Earnings Call
GSK plc (GSK)
Earnings Call Transcript - GSK Q3 2020
Operator, Operator
Good afternoon, ladies and gentlemen, and welcome to the analyst call on the GSK Third Quarter 2020 Results. I will now hand over to Sarah Elton-Farr, Head of Investor Relations, who will introduce today's session. Please go ahead Sarah.
Sarah Elton-Farr, Head of Investor Relations
Thank you. Good morning and good afternoon. Thank you for joining us for our Q3 2020 results, which were issued earlier today. You should have received our press release and can view the presentation on GSK's website. For those not able to view the webcast slides that accompany today's call are located on the Investors section of the website. Before we begin, please refer to slide 2 of our presentation for our cautionary statements. Our speakers today are Emma Walmsley, Iain Mackay, Luke Miels, David Redfern and Brian McNamara. Hal Barron and Roger Connor will join us for Q&A. We request that you ask only a maximum of two questions, so that everyone has a chance to participate. And with that, I will hand the call over to Emma.
Emma Walmsley, CEO
Thank you SEF, and welcome everybody to today's call. I hope that you are all keeping well. 2020 continues to be an extraordinary year. GSK has shown resilience and agility in tackling the challenges while maintaining focus on our strategic goals, which remain firmly on track. We continue to strengthen and advance the pipeline. In July, as mentioned at Q2, we received approval for Rukobia in HIV. And this quarter we've also had first approval and launches for BLENREP in multiple myeloma for Trelegy in asthma and new indications for Nucala. We've delivered positive data on our RSV candidate vaccines and GSK'836 in hep B. Plans to progress these programs are underway; both represent major opportunities for health care impact and have the potential to be significant future growth drivers. We also initiated three major pivotal studies in meningitis vaccine second-line multiple myeloma and with our Vir antibody in COVID-19, a very exciting program you're going to hear more on later. While there have been some short-term pressures as a result of the pandemic, especially in vaccines early in the quarter, our performance fundamentals continue to strengthen. And we're very confident our vaccines portfolio and pipeline will drive growth for years to come. Brian will update you in more detail, but the momentum we're building in our commercial execution is driving encouraging growth across our new products, setting the course for strong future performance. And this has also been a quarter of disciplined cost control as we've made substantial progress on both our consumer integration and company separation programs. We continued to deliver efficiency in our support functions, further simplify our site network, and achieve an important milestone on building one development organization in R&D for Pharma and Vaccines that will improve agility decision-making and scientific collaboration as well as our cost base. Our pipeline includes several COVID solutions and we remain committed to building stakeholder trust as we deliver them. We have in place supply agreements with multiple governments for our partnered adjuvanted COVID-19 vaccine and have pledged to maintain our focus on safety and global access. Turning to the quarter. Strong performance from our future growth drivers combined with a focus on cost has offset the ongoing pandemic impact. We've delivered margin and earnings growth this quarter and expect to deliver within our earnings guidance range in 2020. All numbers referenced are on a constant currency basis. In Pharma, we're very encouraged by the strong performance of our new and specialty products with sales up 12%. This was offset by a decrease in Established Pharma of 18% and Iain will go into that in more detail in a minute. The greatest impact of the pandemic has been in our Vaccines business, where sales were down 9% in the quarter. However, we're encouraged by the accelerated recovery towards pre-COVID level of immunization as the quarter progressed and the strong performance in flu up 21% year-to-date – sorry, up 21% in the quarter. Year-to-date Shingrix sales are up 6%. In Consumer, we continued to reshape the portfolios and pro forma growth in our ongoing business was 3% driven by vitamins and oral health. Overall, we're gaining share and our power brands are performing strongly. Group adjusted operating margin for the quarter was 30.8% with the impact of vaccines more than offset by tight cost control and the realization of restructuring benefits with SG&A down 10% pro forma while we've continued to invest in our pipeline and our new product launches. On a total basis earnings per share were 25p and adjusted earnings per share were up 1% to 35.6p. And before I hand over to Iain, I'd just like to remind you of the great progress we're making on our portfolio of COVID solutions. Our aim is to develop multiple adjuvanted COVID-19 vaccines and we now have three different vaccine collaborations in the clinic that could move to pivotal studies by the end of the year. We also have two exciting therapeutic approaches in clinical studies through our collaboration with Vir, which Luke will speak to later; and our aGM-CSF antibody otilimab. And so now to Iain with more detail on the quarter.
Iain Mackay, CFO
Thanks, Emma. All my comments today will be based on constant currency unless I indicate otherwise, and I will discuss both total and adjusted results. On slide 9, we summarize the group's results for Q3 and the current year. In Q3, turnover decreased by 3% in constant currency. Adjusted operating profit reached £2.7 billion, an increase of 4% in constant currency. Total EPS was 25p, down 9% in constant currency, while adjusted EPS was 35.6p, up 1%. For the year-to-date, turnover amounted to £25.4 billion, up 4% on a reported basis but down 2% pro forma. Adjusted operating profit stood at £7.1 billion, up 3%. Total EPS was 102p, up 55%, and adjusted EPS was 92.6p, down 4%. We generated £2.3 billion in free cash flow year-to-date and faced a 5% headwind on sales and a 9% impact on adjusted EPS due to currency fluctuations. Slide 10 outlines the adjustments made to reach our adjusted results. The key adjustments in the quarter include major restructuring reflecting progress on the Consumer Healthcare integration and transformation, as well as separation activities. Additionally, transaction-related adjustments included a charge from the re-measurement of contingent consideration related to ViiV Healthcare, primarily driven by an increase in our forecast for cabotegravir PrEP, following positive clinical data released earlier this year. From this point forward, I will discuss adjusted results in constant currency unless mentioned otherwise. Slide 11 presents the Pharmaceuticals business, where overall revenues met expectations, decreasing by 3% in Q3 and 1% year-to-date. Excluding Established Pharma, revenue grew by 12% in both the quarter and year-to-date, highlighting our strong commercial performance. Respiratory product sales rose by 26%, boosted by robust growth from Trelegy, Relvar/Breo, and Nucala. Benlysta increased by 13%, maintaining its double-digit growth after more than nine years on the market. In Oncology, Zejula sales were £92 million for the quarter, a 47% increase due to excellent commercial execution. We are optimistic about the prospects for both Zejula and BLENREP, which launched during the quarter. Our new products continue to perform exceptionally well; Luke will provide further insights shortly. HIV revenues remained flat, with the dolutegravir franchise up 1%, showing strong performance from Dovato. The Established Pharma portfolio shrank by 18%, impacted by generic competition for Advair/Seretide and Ventolin, as well as accelerated brand erosion of Flovent in the U.S. The remaining Established Pharma portfolio declined by 19%, with COVID-19 affecting performance, especially in antibiotics. We've also seen a rise in government-mandated generics in certain markets. For the current year, we anticipate a mid-teens decline in the total Established Portfolio. Next year, we expect the Established Portfolio to return to its historical decline of mid to high single digits, and we are continuously exploring divestment opportunities within this portfolio. Pharma operating margin stood at 28% in Q3, reflecting a 470 basis point increase due to a favorable product mix, a positive impact from recognizing pre-launch inventory, and the approval of BLENREP in R&D. There was also a favorable comparison to 2019 regarding nonrecurring manufacturing write-downs and legal settlements, alongside tight cost control. These benefits were counterbalanced by increased investments in new product support and targeted priority markets, as well as R&D focused primarily on oncology and total 2019 programs. Year-to-date, the margin was 26.3%. Slide 12 provides an overview of the Vaccines performance for Q3, where sales fell by 9% due to the pandemic's adverse impact. Shingrix sales plummeted by 25% because of fewer adult wellness visits in the U.S., particularly through July and August. However, by the end of Q3, weekly U.S. prescriptions for Shingrix reached levels akin to a year ago. Year-to-date, Shingrix revenue grew by 6%, and we've implemented measures to support further growth through Q4 and beyond. Recent trends are promising and indicate strong underlying demand for this vaccine, and we are progressing on expanding supply capacity. Flu vaccines performed well, with revenue increasing by 21%, mainly due to effective supply and sales execution. We expect the rise in flu immunizations, particularly among older adults, to enhance Shingrix's performance recovery. The meningitis portfolio grew by 1%, though the disrupted back-to-school season in the U.S. affected Bexsero performance. Meanwhile, Established Vaccines declined by 15% due to lower demand stemming from the pandemic environment, especially in hepatitis. The operating margin was 44.2%, which is 500 basis points lower, largely due to negative operating leverage from the COVID-19-related sales decline and investments in key brands such as Shingrix. Year-to-date, Vaccines revenues dropped by 7%, and adjusted operating margin was 40.7%. Turning to slide 13, Q3 revenues in Consumer Healthcare on a pro forma basis increased by 3%, excluding brands either divested or under review. Including these brands, such as Horlicks, turnover fell by 6% pro forma. The reversal of the Q2 systems cutover stocking benefit impacted overall growth by about two percentage points. Oral health grew by 5% in constant currency, with Sensodyne up by 7% due to strong global commercial execution. The pandemic has had a sustained positive effect on vitamins, minerals, and supplements, which grew by 18% because of increased consumer focus on personal health. However, this growth was partly countered by weaker respiratory health performance, attributed to a lower cough and cold season thus far, and in pain relief mainly due to Advil's market share challenges. The Rx-to-OTC switch of Voltaren in the U.S. is showing excellent performance. Operating margin for the quarter decreased by 90 basis points year-on-year, mainly due to the impact of divested brands and heightened brand investment, partially mitigated by synergy benefits from the Pfizer integration and strict cost control. There is no change to our previous guidance for Consumer margins. Year-to-date, Consumer revenues remained flat pro forma and increased by 6%, excluding the impact of brands that were divested or under review. The pro forma adjusted operating margin was 23.8%. Brian will offer more details on Consumer Healthcare performance and business updates shortly. On slide 14, we summarize sales and adjusted operating margin for Q3. Our group operating margin rose by 240 basis points on a pro forma basis. Lower costs across the group counterbalanced the reduced sales operating leverage, primarily in Vaccines. We are beginning to see restructuring benefits from programs announced earlier this year. We continue to manage operating costs meticulously and have achieved significant savings across categories such as travel and expenses. During Q3, in SG&A, we saw a one-time benefit from restructuring post-retirement benefits and the non-recurrence of high legal costs from Q3 2019. We are committed to new product launches, and our pipeline advancement is firmly on track, with Pharma R&D spend year-to-date up by 6%. The reduction in R&D spending in the quarter is due to benefits from recognizing pre-launch inventory after the approval of BLENREP, decreased spending related to niraparib and dostarlimab after their filings at the end of 2019, and the realization of transformation savings, synergies, and efficiencies. This was partly offset by increased investments in key assets’ progression such as BLENREP, ICOS, otilimab for rheumatoid arthritis, and two significant COVID programs: otilimab for COVID and the Vir antibody. R&D in Vaccines and Consumer slightly decreased year-to-date. With the mentioned transformation synergies and savings, we now expect R&D for the group to rise by mid to high-single-digits for the year. All pivotal programs are progressing as planned. The COVID-19-related delays previously experienced are recovering, except for gepotidacin. We included the year-to-date analysis in the appendix. In the bottom half of the P&L, I want to highlight that interest expenses were £197 million, mainly reflecting reduced debt levels. The effective tax rate of 16.8% aligns with expectations, and we continue to forecast a full-year effective tax rate around 16%. Lastly, non-controlling interest captures Pfizer's share of profits from the Consumer Healthcare JV. We achieved £2.3 billion in cash flow in the year to September. This decrease was mainly due to higher dividends to non-controlling interests and adverse currency impacts, though this was partially offset by lower seasonal increases in trade receivables, beneficial timing for payments relating to returns and rebates, higher proceeds from intangible asset disposals, and improved operating profits. As we indicated in Q2, we anticipate lower free cash flow in the latter half of 2020 compared to the first half, and we still expect cash flow for the year to decline from 2019 levels. We concluded the quarter with strong cash balances, effective working capital management, and access to extensive undrawn committed facilities. We set our guidance range for adjusted EPS at a decline of 1% to 4% in constant currency earlier this year. A lot has transpired since then, but I'm pleased that the group has responded with agility, and we remain on track to deliver within this guidance range, albeit at the lower end. The performance of Pharma and Consumer thus far aligns with our expectations, showing good commercial delivery from our new and specialty products in Pharma and our key brands in Consumer Health. We are encouraged by the recovery of the Vaccines business throughout the quarter, with stronger performance in September, which has continued into October compared to a year prior. In the Vaccines segment across age groups, this recovery is nearly complete in pediatrics, while the progress in adolescents has been slightly slower due to disruptions from returning to school. In older adults, the uptick in immunization rates and generic uptake is positive and indicates strong underlying demand. Our ability to meet guidance is contingent upon maintaining the recovery of adult immunization rates, particularly for Shingrix. We are making headway in enhancing supply capacity for Shingrix ahead of launching our new facility, and we will update you on the details in Q1 next year. There are no changes to our capital allocation priorities. We continue to advance our pipeline, as Emma mentioned earlier. We are progressing well with the integration of the Pfizer consumer business and transforming all aspects of GSK, and we are confident in our preparations for the separation. As stated in our earnings release, we have declared a quarterly dividend of 19 pence, consistent with expectations communicated earlier this year. I'll now hand over to Luke.
Luke Miels, Chief Commercial Officer
Thank you, Iain. Hello everyone. We've been diligently working on our commercial execution to ensure we're well-equipped, particularly focusing on new product launches and our key markets. The changes we've implemented are beginning to show results. Sales in our growth sectors, including respiratory, HIV, immuno-inflammation, and oncology, increased by 12% this quarter to £2.5 billion. These changes consist of revised healthcare professional engagement policies and sales force incentives that enable us to compete more effectively and responsibly in the key growth markets. We are also enhancing our digital capabilities and increasing face-to-face engagements where feasible. While the lockdown has impacted some parts of our portfolio, especially Established Pharma, we are leveraging the new methods of working to enhance our digital presence alongside traditional approaches effectively. With the right investments in place, we're experiencing significant momentum in our new product portfolio, which we expect to expand further in the upcoming quarters as we launch our pipeline assets. Beginning with Nucala, we had another strong quarter, delivering competitive performance and maintaining our leadership in the IL-5 class. This market has considerable growth potential, with unfortunately only 27% of eligible patients in the U.S. receiving this biologic. We lead in the share of both new and total IL-5 patients in the U.S. and continue to be the leader in other major global markets. Nucala's strong position is due to its proven efficacy, specifically targeting IL-5 to normalize its levels, which distinguishes it from other biologics as we quickly expand into other eosinophil-related conditions. In the U.S., we've gained approval for EGPA and HES and have recently submitted our application for nasal polyps. We also made history with GSK by submitting three indications to the DMA in parallel and our studies in COPD are ongoing. We remain optimistic about the growth outlook for Nucala. Next, regarding Trelegy within Respiratory, we continue to not only lead the market in once-daily single inhaler triple therapy for COPD but also expand the market. We are increasing our share in the U.S. as the market leader and in other significant markets globally. Despite the competitive landscape, we retain a leading share of voice in the U.S., Europe, and Japan and continue to see strong growth. The market opportunity in COPD is vast, with under 25% of patients in the U.S. needing triple therapy actually receiving it, indicating substantial room for growth. We also received U.S. approval for asthma. Approximately 30% of adult patients in the U.S. with asthma on an ICS/LABA remain uncontrolled and could benefit from triple therapy. In the early weeks since launch, we have observed a doubling of NBRx among allergist prescribers, indicating an acknowledged unmet need. Switching focus to Benlysta, it remains an excellent product for lupus patients worldwide. In Q3, we again recorded double-digit growth after over nine years on the market, aided by the acceptance of the subcutaneous formulation and the successful IV launch in China. The lupus market holds substantial upside potential and we are advancing through targeted life cycle management and data generation for new indications. We have published positive data from the BLISS LN trial in the New England Journal and received priority review for our FDA submission. We anticipate approval by the year's end, aiming to become the first and only drug indicated for both SLE and lupus nephritis. We will also have the combination study with Rituxan by the end of the year, and we are hopeful this could lead to clinical remission. With ongoing investments in important data generation, we are well-positioned against potential competition with established efficacy across a broad base of lupus patients, long-term real-world outcomes data, and a recognized long-term safety profile. Notably, over 80% of eligible lupus patients remain untreated in the U.S. and even more globally. The number of treated patients is expected to rise with the lupus nephritis indication, offering significant growth opportunities to assist these patients. In oncology, although the ovarian cancer market was impacted by the pandemic with fewer patients receiving first-line treatment in the year’s first half, we executed well commercially with Zejula and increased our market share. Our best-in-class label is the only PARP inhibitor approved for all patients in the first-line maintenance setting, which has been crucial for our market penetration, not just among the BRCA-mutant population but across all patient types. This is now backed by both NCCN and ASCO guidelines for patients responding to chemotherapy. By August, nearly half of all patients starting on a PARP inhibitor are now using Zejula, and one in three new or repeat patients are being treated with it in the front line. In Q3, we saw a 50% increase in average weekly new writers in the U.S. and we've doubled our overall market share from 14% in April to over 30% in August. We are aware that there is still significant opportunity to penetrate the market, as watch and wait is unfortunately still being applied in over 70% of women in the first-line maintenance setting in the U.S. We are also focused on accelerating opportunities beyond ovarian cancer to improve outcomes for more patients. In Q3, we initiated the ZEAL study in combination with pembrolizumab to assess the impact of Zejula on both squamous and non-squamous non-small cell lung cancer patients in a maintenance setting. With its differentiated properties and superior tumor penetration capability to cross the blood-brain barrier, we believe Zejula has the potential to enhance outcomes and be the best-in-class PARP for lung cancer. We launched BLENREP for heavily pretreated multiple myeloma patients at the end of August in the U.S. Although it’s early in the process, we are seeing positive feedback from physicians, patients, and advocacy groups. There is a high unmet need in multiple myeloma, and over 500 healthcare professionals and more than 200 patients have already enrolled in our fully operational REMS program. Our experienced sales force has high in-person access to healthcare professionals compared to competitors. We are also committed to further developing this essential medicine and have a comprehensive program to improve its safety profile by studying different doses and schedules. Importantly, we are investigating Blenrep in novel combinations with other therapies like pembrolizumab, which may yield synergistic effects, and combinations with SpringWorks' gamma secretase inhibitor, which has the potential to improve efficacy and side effect profiles. We expect to share data on some of these combinations in 2021. Shifting to vaccines, we have continued to feel the effects of the pandemic this quarter with lower adult wellness visits and vaccination rates in the U.S., although we've seen significant improvement in September. For Shingrix, we noticed a steady increase in U.S. prescription volumes throughout the quarter, reaching levels comparable to pre-pandemic figures by the end of the quarter. Our direct-to-consumer campaign has effectively driven this recovery alongside flu season, and wholesale inventory levels have stabilized with about 1.2 million doses in circulation. Internationally, we experienced robust demand from Germany and made great progress in our phased launch in China. Before I hand it over to David to discuss the HIV 2DR momentum, I want to point out the upcoming results we expect from our COVID antibody developed in partnership with Vir. Despite many vaccines in development for COVID, including our collaborations focused on adjuvant strategies with Sanofi and others, we believe a therapeutic option will still be essential. There is much uncertainty regarding how the pandemic will evolve, but it appears likely that a high level of infections will persist in 2021 and beyond. Even with a successful vaccine, distribution will take time and it is unlikely to be effective for everyone. Therefore, there will be a clear requirement for therapeutics. The Vir antibody is derived from a patient affected by SARS-CoV-1 and has demonstrated a very high affinity for the SARS-CoV-2 spike protein, showing strong potency in neutralizing SARS-CoV-2 in live virus assays. It possesses three characteristics suggesting it may be a best-in-class asset. First, it has a unique receptor binding site that is highly conserved and crucial for viral entry into hosts. Clinical testing of over 80,000 sequences indicates this epitope is highly conserved among circulating viral strains, setting a high barrier to resistance. Additionally, escape mutants identified against similar antibodies have shown reduced or no infectivity. Second, this antibody has potent effective function in vitro, facilitating the recruitment of immune cells to eliminate infected cells, which may allow for a lower single dose—a critical advantage as we scale manufacturing given the anticipated high number of patients and the likelihood that demand for therapeutics will exceed supply for some time. Finally, the antibody has been engineered to extend its half-life, potentially enhancing its viability in the lung. The pivotal COMET-ICE study for early treatment in high-risk patients is in progress, and we expect initial data by year-end. We also plan to expand studies to include hospitalized patients and prophylactic use. This collaboration has significant potential and is very exciting for us. Now I will turn it over to David to cover HIV.
David Redfern, Chief Strategy Officer
Thank you, Luke. Hello, everyone. As in the rest of our business, HIV is also benefiting from strong competitive execution. We have the leading share of voice in both the U.S. and Europe and the benefit is clear in the momentum we are delivering in the two-drug regimens and across our HIV business. We are now seeing U.S. dolutegravir NBRx share outstrip our TRx share. A key point of inflection which demonstrates the traction that we have achieved the two-drug regimens, which now have over a 9% share of NBRx in the U.S. Dovato in particular, is performing very strongly. We saw the inclusion of the TANGO switch data on the U.S. technical difficulty. This has helped Dovato accelerate its share of the U.S. switch market. We now see about one-third of Dovato scripts come from new patients, one-third from competitor regimens, and therefore only one-third from other dolutegravir technical difficulty regimens. As such, overall, we are seeing a positive net switch to dolutegravir regimens helping to increase our overall market share in the U.S. In Europe, we are growing ahead of the market and dolutegravir is gaining market share as we continue to roll out Dovato. We've been able to launch early in all markets across Europe despite the pandemic and Dovato now has the leading share of voice in all measures of all countries. We have also seen a positive start for Rukobia, which has U.S. insurance coverage of over 70% with 250 patients already on therapy. And we are making good progress in our discussions with the FDA on CAB in the PrEP setting. We are on track to file for U.S. approval for PrEP in the first half of next year and anticipate a 2022 approval. We still expect HIV revenue growth overall to be broadly flat in 2020, but anticipate a return to growth in 2021 building on the momentum we have established for Zejula and Dovato and with the expected U.S. launch of CABENUVA in the first quarter of 2021. I will now hand over to Brian to talk about Consumer.
Brian McNamara, CEO, Consumer Healthcare
Thanks, David. I'd like to provide a quick update on our progress with integration, which is progressing well and is firmly on track. Our positive momentum has continued despite the challenges related to the pandemic. Importantly, we've delivered significant milestones to date. 96% of the Pfizer Consumer Healthcare revenue are now on our systems with 71 markets having made this transition since the start of the pandemic. 87% of co-locations are complete and 39 of the 41 warehouses identified for closure are now closed. Furthermore, all future market cutovers, employee transfers, and production site integrations remain on track. At the time of the transaction, we've provided synergy and financial guidance for 2022 and this remains unchanged. We continue to expect annual synergies of £500 million by 2022 with up to 25% reinvested back into the business to drive growth. We have also delivered on our divestment commitment with transactions meeting our target of £1 billion in proceeds already signed. Through this process, we have divested more than 50 growth-dilutive brands, strengthening our existing portfolio. Our separation program is also on track with work around the future organizational structure and system separation well underway. Now it's important to remember that the end goal of all this integration work is to bring together a fantastic portfolio of category-leading brands with a strong geographic footprint positioned in a sector which is now more relevant than ever. I continue to be excited about the potential of what we have created, a 100% focused global leader in Consumer Healthcare, addressing consumer needs and driving better everyday health. I look forward to sharing more with you on this great business over the coming years and in the run-up to separation. Coming back to performance, I'd like to share some detail on the growth drivers behind today's results. I will focus on year-to-date results to take out the volatility behind the pantry loading and the systems cutover. Pro forma revenue excluding brands divested and under review grew 6% year-to-date supported by healthy brand growth and overall share growth. Vitamins, minerals, and supplements continue to benefit from increased consumer focus on health and wellness. And as a result, we saw a strong performance by Centrum, Emergen-C, and Caltrate. On a pro forma basis, category sales grew in the high teens across all three quarters this year and with growth at 1.5 times the market. E-commerce was strong across all categories, growing at about 80% year-to-date and now representing over 6% of sales, up a few percentage points over last year. Key markets such as the U.S., China, U.K., and Germany are ahead of this level. Importantly, we grew significantly ahead of the market and are gaining share. Turning to our priority brands. Across our nine power brands, we saw five of them deliver high single-digit or double-digit sales growth with eight of the nine gaining or holding share. On innovation, we had a number of exciting launches so far this year. Let me share some details on just a couple to give you some color on what we're doing. We launched the Voltaren Rx OTC switch in May, our fourth Rx OTC switch over the last six years and the first in the pain category in the U.S. in over 20 years. Voltaren is the number one topical pain reliever globally, despite having not been in the U.S. or just pain market in the world. The brand is off to a great start, growing the overall U.S. topical category, delivering 100% of category growth and since launch is the number one HCP-recommended topical pain brand. In the quarter, we also launched Advil Dual Action, which is the first-ever combination of ibuprofen and acetaminophen and early results are encouraging. With that I'll hand it back over to Emma.
Emma Walmsley, CEO
So in summary, we've delivered a resilient performance this quarter with strong commercial execution of our growth drivers underpinned by disciplined control of costs. This, together with an improvement in vaccine immunization rates, we remain on track to deliver adjusted EPS for the year within our guided range. We're also pleased to have maintained progress in delivering against our long-term priorities of innovation, performance, and trust. In R&D, we've had four new approvals in the quarter and generated data to support the development of major pipeline assets including our portfolio of RSV vaccines. And very importantly, we've also been able to advance five possible COVID-19 solutions into clinical development, two very promising antibody therapies and three collaborations for adjuvanted vaccines. Beyond R&D, integration in Consumer Health continues at pace and we have achieved some important milestones in our program to prepare the group for separation into two new companies: a biopharma company focused on the science of the immune system and genetics and a new world-leading consumer health company dedicated to everyday health. We believe the creation of these two new companies will deliver significant new options for sustainable growth and returns to shareholders. We're now joined for Q&A by Hal and Roger, and with the rest of the team. And so with that operator, we're ready to take your questions.
Operator, Operator
Thank you, Emma. Your first question comes from Keyur Parekh. You are live in the call, Keyur. Please go ahead.
Keyur Parekh, Analyst
Thank you for taking my question. Dave, Emma, first of all congratulations on your recognition of your achievement. So, on that, just linked with that, who among your senior management team has the best curtsy technique so far?
Emma Walmsley, CEO
A lot of hands going up on that. It’s recognition for the company I can assure you Keyur nobody in my house takes their tails off on the floor anymore, but anyway, going to your technical question.
Keyur Parekh, Analyst
Well. You still haven't answered the question, so the two questions. One, Hal, there's some amount of confusion on the update that your partners at Merck and you put out about bintrafusp alfa. So I was just wondering if you could share your perspective on what kind of you made out of the update. Clearly, the trial continues, but kind of the proposed expansion of the enrollment kind of isn't happening. So, I was just wondering if you could share some perspectives on that. And then, secondly, as it relates to, kind of the reiteration of the guidance kind of for the full year, how much of that relies on Shingrix coming back into the fourth quarter? And what level of Shingrix revenues might be required to get there or do you feel comfortable enough to get to the bottom end of the range irrespective of what Shingrix does during the fourth quarter? Thank you.
Emma Walmsley, CEO
Thanks Keyur. So let's come to Hal first. And then over to Iain for a bit more specifics on the guidance on Shingrix contributions.
Hal Barron, Chief Scientific Officer
Okay. Well, thank you very much for the question, Keyur. Maybe backing up, I think it's important to note that when we initiated the collaboration with Merck KGaA, we did it on a very large and robust Phase I data set of over 400 patients really demonstrating activity and a very well-tolerated safety profile and some encouraging response data in lung. As we've said many times, we think it's important to do randomized controlled trials to see whether these observed effects are real when compared to appropriate controls. And that is really what initiated the so-called 037 study to obtain this randomized data. As you say we updated you last week that the study is not expanding. And we'll be continuing with 300-patient sample size. And while I know I can't really answer any of your questions more specifically. I will say that we need to await the final data to ensure the integrity of the trial. And it's important to wait to discuss any results of the study until we have a full data set including data on PFS and OS. So I realize that leaves you with some questions. But that's really the extent to which I can comment at this point.
Emma Walmsley, CEO
Thanks Hal. Iain?
Iain Mackay, CFO
Yes, Keyur, to clarify, I believe I stand out in this group, being the only individual wearing a scarf here. Moving on to the more significant topic regarding Shingrix, we are quite encouraged by the progress we've observed through September, and that positive trend has continued into October. The recovery in immunization rates among older adults has been crucial for shaping our full-year guidance. While we don't need substantial growth from our current position, it is essential to maintain the recovery we've experienced. September was an exceptional month, likely the best we've had for Shingrix. Year-to-date growth is at 6%, which is below our guidance for Shingrix, but if we can maintain the recovery seen in September and continue to see positive weekly prescription data and immunization days through October, we are optimistic that we will reach the lower end of our guidance range.
Emma Walmsley, CEO
Thanks. And just to complement that, I think fundamentally we're absolutely convinced that Shingrix will be a great growth driver for the company, for years to come. And if ever we want to be reminded of the opportunities and growth prospects in the Vaccines segment, this is definitely the year to reinforce that. So next question please?
Operator, Operator
Thank you. Your next question comes from Graham Parry from Bank of America. You are live in the call Graham. Please go ahead.
Graham Parry, Analyst
Great. Thanks for taking my questions. So firstly, would it be possible to quantify the BLENREP inventory? And pension restructuring benefits on adjusted operating income and margins in the quarter? So, would you still have been coming in around the sort of consensus level, without those in there? And then secondly, your guide now assumes R&D mid- to high single-digit increase. So I think at the start of the year you were flagging similar growth to 2019 for both, 2020 and 2021. That would have been about a 13% increase in R&D. And it's obviously benefited from some of this BLENREP inventory write-back. So could you just help us understand, should we be expecting a sharp upward inflection in R&D in 2021 as the one-off benefit goes away and you continue to invest in the pipeline? Thank you.
Emma Walmsley, CEO
So I think both of those to Iain. But just to reiterate our number one priority is still to keep strengthening the pipeline. So we do expect to see a strong increase, but perhaps next year. But perhaps Iain you could put some shape around that.
Iain Mackay, CFO
Yeah. Absolutely, so Graham thanks for your question. BLENREP the capitalization of pre-approval inventory was just north of £60 million in that factor. When you turn more broadly to R&D expense, the main point to I think reiterating here and Hal can go into more detail is that we've kept all our programs very much on track to the extent that we'd experienced any slight delays earlier in the year on the back of the pandemic. Those have been largely recovered. We've still got a little bit to do on gepotidacin, but those are very much back on track again. And what Hal and the team have continued to do is realize fully the efficiencies and synergies we expected from the TESARO acquisition and continue to deliver benefits and savings through the R&D just in terms of how we prioritize and manage spend within that. Reflecting on next year our guidance would remain absolutely consistent. We'd expect to see double-digit growth in R&D expenditure next year as we continue to invest in those priority programs across the R&D pipeline and made progress in that regard.
Emma Walmsley, CEO
Hal, I don't I wonder whether you would like to add anything in terms of the sort of overall governance and sort of progress of the pipeline because the other thing to note Graham would be that with – and you have seen it we're slightly down in both Vaccines and Consumer Healthcare R&D through integration and cost control. But Hal perhaps you could add some more color around the governance aspects of spend.
Hal Barron, Chief Scientific Officer
Yes Well thanks Graham. We're making a lot of great progress I think as Emma highlighted in her last comments on the last slide. And in particular highlighting that BLENREP started three pivotal studies making very nice progress on ICOS adding a second Phase II sort of head and neck study. The two COVID trials that we're doing in the Pharma side have been highlighted and they're going well. Three vaccine trials including moving the RSV to Phase III. We've added 10 new molecules vaccine to pharma assets into the pipeline. But importantly, we're also using a very high bar to advance things. We're using a high bar for interpreting data. And based on that we actually removed eight assets as well. We're tightening up our focus on research in areas that we think are most promising, making a lot of great progress on the human genetics functional genomics side and research, but really have reduced a little bit of spend in that in the research area. But overall, I'm very encouraged by the progress we're making on the pipeline and we'll be continuing to move aggressively to even strengthen it further.
Emma Walmsley, CEO
Thanks Hal, next question please.
Operator, Operator
Thank you. Your next question comes from Tim Anderson from Wolfe Research. You are live in the call Tim. Please go ahead.
Tim Anderson, Analyst
I want to go back to bintrafusp if I can for Hal. Hal would you agree that there's two very different equal interpretations to the recent update one is that you saw enough of a signal on the interim that you didn't feel you need to upsize the trial to hit survival; and the other would be the opposite which is that it's not worth upsizing the trial because that interim only showed a weak signal. Just to clarify will there be a milestone paid to your partner? And then second question is another pipeline question and it's on the ICOS agonist data coming up in first half 2021. You have a second-line lung trial randomized ICOS plus docetaxel versus docetaxel alone. Just your updated thinking on the odds of success with that trial.
Emma Walmsley, CEO
Okay. So just to confirm that there's been no milestone paid to date on the basis of the data to date. Doesn't mean there couldn't be one in the future. But Hal do you want to make any further comments on bintrafusp and also on ICOS please?
Hal Barron, Chief Scientific Officer
Yes. Tim thanks for your question. Our goal is to really be the partner of choice and be an outstanding partner when we work with another company and we've committed to Merck KGaA to have them be the lead on discussing how to interpret all this. So I sense the frustration and I would typically comment more to be honest with you, but I think it's best said that we should await the data from the trial before making any comments. So sorry for not being more transparent about that. In terms of your question about the ENTRÉE lung study the ICOS study. From memory that's about 105-patient study the design as you described. And it is a Phase II where we'll be looking at all the classic sort of endpoints you might expect. I think it will be important because that will be the first randomized data that really gives us a sense of the incremental activity that ICOS could engender there. And so I am cautiously optimistic that that promotional activity and it would certainly be a huge boost to the program and drive subsequent study designs and probably thinking about where the molecule fits in the medicine.
Emma Walmsley, CEO
Thanks Hal. Next question, please.
Operator, Operator
Thank you. Your next question comes from the line of James Gordon from JPMorgan. You are live in the call James. Please go ahead.
James Gordon, Analyst
Hello. It's James Gordon from JPMorgan. Thanks for taking my question. I have two questions, please. First, regarding TGF-beta, I noticed the comment about not providing specifics from the interim results and that no milestone has been reached. Can you share how GSK is considering investing in this mechanism across other frontline cancer trials? Is this an area where we can expect to see increased investment in the coming years, or do you still view it as primarily a speculative bet like when you first entered the partnership? Any insights on growing confidence in a broader approach would be appreciated. My second question is about pipeline news flow, specifically regarding dostarlimab. According to the slides, we can expect Phase III data in 2021 for dostarlimab and dapro, as well as for the non-COVID-19 NCEs. I understand you recently renegotiated the deal on dostarlimab, allowing you to partner Zejula with other PDx agents aside from dostarlimab. What is the potential of dostarlimab? Is this a major focus, and should we expect it to be one of the key readouts for 2021, or are there other assets that excite you more than dostarlimab?
Emma Walmsley, CEO
Hal, both to you.
Hal Barron, Chief Scientific Officer
Let me start with dostarlimab. We're excited about having dostarlimab, which is part of the PD-1/PD-L1 class that has transformed oncology and may be one of the most significant medicines ever. We're enthusiastic about its six-week dosing and higher dosage compared to other PD-1s, which could be appealing. The biggest opportunity for us with dostarlimab is its potential to combine with our pipeline agents. We have the DREAMM-4 study with bela maf paired with a PD-1 inhibitor, and there's also the possibility of combining PD-1 inhibition with aparib in lung or ovarian cancer with the initial trial. We see chances to integrate dostarlimab with earlier-stage pipeline reagents like CD96, STING, and ICOS, making it a great addition to our pipeline. We're particularly excited about its efficacy, especially in endometrial cancer in both second-line and frontline studies. We hope to achieve tumor-agnostic approval with data extending beyond endometrial cancer to include colon cancer and others. We believe dostarlimab has significant potential, which is partly why we renegotiated to give us more flexibility with niraparib. Sorry, I missed the other question.
Emma Walmsley, CEO
Bintrafusp, in broader studies.
Hal Barron, Chief Scientific Officer
Yes. So, for bintrafusp, we were very excited about the preclinical rationale for inhibiting TGF-beta the bifunctional nature of the protein to hit PD-L1 and target the protein to the tumor is attractive. The Phase I data as I comment on was very large and robust and seem to have signals of activity and a well-tolerated profile. And as we get more data, we'll make data-driven decisions about where to invest. I can't really say more than that. But since we got incremental data, we will be sharing that and sharing where that leads us to invest in subsequently.
Emma Walmsley, CEO
Thank you. Next question please.
Operator, Operator
Thank you. Your last question comes from Kerry Holford from Berenberg. You are live in the call. Kerry, please go ahead.
Kerry Holford, Analyst
Thank you. I have two questions. First, regarding the COVID antibody, you mentioned the possibility of an extended half-life. Can you provide more details? Are we talking about weeks or months? Do you think one shot could last throughout the entire winter season, for instance? While I understand we haven't seen full data yet, any insight into your comments would be appreciated. Secondly, about Zejula, you discussed the advancements in the first-line ovarian market. Did that indication significantly contribute to sales in the last quarter, or has the growth been slow? When do you anticipate a more noticeable increase in sales in that area? Thank you.
Emma Walmsley, CEO
Thanks, Kerry. So we'll come to Luke on Zejula, but then I'd like to come back to Hal please to finish up with the comments on the prospects and possibilities for the Vir antibody. But Luke, first to you on Zejula.
Luke Miels, Chief Commercial Officer
Thanks, Emma, and thanks, Kerry. It's interesting to note the trends in bulking surgeries in the U.S. They dropped by about 35% in April and May but have steadily recovered through June and July. However, they remain around 10% below the levels seen in February, which is impacting patient flows. In the U.S., for Zejula, about one-third of our patients are now in first line, with a mix of treatment and maintenance—about one-third on treatment and two-thirds in maintenance. Approximately one-third of our sales are now coming from first line. Our growth has primarily come at the expense of olaparib within the class. As we move forward and hopefully see some stabilization in the COVID environment, we anticipate an overall growth in first line and a reduction in the number of people on watch and wait.
Emma Walmsley, CEO
And that 70% on watch and wait is really the opportunity here as well as we hope in due course expanding Zejula beyond ovarian. So Hal back to you the Vir antibody.
Hal Barron, Chief Scientific Officer
Yes. The Vir antibody is actually very, very special very unique for a number of reasons. As Luke mentioned in the presentation, I think it's important to highlight that this was found through exploration of antibodies from patients with SARS-CoV-1. And the argument and the rationale for choosing such an approach was that if over this period of time the SARS virus that resulted in COVID-19 has a neutralizing antibody to both that the epitope the antibody's binding tube is likely very important for its infectivity and therefore significantly reduce chances of mutating around that. So the 2DR regions we think are incredibly important and why we think there's going to be very limited resistance to a single monoclonal. And that's particularly important given some of the Lilly data where I think it was somewhere between 6% and 8% of the patients had resistant clones than the many, many clones that are emerging as through the genetic drift and even the D614G mutation that's becoming more probably due to a fitness advantage. In addition to that, it being highly neutralizing, it actually has a modified Fc receptor that not only gives it an extended half-life to your point, which we think we're not exactly sure how long that will be, but it will be most likely substantially longer somewhere probably between two, three maybe even four months of duration considerably more than what you'd expect from a typical antibody, because of this modification, which has been done on other antibodies that have been in the clinic. So we're reasonably confident it will extend half-life. But in addition, there's a modification of the effector function, so that in addition to being neutralizing the antibody through this increased effector function should be able to bind and destroy cells that are infected with the virus, and that's very unique. That's not something you would see with the other antibodies we don't think. And so this could give us greater efficacy maybe allowing us to even use lower doses, et cetera. So we think the Fc modification not only extends half-life, but the effector function may be very important. So combined with that the lower dose that's being explored compared to other monoclonal antibodies a single monoclonal nature and the ability most likely to effectively neutralize the resistant strains is unique. And lastly, I'll just mention that we do see lung accumulation of the antibody. Whether that's due to some of these modifications in the Fc or other attributes isn't clear. But the antibody also does seem to preferentially go distribution-wise into the lung, which we think will give it again another advantage. So we're very excited about this program and think it could really offer a significant solution for COVID. And hopefully, we'll have data soon to support that.
Emma Walmsley, CEO
So a concluding reason for optimism, which I'd add. So the resilient performance that we've delivered and the fact that we're on track to be within our guidance range, despite particularly challenging circumstances, we're encouraged by commercial execution across multiple growth drivers and optimistic for both the near-term recovery and long-term prospects for vaccines. We're seeing strong progress on our strategic imperatives, whether that be in pipeline particularly including COVID solutions or indeed in terms of the separation preparation, which is very much firmly on track and we think gives exciting options for returns to shareholders in the coming years. So, with that, thank you all very much for joining us and we look forward to speaking and seeing you soon.
Operator, Operator
Thank you, Emma, and thank you to all your speakers. And thank you everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.