Earnings Call Transcript - GSK Q4 2021

Operator, Operator

Good day, and welcome, everyone, ladies and gentlemen, to the analyst call for GSK fourth quarter 2021 results. I will now hand you over to Nick Stone, Head of Global Investor Relations, who will introduce today's session. Please proceed.

Nick Stone, Head of Global Investor Relations

Thank you, operator. Hello, everyone. This is Nick, obviously, the operator has just mentioned. Welcome to our full year and Q4 2021 conference call and webcast for investors and analysts. The presentation was posted to gsk.com and it was also sent out by e-mail to our distribution list earlier today. Please turn to Slide 2. This is the usual safe harbor statement, and we'll be making comments using constant exchange rates, or CER, unless otherwise stated. Please turn to Slide 3. This is today's schedule. We'll plan to cover all aspects of our full year results. The presentation will last around 35 minutes to maximize the opportunity for questions. Today, our speakers are Emma Walmsley, Luke Miels, Deborah Waterhouse, Brian McNamara, Iain Mackay and Hal Barron. The Q&A portion of the call will be joined by Roger Connor and David Redfern. And with that, I will now hand the call over to Emma. Please turn to Slide 4.

Emma Walmsley, CEO

Thanks, Nick, and a very warm welcome to everyone. I am delighted to announce our 2021 full year results. They demonstrate strong financial performance and continued progress against our strategic priorities. For the full year, sales increased 5% and adjusted EPS increased 9%. Excluding the contribution from COVID solutions, we exceeded our raised guidance with adjusted EPS stable for the full year. Sales growth was driven by first-class commercial execution and strong uptake of new products. Pharma delivered 10% growth, New and Specialty Medicines growing 26%, double-digit sales in Immuno-inflammation, Respiratory and Oncology, together with sales from Xevudy for COVID-19, all drove this performance. Vaccine sales increased 2%, and Consumer Healthcare finished the year with 4% growth overall, notably accelerating again in the fourth quarter with sales up 11%. Alongside this, we increased investments for key R&D pipeline programs, expanded support for new and ongoing launches and maintained a strong focus on cost optimization. This has also reflected in adjusted operating profit growth, which increased 9% for the full year. We see these results as very encouraging and a demonstration of the accelerating momentum we now have at GSK. As we said, 2022 marks a step change in growth for the company and is underscored by the guidance for new GSK, the biopharma business we're giving today of 5% to 7% sales growth and 12% to 14% adjusted operating profit growth of CER. This includes the anticipated benefit of Biktarvy-related royalties, but excludes any contribution from pandemic solutions. Iain will provide more detail on this and our overall financial performance in his section. Turning to Slide 6. 2021 was a year of excellent progress across all 3 of our long-term strategic priorities. In innovation, we delivered 3 major product approvals: Jemperli for endometrial cancer, Xevudy for COVID-19 and Apretude, our new long-acting medicine for HIV prevention. We also presented positive Phase III data for daprodustat, a potential best-in-class medicine for treating anemia of chronic kidney disease, and we expect to file this new and exciting medicine with regulators in the first half of 2022. These new medicines are at the forefront of an exciting high-value pipeline we continue to build across prevention and treatment of disease through organic and inorganic delivery. We now have a pipeline of 21 vaccines and 43 medicines, 22 of which are in pivotal studies. This year, we anticipate data readouts on up to 7 of the 11 new vaccines and medicines we've identified as key future growth drivers. This includes our RSV vaccine for older adults in the first half of 2022 and several new potential specialty treatments, including those for rheumatoid arthritis, cancer and hepatitis B. In performance, our decision to prioritize investments in commercial execution to Specialty Medicines and Vaccines is evident in our improving sales growth. Shingrix sales clearly reflected the adverse impact of COVID-19 last year, particularly in the U.S., but we exceeded our expectations, highlighted at Q3, to deliver sales of £1.7 billion. This year, we expect to see strong recovery growth, and Luke will detail on this in a moment. And lastly, on trust, we continue to maintain sector leadership in ESG with our #1 ranking in the Dow Jones Sustainability Index and our long-standing leadership in the Access to Medicines Index. Looking ahead, we also aim to deliver ambitious environmental commitments with targets of net zero on carbon and net positive on nature by 2030. We're also making good progress on diversity and inclusion. ESG will continue to be an integral part of new GSK strategy and investment case. And turning to Slide 7, 2022 sees the biggest change in GSK's recent corporate history with the creation of a new unique world leader dedicated to consumer health care in the middle of this year. This will be the culmination of a series of progressive strategic moves successfully executed over the last few years to build significant value and a new consumer health care company. We're now in full countdown mode to demerger. By doing so, our aim is to unlock the potential of both GSK and consumer health, to strengthen GSK's balance sheet and to maximize value for all our shareholders. As a new stand-alone company, the Consumer Healthcare business is a compelling prospect. It has an outstanding brand portfolio and will be a world leader in consumer health. For prospective investors, it will offer a highly attractive financial profile of above-category sales growth, sustainable margin expansion and high stable cash generation. It will have a fantastic leadership team, led by CEO Designate Brian McNamara and the Board with best-in-class international consumer sector experience, as is already evident with the recent appointment of Sir Dave Lewis as Chairman Designate. We're going to provide a lot more detail on this business at our Capital Markets event later this month, and Brian will give you more on this shortly. For new GSK, as we've previously shared, we've set a new purpose and new ambitions for growth. Our purpose is to unite science, talent and technology to get ahead of disease together to deliver scale, human health impact, improved returns to shareholders and to be a company where outstanding people thrive. This is reflected in the growth commitments and ambition we set out in our investor update in June last year. These represent a significant step-change in delivery for GSK. And as I said earlier, start now and are reflected in the guidance we're giving today and the exciting R&D catalysts ahead. Before closing, I would like to say a very big thank you to the more than 94,000 GSK people who helped deliver our 2021 performance and the momentum they have built as we head into this landmark year. So let me now hand over to this team, who will take you through more of the detail. Luke, first of all, over to you.

Luke Miels, Chief Commercial Officer

Thanks, Emma. Please turn to Slide 9. Let me start with New and Specialty, where we made remarkable progress driven by excellent commercial execution. Excluding Xevudy, we delivered 14% sales growth for the year and 10% in Q4, maintaining our double-digit track record. I'm incredibly proud to report that 2 of our assets exceeded £1 billion in sales for the first time, Trelegy and Nucala. And as you've seen, we were able to respond quickly to the strong demand for Xevudy, delivering close to £1 billion in sales of this crucial COVID treatment. Trelegy had a fantastic year despite growing competition, and our unique dual indication in COPD and asthma continues to drive higher demand in the U.S. and Japan. We've also seen very positive trends for our launch in China, where the single inhaler therapy class is growing rapidly and we are winning share in Tier 1 and Tier 2 cities. For Nucala, sales were up 22%, and it remains the leading IL-5 for EOS-driven disease as a key market. We're pleased to see that our robust approach to life cycle innovation is driving incremental growth opportunities with the launch of 3 new indications: EGPA, HES and nasal polyps in Europe. Benlysta also benefited from label expansion with sales up 29% as we reach more new patients with lupus nephritis. And against the backdrop of COVID, we continue to see the importance of having a subcut formulation available for at-home use. And as expected, with competitors entering the market, we've seen an overall increase in biologic use, benefiting Benlysta as the leader. In Oncology, we continue to make steady progress. BLENREP remains the only off-the-shelf anti-BCMA therapy, and we've expanded our presence for 13 markets. In the U.S., we're driving use in the community setting where most multiple myeloma patients are treated. And we're working to reach new physicians as prescribing experience improved perceptions of corneal adverse events management. Closing with Zejula, COVID continues to impact the ovarian cancer market with diagnosed systems of bulking surgeries still below pre-pandemic levels. Despite the constrained market, Zejula delivered its strongest quarter of sales to date, and we continue to perform exceptionally well in market share terms with 1 and 2 new patients receiving a part being prescribed Zejula. So a very strong year for New and Specialty, and we expect to grow Specialty sales by around 10% in 2022, even with Trelegy moving into the new General Medicines area. This is before we include the expected contribution from Xevudy. Please turn to Slide 10. Moving to Vaccines, full year sales increased by 2%, but decreased by 5% excluding pandemic sales. The overall performance demonstrated the impact on several of our vaccines at COVID, most impacted with Shingrix, where sales were down 9% in the year, which was slightly better than the outlook we indicated at the 9-month stage. Based on the encouraging early momentum we're seeing, we continue to anticipate a strong sales recovery in 2022. Since Q2 2021, Shingrix has delivered strong sequential growth, reflecting an improvement in trends in the U.S., including solid demand in the non-retail channel as well as contributions from new European launches and recovery of demand in Germany. We expect this momentum to continue in 2022 despite Omicron short-term impact. We continue to launch in new markets supported by our unconstructed supply position, and we believe there is a significant pent-up demand in the U.S. Consequently, we continue to expect Shingrix to deliver strong double-digit sales growth in 2022 with record annual sales. This will be a crucial driver of the expected low teens sales growth of vaccines here, including pandemic solutions. Looking further ahead, by 2024, we expect Shingrix to be available in 35 markets, representing nearly 90% of the global vaccine market, underscoring our ambition to double Shingrix revenues by 2026.

Deborah Waterhouse, CEO of GSK Vaccines

Thank you, Luke. Our goal is to remain innovation leaders in HIV, achieve a mid-single-digit sales CAGR to 2026, and digest the loss of exclusivity of dolutegravir at the end of the decade through the changing mix of our portfolio and the success of our pipeline. Our Q4 and full year results demonstrate positive momentum towards delivering on these objectives. Sales grew 3%, both for Q4 and for the year. Within this, we achieved a noticeable acceleration in our innovation sales, which now stands at 34% of our portfolio and all regions reported growth. This acceleration in growth results from strong commercial execution behind our 2-drug regimens and Dovato in particular. Sales of Dovato more than doubled to £787 million and are fast approaching 20% of the total HIV sales. Dolutegravir-based regimens now hold the #1 position in the share of the switch market across the U.S. and Europe. Based on this strong momentum, we believe Dovato is on track to deliver £1 billion of sales in 2022 with further significant growth potential beyond. Please turn to Slide 12. Turning to our injectable portfolio. Cabenuva is our first-in-class, long-acting regimen for the treatment of HIV for which we received FDA approval last week for every 2-month dosing. As with any new class of medicine, sales of Cabenuva will take time to build and the COVID environment is constraining switch activity, particularly where a patient needs to visit a physician's office. Nevertheless, over 4,500 people living with HIV are already taking Cabenuva/Vocabria/Rekambys and the outlook for this important new medicine is strong brand recognition and market access exceeding 80%. Moving on to prevention. We ended 2021 on a high with the FDA approval of Apretude, the world's first long-acting injectable for the prevention of HIV, dosed every 2 months. HIV prevention is a huge unmet need as current medical options are associated with stigma and adherence issues. Apretude not only addresses these concerns, but it has demonstrated superior efficacy over daily oral tablets. As a new paradigm, we need to educate physicians, patients and payers. So this year, our focus is on building awareness and access for Apretude. The early signs are encouraging with positive feedback from patients and prescribers and political will supportive of HIV prevention. Consequently, we remain confident that Apretude will deliver significant benefits to patients in the years ahead as well as significant commercial value beginning in 2023.

Brian McNamara, CEO of GSK Consumer Healthcare

Thanks, Deborah. Now turning to Consumer Healthcare. Sales for the full year, excluding brands divested under review, increased by 4% at constant exchange rates despite a negative 1% impact of COVID on cold and flu sales, building on the 4% growth we delivered in 2020. International grew 9%, with emerging markets performing particularly well, including China, Middle East and Africa growing double digits. U.S. sales increased 2% and Europe was broadly stable with both regions building momentum through the year. Q4 growth was strong, up 11% at constant exchange rates albeit against a weaker comparator of 1% growth in 2020, with all categories performing well. Cold and flu sales rebounded in Q4 with European sales above 2019, and U.S. sales only slightly below. From a category perspective for the full year, oral health sales increased 5%, with broad-based growth in key markets, reflecting brand strength, strong execution and successful innovation. Pain relief grew high single digits. This was primarily driven by Panadol, which benefited from seasonal demand in the second half of the year. Voltaren delivered mid-single-digit growth despite the expected introduction of U.S. private label earlier in the year. Vitamins, Minerals and Supplements grew 4%, continuing the momentum on a very strong year-over-year comparator. Centrum growth in the second half was particularly strong due to increased capacity and retailer stocking. Respiratory declined 1%, with strong growth in allergy offset by a mid-single-digit decline of our cold and flu products. Q4 rebounded, delivering 40% growth due to a return of a more typical cold and flu demand, although it fell just short of offsetting the unprecedented market declines in Q1. Digestive health and other sales were up mid-single digits with broad-based growth across skin, digestive health and smokers health. On e-commerce, year-to-date sales grew in the high 20% range and is now 8% of sales with good growth in key regions such as China. Our ongoing investment in digital capabilities continue to position us well for growth in this vital channel. We've also delivered strong margin progression for the year of 200 basis points at constant exchange rates, while at the same time, increasing investment in our brands. Operational efficiencies on top of synergies, along with pricing, have more than offset the impact of divestments and inflation in the year. Overall, looking at sales growth over the last 2 years, we've delivered a CAGR of over 4% despite net COVID headwinds. We're able to successfully capitalize on tailwinds created by increased vitamin and mineral supplement demand. However, these were more than offset by the decline in respiratory as a result of the historically low cold and flu season. This clearly demonstrates the strength and breadth of our portfolio and the capabilities we've built through the 2 most significant transactions in the industry, coupled with extensive portfolio rationalization. This positions us to deliver sustained market outperformance, with a 4% to 6% medium-term annual sales outlook. Please turn to Slide 14. With regards to the upcoming separation, I'm delighted that Dave Lewis was recently appointed as Chair Designate and my executive leadership team has now been announced. I hope you will join us at our Capital Markets Day, which will take place virtually on February 28. We will lay out our strategic priorities, key growth drivers and detailed financial information. The team and I will share both the global and regional overview, including our innovation, digital and operational capabilities as well as our capital allocation priorities as a newly listed company. Most importantly, we will set out how we will deliver the growth, category outperformance and attractive sustainable returns that we are confident this business can achieve in the medium term.

Iain Mackay, CFO

Thanks, Brian. As I cover the financials, references to growth are at constant exchange rates unless stated. On Slide 16, there's a summary of the group's results for the full year 2021 and I'll focus my comments on the full year performance. Turnover was £34.1 billion, up 5%, and adjusted operating profit was £8.8 billion, up 9%. Total earnings per share were 87.6p, down 13%, while adjusted earnings per share was 113.2p, up 9%. Pandemic solutions contributed approximately 9 points of growth in adjusted earnings per share. On currency, there was a headwind of 5% in sales and 11% in adjusted earnings per share, in particular, due to the strengthening of sterling against the U.S. dollar relative to 2020. Turning to the next slide. This slide summarizes the reconciliation of our total to adjusted results. The main adjusting items of note for the year were in disposals and other, which primarily reflected profits across several divestments, including the gain on disposal of rights to royalty stream for cabozantinib in Q1, the gain on disposal of the cephalosporin business in Q4 and a significant positive revaluation of deferred tax assets in the U.K. resulting from the Q2 enactment of the 2021 U.K. Finance Bill. And finally, in transaction related, the main factor was the movement on the ViiV CCL, which included the impact of the settlement with Gilead. My comments from here onwards were adjusted results unless stated otherwise. Turning to Slide 18. Key drivers of revenues and profits for the group in 2021 compared to 2020 are set out here. Revenues grew 5% overall. Revenues from our COVID solutions contributed around 4 percentage points of that growth. Positive operating leverage from higher sales in the year was supported by continued focus on cost control and the benefits and synergies resulting from restructuring across the group, with SG&A down 1%. This included favorable legal settlements compared to increased legal costs in 2020, which primarily impacted Q1 and one-off benefits in pensions and insurance in Q4. Alongside these benefits, we continue to prioritize investing in our pipeline and R&D expenditures increased by 8%. This resulted in an adjusted operating profit increase of 9%, with pandemic solutions contributing 7 percentage points of that growth. The full year margin was 25.8%, and 90 basis points higher than 2020 at constant exchange rates. Turning to Slide 19. Moving to the bottom half of the P&L and highlight that the effective tax rate of 17.5% was aligned with expectations and that interest expense of £753 million was slightly lower than expected, primarily due to favorable foreign exchange. Next, I'll briefly cover free cash flow for the year before going into more detail on the financials of each business. On Slide 20, in 2021, we generated £4.4 billion of free cash flow. This was a step-down versus 2020 and consistent with our outlook given in February last year. The positive factors of increased adjusted operating profit at CER and lower dividends to noncontrolling interests were more than offset by increased purchases of intangible assets, including our collaborations with Alector and iTeos from Q3, reduced proceeds following completion of the Consumer Brands disposal program, adverse timing of returns and rebates compared to 2020, and adverse exchange impacts. Net cash generated from operations for the group was £8 billion, and we expect to share comparators for new GSK cash flow later in the first half. In 2022, we expect cash generated from operations for new GSK on a like-for-like basis to be higher than 2021 as a result of the Gilead settlement and increased adjusted operating profit. This will be partly offset by lower cash generated from lower-margin COVID solutions and headwinds related to the phasing of payments in 2021 and continued generics impact on the U.S. respiratory portfolio. Turning to performance of the Pharma business on Slide 21. Overall, Pharmaceutical revenues grew 10%, driven by strong growth in New and Specialty Medicines, favorable U.S. return on rebate adjustments and sales of Xevudy, which contributed 6 percentage points of growth. But within this 10% growth, established Pharma sales decreased 6% in 2021, which was slightly better than expected. The Pharma operating margin was 26.4% for 2021. The increase in profit margin primarily reflected the positive operating leverage from the increased sales, including favorable pricing in IRR, continued tight cost control and restructuring benefits. This was partly offset by continued investment in R&D and HIV product launches. Turning to Slide 22. Overall, vaccine sales grew, but excluding pandemic adjuvant revenue, sales decreased 5%, mainly due to Shingrix dynamics, which Luke has described. We remain very confident in the demand for our vaccines. Notably, during 2022, we expect Shingrix to achieve record sales with strong double-digit growth. The operating margin was 33.3%. The decline in operating profit and margin was primarily due to increased supply chain costs resulting from lower demand. This was coupled with a 34% rise in R&D investment as we advanced our RSV and meningitis development programs and invested in our mRNA platform. Higher royalty income and a favorable mix from pandemic adjuvant sales partly mitigated these impacts. Q4 sales were down 7%, reflecting a challenging comparison in 2020 due to robust Shingrix sales. Turning to Slide 23. Revenues in Consumer Healthcare increased 4%, excluding brands either divested or under review. Including those brands, turnover was flat. Brian outlined the main drivers earlier. The operating margin was 23.3%, up 200 basis points at CER versus last year due to sales growth, including favorable pricing and mix and strong synergy delivery. This was partially offset by a 120 basis point impact from the divested brands in addition to commodity and freight cost pressures. The strong 11% sales growth, excluding brands divestiture under review in Q4, is an encouraging sign of momentum as the business moves into 2022. Turning to Slide 24. I'll close with our guidance for new GSK in '22. 2022 also excludes the commercial impact of our COVID solutions. Our guidance is predicated on the Consumer Healthcare business being demerged in mid-2022, and we expect the formal criteria for treating Consumer Healthcare as a discontinued operation to be satisfied with Q2. GSK will continue to consolidate the business for reporting purposes until the planned demerger. As Brian mentioned earlier, the Consumer Healthcare Capital Markets Day will set out the strategic priorities, key growth drivers and detailed financial information that underpin our confidence in the compelling medium-term outlooks for that company. For new GSK, 2022, we'll see a step change in growth. We expect new GSK sales growth to be between 5% and 7% in 2022. Investments in the business for growth will continue in a focused and controlled fashion and so we expect SG&A and R&D to increase at rates similar to sales, whilst we expect cost of goods sold to increase at a slower rate than sales. As a result, our guidance for adjusted operating profit is for between 12% and 14% growth. This includes the anticipated benefit of the related royalties, contributing around 2 percentage points of adjusted operating profit growth. On outlook for COVID solutions in 2022, based on known binding agreements with governments, we expect that COVID solutions will contribute a similar sales level to 2021 but substantially reduced profit contribution due to increased proportion of lower margin Xevudy sales. We expect this to reduce new GSK adjusted operating profit growth, including COVID solutions in both years, of between 5% to 7%. We'll provide quarterly updates as future contracting and binding agreements progress. With regards to the dividend policy in 2022, the total expected cash distribution and the respective dividend payout ratios for each company are unchanged from what we communicated at our Investor Update last June. GSK expects to pay 49p per share, comprising 44p per share for new GSK and 5p per share representing Consumer Healthcare while still part of the group. Consumer Healthcare's dividend in the second half of 2022 is subject to review and approval by the Consumer Healthcare Board. This is expected to be around 3p per share and has been adjusted to reflect the total number of consumer shares that are expected to be issued upon demerger, and more detail is provided in the appendix. Given the complexities associated with demerging a significant operating segment of the company, we'll provide adjusted earnings per share guidance at our Q2 results following the demerger. To help with modeling new GSK, a reconciliation of the 2021 results reflect new reporting format is expected to become available later in the first half. As a reminder, we'll be presenting a single new GSK operating margin in the future. In summary, we believe the business momentum built from the excellent work of our teams in 2021 sets us up for a step change in growth from new GSK for 2022. And with that, I'll hand over to Hal.

Hal Barron, Chief Scientific Officer

Thanks, Ian. I'll provide a brief update on our R&D progress over the past year and highlight some key upcoming pipeline milestones. As we outlined last June, the transformation of our R&D in 2018 has resulted in a much stronger pipeline and improved productivity across multiple metrics. In 2021, we continued to build on this momentum. In terms of late-stage pipeline achievements, we secured the first regulatory approval for three new medicines in 2021: Apretude, Xevudy and Jemperli, along with seven regulatory submissions. Our approach to lifecycle innovation is also yielding results with five additional approvals in 2021 for Nucala and Benlysta. We also reported positive pivotal data on three assets, including daprodustat, which I will discuss in more detail shortly, and initiated eight new Phase III trials. Overall, we have achieved 13 major regulatory approvals since 2017, which represents top quartile performance for the industry, and four of these assets have already reached blockbuster status. We anticipate the medicines and vaccines approved between 2017 and 2021 will contribute approximately 60% of new GSK's sales growth from 2021 to 2026, with expected pipeline approvals adding another 40%. Additionally, we are advancing the next generation of innovative assets in our pipeline, guided by our focus on the science of the immune system, human genetics, and advanced technologies. In 2021, we moved 19 assets into Phase I or Phase II trials, which are the direct result of our focus on human genetics and functional genomics with our overarching vision to use the human as the model organ. An excellent example of this is our anti-IL-18 neutralizing antibody, so-called GSK'806, which is being developed to treat patients with atopic dermatitis where there is strong genetic rationale for this target. The second example is GSK'130, a monoclonal antibody which just entered Phase I and targets IL-7, which is genetically associated with developing multiple sclerosis. In Oncology, our internal work on functional genomics identified more than 10 target candidates in research for evaluation in the field of synthetic lethality. Our collaboration with IDEAYA has 3 synthetic lethal targets. The most advanced is our MAT2A inhibitor, which is in Phase I for patients with tumors where NTAP is deleted, which is common in solid tumors. Overall, I'm very excited about the potential of this next wave of medicines and vaccines in our pipeline. Please turn to Slide 27. This slide highlights two major pipeline achievements delivered towards the end of 2021. I have mentioned before our HIF prolyl hydroxylase inhibitor, daprodustat, which we chose to pursue due to strong genetic evidence suggesting its role in stimulating erythropoiesis. The ASCEND Phase III program enrolled over 8,000 patients in well-structured studies using active controls and produced very consistent efficacy and safety results in both dialysis and non-dialysis patients. The results showed that daprodustat met the primary endpoint of noninferiority to a stimulating agent in terms of cardiovascular safety and was found to be as effective as the standard of care in achieving a target hemoglobin range. We believe this data establishes daprodustat as a leading oral treatment option for patients with anemia of chronic kidney disease, and we are on track to submit this data in the first half of this year. The second key pipeline achievement was the approval of Apretude for the prevention of HIV based on extremely impressive efficacy results. This exciting milestone is well-covered by Deborah earlier, so let's turn to Slide 28. Looking to the year ahead, this slide focuses on the important pipeline milestones we anticipate in the first half of 2022. RSV disease represents a significant unmet medical need, with RSV infections accounting for around 180,000 hospitalizations each year and about 14,000 deaths in the over 65 population in the United States alone. The unique design of our antigen/adjuvant combination induces a strong neutralizing antibody titers and T cell responses against both RSV A and B in the Phase II trials, which is critical to protect an older adult population for an increased risk for RSV disease. From the literature and our trial data, we know that older adults typically have a lower T cell response when compared to younger population. Our RSV older adult trial is expected to read out ahead of our original timelines with headline data expected during the first half of 2022, and filing is anticipated before year-end, potentially putting us on a path for inclusion in the June 2023 SIP meeting. Please turn to Slide 29. Over the next two years, we expect our research and development efforts to yield significant updates on several potential new medicines and vaccines in our late-stage pipeline. In 2022, we foresee late-stage milestones from as many as seven of the eleven medicines we've discussed during the investor update in June of last year, including those I've already mentioned. I would like to take a couple of minutes to discuss some of the other developments that excite me. Let's start with otilimab, where we will have results from three Phase III trials in 2022: contrast 1, 2, and 3. These results will establish the effectiveness and safety of our anti-GM-CSF antibody, which may offer an entirely new way to treat patients with rheumatoid arthritis. Data from the Phase IIb trial indicated a distinctive reduction in pain, which we believe could be influenced by CCL17, the protein most significantly overexpressed by monocytes when stimulated by GM-CSF. Following this finding, we have advanced GSK'279, a CCL17 monoclonal antibody, into development for treating patients with rheumatoid arthritis-related pain, and we anticipate initial data will be available later this year. In addition, we expect data on BLENREP, the pivotal DREAM-3 trial readout in patients with third-line multiple myeloma. This is an important study that will give us the first progression-free survival and overall survival data on BLENREP in a randomized setting. We also anticipate presenting data around the middle of this year on BLENREP in combination with the gamma secretase inhibitor. These data will also help inform our strategy for treating patients in the frontline setting. I also want to briefly mention bepirovirsen, our HBV ASO, which we plan to present data on in the middle of the year from our Phase IIb trial investigating the treatment of patients with chronic hep B. There is a significant unmet medical need for these patients with around 300 million patients living with hep B, and the disease is responsible for over 900,000 deaths each year. In addition to these late-stage data readouts, we plan to make at least 3 major regulatory submissions in '22, including daprodustat, RSV for older adults, and BLENREP in the third line setting. Lastly, we have recently announced several impressive leadership appointments, including Phil Dormitzer as the Head of Vaccines R&D, who joined us from Pfizer; and Hesham Abdullah, who is promoted to the Head of Oncology. In January, we also announced that Tony Wood would be our new Chief Scientific Officer from the 1st of August, and I'm delighted about his appointment. Tony is a person and scientist of the highest quality. He was integral to building our new approach to R&D and his appointment and expertise deepen our commitment to this strategy. I'm positive that Tony will be an outstanding leader for GSK R&D. I'm also pleased to remain part of GSK beyond August as I transition to a nonexecutive Board member and support Tony and the team to deliver on the promise of our exciting pipeline. So in summary, 2022 will be an exciting year for our high-quality pipeline, and I remain very confident that we'll continue to advance the standard of care for patients and deliver value to shareholders. With that, I'll hand it back to Emma to take over the call.

Emma Walmsley, CEO

Thank you. So let's move to Q&A, please. Operator?

Operator, Operator

The first question is coming from the line of James Gordon from JPM.

James Gordon, Analyst

James Gordon, JPMorgan. I just have one question, a question about specialty pharma. So specialty pharma sales were a little bit light versus consensus expectations today. And growth is going to be approximately 10% in '22, which sounds a little bit more cautious than the double-digit medium-term outlook that you issued in June last year. So have things got any tougher for these assets? Is there going to be a bit of a back-end weighted for specialty pharma? And what could drive an inflection, particularly in oncology? Do we need more data? Or is it really about just COVID diagnoses or COVID getting better and then more diagnosis for these conditions? And if I could another question, just a clarification. If I look at the guidance, the 5% to 7% core EBIT headwind for COVID-19 product contribution, it looks like it's effectively assuming that you sell the 1 million doses for Xevudy that you've already got an order for, but there's no more sales at all for the rest of the year. So just a clarification, is that right? The assumption is that beyond builders you've already got, you won't sell any more Xevudy this year.

Emma Walmsley, CEO

I'm going to ask Iain to begin with the forecast for COVID solutions. It's important to note that this is not included in our guidance for this year or next year, and there remains uncertainty about how the market will evolve. Iain will take it from here. Additionally, regarding our overall outlook, we are projecting over 5% top line growth over a 5-year period, with double-digit growth for Specialty and high single-digit growth for Vaccines. We want to emphasize that we don’t expect anyone to wait for this, which is why we have set strong expectations starting now in '22 with a growth range of 5 to 7%. The actual mix will depend on the pipeline, including recent launches that will mature and contribute more significantly in Specialty. I will then ask Luke to elaborate on the specifics and how we can update you on pipeline catalysts in Specialty Medicines in the future. But first, Iain, please go ahead.

Iain Mackay, CFO

Yes. Yes. No, easy answer, James, pretty much exactly what we wrote in our earnings release, which we expect Pandemic sales were around £1.4 billion from Xevudy. That reflects binding agreements that we have in place at this point in time. And to the extent there are any further binding agreements that would inform any updates, we'll provide those on a quarterly basis. Okay?

Emma Walmsley, CEO

So Luke, in terms of momentum and outlook on Specialty.

Luke Miels, Chief Commercial Officer

Yes. Thanks, James. Look, I think the momentum, for example, on Trelegy, is very strong. We're getting 5 scripts for every one that Breztri gets. Benlysta is very healthy. I think the primary challenges, and we've placed this in the backup in the appendix, is just the continued slow recovery of ovarian cancer diagnosis, which is still down by 22%. And debulking surgeries are down by 17%. So that's taking longer to resolve than we were expected, which is obviously very sad. And we expect that when those women present, their disease is going to be more advanced, and so that is having an impact. There was also some pricing pressure emerging in the IL-5 class in Q4.

Emma Walmsley, CEO

And perhaps Deborah, but before we go to Hal, obviously, one of the areas that's going to continue to build in contribution is the innovation in HIV. So Deborah, to you first?

Deborah Waterhouse, CEO of GSK Vaccines

Yes. So I think at the Business Investor Update at the end of November, we committed to mid-single-digit CAGR between now and 2026, and that's an acceleration of growth where we've been over the last few years, where if you remember, we've had kind of over the last few years, 1% growth and then obviously, in 2021, we're at 3%. So you can see that progressive growth acceleration, and we feel very positive about our ability to deliver that mid-single-digit CAGR on the back of the tremendous progress that we've made with Dovato, but also the fact that you'll get more material contribution from Cabenuva certainly in 2022 and beyond and Apretude 2023 and beyond. So I'm feeling really excited and confident about the future in the HIV part of Specialty.

Emma Walmsley, CEO

Thank you. Hal, things to add on catalyst to follow.

Hal Barron, Chief Scientific Officer

Yes, there have been many catalysts in the past 12 months, including three regulatory approvals, seven major filings, and three pivotal data readouts in the Phase III trials. It's also significant that we have 64 medicines and vaccines in the pipeline, with 22 of those in late-stage pivotal studies, so we can expect numerous readouts. In 2022, we’ve mentioned 11 key assets, and we're anticipating that up to seven of these will have readouts, such as RSV OA in the first half, otilimab in the second half, BLENREP DREAMM-3 in the second half, RSV maternal data in the second half, the meninge pentavalent ABCWY in the second half, and Jemperli data from both the GARNET study and RUBY. Additionally, Phase IIb epirubricin for the CLEAR study in HBV will complement the positive data we received earlier with Apretude and its recent approval. There is a lot to look forward to.

Emma Walmsley, CEO

And I think fundamentally, James, it's just worth reminding ourselves that in New and Specialty, our growth last year was 26%, and even excluding the contribution from Xevudy at 14%. So there's a lot of reasons for confidence in strong executional performance of growth and then, of course, all the pipeline to add to that.

Operator, Operator

The next question is coming from the line of Keyur Parekh from Goldman Sachs.

Keyur Parekh, Analyst

I have two questions. First, Deborah, I want to follow up on your comments regarding the HIV market. I noticed that you’re forecasting around £2 billion in revenue from long-acting regimens by 2026. I’m curious about your insights on how you envision the long-acting market evolving beyond 2026 into the 2030s, especially considering the recent updates on islatravir and the initial feedback you’ve received on the prep launch. So, how do you see the longer-term outlook for this business? Secondly, Hal, congratulations on your achievements, and best of luck in your new role. As you reflect on Glaxo's progress in R&D over the past few years, how much of what you initially aimed to accomplish have you achieved? What additional goals do you think Glaxo still needs to reach, and what contributions do you anticipate making in your nonexecutive role?

Emma Walmsley, CEO

Okay. We'll go directly to Deborah and then Hal, please.

Deborah Waterhouse, CEO of GSK Vaccines

We estimate the long-acting treatment market to be valued at around £4 million to £5 million by the end of the 2030s. By the end of the 2020s, we expect its value to reach £4 billion to £5 billion. This reflects similar potential value for long-acting treatments in the upcoming years. Although islatravir has faced some challenges, Gilead remains highly committed to long-acting treatments, especially with lenacapavir, which they have discussed in their results along with their partnerships. Both major players in the market recognize the substantial opportunity to meet patient needs by providing innovative new medicines in both prevention and treatment. Additionally, it's encouraging to see the momentum in the prep market in the United States. The commitment to significantly reduce new infections throughout the decade is notable, with a target of a 90% reduction by 2030, and the U.S. government is currently very focused on achieving that goal. There's a lot of dialogue occurring, and there's a lot of encouraging sounds about how we could see that prep market evolve, given that only 23% of those that could benefit from prep are actually getting a medicine today. So I think the numbers that we talked about at BIU in June and again in November are still what we were expecting in terms of long-acting treatment markets, long-acting prep market, both each being around £4 billion to £5 billion by the end of 2022.

Emma Walmsley, CEO

The other thing is, I mean, maybe worth mentioning is the very exciting next-gen pipeline that's coming through in longer acting that you and Kim covered off in November, where when we get into longer-acting, longer-acting is beyond the near term where we're launching.

Deborah Waterhouse, CEO of GSK Vaccines

Yes, we're really excited about that. So we have, if you remember, 3 areas where we're really focusing: an at-home treatment; an ultra long-acting treatment, which will be clinic delivered; and then obviously, we're focusing on cure. And so where we are today with Apretude and Cabenuva, we're absolutely not stopping there. That's why we're so confident about our ability to move past the dolutegravir loss exclusivity and still replace a lot of that revenue that is lost and have a very vibrant HIV business at the end of the decade and beyond. So obviously, we've got integrated at the core, both with cabotegravir and then the next generations that we've agreed to in-license from Shionogi. And then we've got the partner options that we're looking at, and we should be able to pick a partner for cabotegravir for at-home and long-acting in 2024 as data reads out and informs our choices. So really excited about the pathway, which is very clear before us, and the choice points and when data will be available are also very clear, and we'll keep you all updated.

Emma Walmsley, CEO

Thank you. Hal?

Hal Barron, Chief Scientific Officer

Thanks for the comment question, Keyur. First, let me say I'm actually very proud of what we in the R&D organization have accomplished over the past 4 years. There's so many different metrics one could use to highlight that. Today, the pipeline has 64 medicines and vaccines, 22 of which are in pivotal studies. We have 13 novel assets in Phase III. As Emma mentioned earlier, we've doubled the number of Phase III assets over the last couple of years. Probably the most important metric that I look at is how much of the R&D success and the pipeline are driving the CAGRs that we are proposing, which are top quartile relative to our peers. When you look back, there's been 13 new medicines and vaccines approved over the last 4.25 years or so, and that's driving about 60% of really terrific performance that we've committed to. Importantly, on a risk-adjusted basis, the late-stage pipeline, and this again excludes all of Phase I and Phase II is expected on an adjusted basis to drive another 40% of that growth. So I think those are really important metrics. There's quite a lot of other metrics. But I think we've made quite a bit of progress. You asked what's not finished. Well, I think if you think about being the head of R&D at any pharma company or biotech company, you never leave the job finished. There's always more assets that you can progress. There's more programs. There's more life cycle innovation. As long as the success rate is where it is, there's still an enormous opportunity to transform how targets are discovered. And I'm very excited about how much progress we've made on using the human as the model organism, using human genetics, functional genomics, and machine learning to evolve our strategy. In fact, if you think about what's coming, we have around 40 collaboration projects with 23 and me on genetically validated targets. We have 10 synthetic lethal programs that were developed internally, 3 in collaboration with IDEAYA, and additional programs with the Broad and others, along with several collaboration projects, including the anti-sortilin program. We have a number of genetically validated targets that will evolve over the next 5 to 10 years. I look forward to transitioning from my role as CSO to a Board member to support Tony Wood, who is an exceptional leader and scientist. I hope to contribute to evolving our strategy to achieve our goals.

Emma Walmsley, CEO

And I would just reiterate that what matters most in these transitions is extremely well-planned, strategic and thoughtful succession. We are all very confident we're going to accelerate the momentum of the execution of this strategy that objectively and quantitatively can really be seen to be bearing results already. And we're absolutely thrilled that Hal's still going to be part of that adventure as a Board member, as a Science Committee member and with some additional commitments that I know he's more than happily made to support the R&D organization, its advisory boards some connectivity in his part of the world. And we are obviously very proud of him for his next steps, too, and excited for the path ahead.

Operator, Operator

The next question is coming from the line of Graham Parry from Bank of America.

Graham Parry, Analyst

So firstly, on the RSV vaccine, it looks like Pfizer is on track to publish RSV older adult vaccine data Q1 or Q2, possibly ahead of GSK. Are you seeing that the hurdle rates for both their vaccine and yours is the same level of protection you saw in J&J's CYPRESS Phase II trial? And how confident are you that your vaccine can match those levels? And do you see that by not waiting for a full RSV season that Pfizer could gain any sort of time advantage to the market to you? Or is it just a seasonal issue? And then secondly, on COGS, that was negatively impacted by both Xevudy and write-downs in the quarter. Just wonder if you could quantify how much for each basis points than just the right sort of longer-term COGS ratio ex pandemic we should be thinking about?

Emma Walmsley, CEO

Right. So briefly, Iain, could you comment on COGS and then Hal on RSV?

Iain Mackay, CFO

Well, Graham, again, we provide a little bit of a steer in terms of the impact of Xevudy, in terms of operating margin. We participate in about 27.3% of the economics from sales in Xevudy, so when you sort of translate that through to the overall profitability. We provide some steer in our earnings release in terms of what that means. There is, within the team, a very strong focus on continuing to drive productivity and efficiency across the supply chain through COGS. And as we talked about in the investor update in June, that focus remains consistent and is part of what informs our progress in operating profit growth in 2022 and beyond.

Hal Barron, Chief Scientific Officer

Yes, thank you, Graham. Our RSV program is actually ahead of schedule; enrollment is completed, and we expect the trial data to be available this half, H1 '22. It’s important to remember that we have a unique vaccine because we have the protein with the AS01 adjuvant. We believe this is a crucial component because, as I mentioned earlier, the elderly, who are at risk for the complications of this infection, lose both their adaptive and innate ability to fight the infection over time. In particular, there is a noticeable abnormality in their T cell response. Therefore, we are optimistic that combining the right protein in the RSV-A, which neutralizes both the RSV-A and B strains of the virus, with the T cell modulatory component from the adjuvant will give us the best chance of success for this vaccine.

Operator, Operator

The next question is coming from the line of Simon Baker, Redburn.

Simon Baker, Analyst

Just going back to Graham's question on COGS. Iain, you pointed out the impact of Xevudy, but also in the press release, you discussed other headwinds on the gross margin in 2021. Presumably in light of the comments you made on R&D, SG&A and the guidance for operating profit, they will fall away in their entirety in 2022. But I just wonder if you could give us any other non-Xevudy tailwinds and headwinds we should be thinking about for COGS in '22?

Iain Mackay, CFO

In 2021, I was specifically talking about higher inventory costs within cost of goods sold and lower demand, especially in the Vaccines business, which was a key driver. Another factor, more evident in our Consumer business but managed effectively in our biopharma business as well, was related to input costs. For instance, the team was very successful in enhancing productivity to counteract some of the inflationary pressures, and we believe that focus and capability will persist into 2022. There were a few unique factors in 2021 that I mentioned, which we do not anticipate recurring in 2022. Our ongoing emphasis on improving efficiency and productivity throughout our commercial operations, along with effective management of overall cost of goods sold, builds on our strong track record from the past couple of years, and we expect to maintain that success in the years ahead. It's all about traditional productivity through the supply chain, effective procurement processes, and a strong connection with the commercial cycle to understand market demand and manage inventory accordingly.

Operator, Operator

The next question will be from Tim Anderson at Wolfe Research.

Timothy Anderson, Analyst

I have a question, just a pipeline question. Otilimab, you called out the Phase III readout in RA in the second half as an important 2022 catalyst. To me, that Phase II data always looked a little questionable. And I know Glaxo is the only company chasing this mechanism. Sometimes that's a red flag because most of the time, other companies crowd into new and exciting areas. So my question is your confidence in that readout and in this being a commercially meaningful asset. I'm trying to figure out how much this sort of thing is in your kind of longer-term forecast and how much risk adjusting you do on this particular asset?

Hal Barron, Chief Scientific Officer

Yes, Tim, thank you for your question. It’s an interesting pathway and quite novel. Typically, you don’t see significant crowding until the data shows positive results, which may then lead to increased interest. I'm optimistic that this trial will succeed. It's important to note that the design involves a placebo for the first 12 weeks, followed by an active comparator against IL-6 in one study and the JAK class in another. The efficacy signal seems clear. While not every endpoint in Phase IIb was positive, several were. One area that’s more speculative, yet I remain cautiously optimistic about, is where we observed signals indicating a more substantial reduction in clinical pain scores than what would typically be expected based on biochemistry measures like Fed rate and CRP levels, which indicate disease severity. We reviewed that data closely and compared it with preclinical data from mouse studies that involved CCL17 knockout, which is significantly overexpressed when GM-CSF is applied to monocytes. In that knockout mouse study, we saw a dramatic reduction in pain in an osteoarthritic neuropathic pain model, lending credibility to the Phase IIb signal. We anticipate data from the CCL17 MAB study, likely in Q2 or Q3, which should bolster our confidence in the program. I’m reasonably optimistic that this will benefit patients, as it represents a novel class, and I hope we’ll see important reductions in pain. I’ll now hand it over to Luke to discuss the commercial aspect and how he views this within the context of RA patients.

Luke Miels, Chief Commercial Officer

Sure. Thanks, Hal. Thanks, Jim, for the question. The number of patients is substantial, with about 1 million in the U.S. on biologics from JAKs, many of whom are cycling. Interestingly, recent data shows that about 65% of doctors plan to decrease their usage of JAKs, indicating an opportunity for alternative non-JAK, non-TNF mechanisms for roughly 40% of patients. There is definitely a demand for these treatments. I believe the rise of generics and biosimilars will lead patients to switch to targeted therapies sooner, resulting in earlier cycling. Regarding other programs, GM-CSF has faced some challenges in preclinical nonhuman primate models, among others. Hopefully, we can strategically navigate this space as Hal mentioned; contrast 3 is particularly intriguing when compared to IL-6, which is a major competitor. Additionally, contracts 1 and 2 are against methotrexate. Overall, I find this to be an interesting program.

Operator, Operator

Next question is coming from the line of Emmanuel Papadakis from DB.

Emmanuel Papadakis, Analyst

I would like to take a question about vaccines, if possible. The flu market outlook has been a hot topic lately. We've heard market leaders discussing their confidence in the Brazilian market for vaccines. I would be interested in your thoughts on the potential for mRNA-based vaccines to enhance both production and risk-benefit profiles compared to current vaccines in the coming years, especially since you are involved in both areas. Additionally, could you provide a quick update on our partnerships regarding the second-generation COVID vaccine and our lead programs?

Emma Walmsley, CEO

Sure. Well, why don't we hear from Roger, just on the more strategic outlook for flu. I know we also covered that at the capital markets update briefly and then, Hal, come back to you in terms of the mRNA approach.

Roger Connor, President of Global Vaccines

Thank you for the question. As we discussed last year, flu presents a significant opportunity. There is a considerable disease burden, and when we examine vaccine efficacy, this area stands out as needing innovation to raise the average efficacy above 50%. We find mRNA technology very promising and are investing heavily in it, as we believe it can set us apart. We view this as a chance for differentiation, particularly with our CureVac partnership, where we are exploring both traditional and universal flu options. Additionally, we recognize that agricultural technology will remain important for years to come, and we will continue to leverage that as well. However, we are committing significant resources to mRNA to ensure we can differentiate ourselves in this space.

Hal Barron, Chief Scientific Officer

Yes. Thanks, Roger. Thanks, Emmanuel, for the question. I think it's pretty clear to the world now that mRNA is a disruptive technology that's really going to transform, to some extent, how we think about vaccines, both because of its advantage in terms of speed from sequence of a virus or the knowledge of what virus is going to be endemic at that phase like in flu. But the longer you have to figure that out, the more likely you are to get the right valence in your vaccine. And so that will be a unique opportunity. And as alluded to by Roger, the other thing is that if you can have a polyvalent vaccine, the efficacy is likely to go up relative to a monovalent vaccine. So mRNA has significant potential in flu, and we should be in the clinic with a multivalent mRNA vaccine in 2022, and we're proud of that with CureVac. I think the key thing with multivalent vaccines and mRNA is, of course, the more transcript you put into a patient, the risk is higher reactogenicity. Some of that's somewhat solved by modifying the basis. But even with that, as we saw from some of the Moderna data, we're going to have to continue to work on that. And one of the strategies that we're pursuing that we're excited about is whether we can lower the dose of the transcript by optimizing its stability and how effectively it's translated, more protein for a given amount of mRNA. We think that the proprietary technology developed by CureVac with this optimization of the flanking the transcript, the 5 prime and 3 prime regions that were done through some pretty sophisticated machine learning, we think this will allow us to lower the dose or if you could think of it as keeping the same dose, but with a larger number of valents and have both immunogenic and well-tolerated, limited reactogenicity to be able to develop a best-in-class for vaccine.

Emma Walmsley, CEO

Thanks, Hal.

Operator, Operator

Our last question for today's call comes from Peter Welford from Jefferies.

Peter Welford, Analyst

I have a question regarding RSV in older adults. Considering the COVID data, have we perhaps grown accustomed to the high hospitalization reductions we experienced, sometimes over 90%? Could you provide some insight on what we might expect from the RSV Phase III trial in terms of a reasonable higher reduction in hospitalization? Would an 80% reduction with inosevumab be considered an appropriate benchmark for clinical significance? Additionally, I believe you deserve recognition for significantly underestimating your growth. From my calculations, your robust double-digit growth appears to be over 40%. Can you confirm if the £2.5 billion target, based on your guidance, can be achieved solely through your existing manufacturing capabilities? Should we anticipate future growth from that as well? Are you confident in your ability to maintain that growth and meet demand with your current capacity, without relying on a new facility?

Emma Walmsley, CEO

Yes. Let me be very clear. We are not facing any supply issues, and we are confident in our ability to double our sales from the 2020 levels based on the outlook we provided last year. We are optimistic about experiencing a rebound. There have been some COVID-related disruptions, but as Luke highlighted, we are seeing strong momentum. I’m not sure, Hal, if there’s anything else you want to add.

Hal Barron, Chief Scientific Officer

No, I'll just say that it's very hard to predict the efficacy. However, based on our own immunogenic data and the overall presentations, along with discussions with clinicians, we are quite confident that any effect above 50% is clinically meaningful. An effect greater than 70% is considered a very good response, indicating a successful vaccine. If we achieve efficacy above 80%, that would be outstanding.

Emma Walmsley, CEO

Great. Well, with that, thank you very much, everybody. We shall look forward to gathering with some of you over the next few days. We're really looking forward to an extremely exciting year ahead for GSK. Whether that's doing everything that we said we were going to do, the delivery of the step-change in growth, reading out on some of these very exciting pipeline milestones, continuing to accelerate the execution, all that we already have in hand and plan for very competitive execution of what's to come, and of course, the tremendous unlock of value that's going to come with the creation of a completely unique FTSE leading world leader dedicated to consumer health care. I know Brian is enormously looking forward to the long Q&A session on that at the end of this month. Thanks, everybody. Catch up soon.