and 2, I think, 48%, in Season 3, importantly, and to answer your question with regards to trajectory, we also know that natural infection does not cause lifetime immunity for these mucosal infections. You don't see that. And so, we think that the available evidence that data would suggest that revax will be required, and it will be between three and five years. Additionally, take the opportunity to stress what we also see through that, and you'll see more data from us next year on boosting, but there is a clear trend. As again, is commonly the case in vaccines that as the time from prime to boost extends, the significance of the boost increases.

Emma Walmsley, CEO

Thank you very much. So thanks, everyone, for joining the call. As you heard, we're delighted to be reconfirming our guidance for the year, another year of strong operating performance, and also our confidence in the outlook for '26 and '31. Look forward to catching up with you over the coming days. Thank you. Bye-bye.