GSK plc American Depositary Shares (Each representing two Ordinary Shares)

Good afternoon, ladies and gentlemen, and welcome to the analyst call on the GSK first quarter 2020 results. I will now hand you over to Sarah Elton-Farr, Head of Investment Relations, who will introduce today's session.

Thank you. Good morning and good afternoon. Thank you for joining us for our Q1 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 investor section of the GFK website. Before we begin, please refer to slide two of our presentation for our cautionary statements. Our speakers today are Chief Executive Officer Emma Wormsley, Luke Miles, President, Global Pharmaceuticals, and Ian Mackay, Chief Financial Officer. We have a broader team available 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.

Thanks, Beth, and welcome everybody to today's call. First and most importantly, I very much hope that all of you and the people around you are safe and well, and we appreciate you joining us today. We are facing an extraordinary global health threat with enormous direct and indirect consequences. And alongside updating you on our Q1 performance today, I want to start by sharing how we're responding to this. Supporting the global response to COVID-19 is at the heart of GSK's purpose as a company, and our businesses and portfolio are highly relevant and much needed. We've mobilized across the company to respond to the pandemic, and I'm pleased to report that our company is performing well and has demonstrated resilience in the face of significant pressures and uncertainty. Our people have been outstanding, showing courage and deep commitment to ensure that our products continue to be made available to patients and the people that need them. Today, we've got over 20,000 essential workers going every day into our manufacturing and R&D sites. We're working hard to make sure employees stay protected and supported and are investing in high-frequency communications, as well as providing teams with the technology, resources, and adjusted policies to support them, whatever their role. We've implemented business continuity plans across all our essential operations. In our supply chains, we're closely monitoring all parts of our manufacturing network, and our teams have shown tremendous agility to respond quickly to fluctuations in demand. For clinical trials, we've implemented proactive measures to protect study participants, staff at clinical trial sites, and our employees, while ensuring regulatory compliance and the scientific integrity of our studies are maintained. While recruitment for clinical trials has slowed due to disruption of the pandemic and diversion of resources to other clinical priorities, for the vast majority of our studies, we estimate we've incurred a one- to three-month delay. Where necessary and based on our own assessments, we've also proactively paused recruitment, including the pivotal programs related to erythilumab in rheumatoid arthritis and mucala in COPD. In the meantime, we're continuing to support enrollment of new patients into ongoing clinical studies, provided that investigators are confident they'll be able to ensure the safety of the study participants and appropriately conduct the study per the protocol. The ultimate impact course across our pipeline will depend on the duration and severity of the pandemic. From a regulatory standpoint, we have a number of products undergoing review, and at this point, we don't anticipate any significant delays to approvals as a result of the pandemic. However, the situation is dynamic and we will continue to watch it carefully and provide updates as and when appropriate. As I've mentioned, GSK's businesses and portfolio are highly relevant to helping tackle the COVID-19 virus, whether that be respiratory products in pharma, pandemic adjuvant technology in vaccines, or needed everyday products in consumer health. We are determined to help by offering solutions using our portfolio, science, technology and resources to support the global response. We're using four principles to guide our pursuit of these solutions. Working in partnerships, taking a global approach, while of course providing strong focus and practical support to our base in the UK, maintaining a deep commitment to access, and investing in long-term pandemic preparedness. Our number one focus is the development of a vaccine. This is core to the exit plan the world needs, and we're working with companies and institutions globally, including in North America, Europe, and China, to help find the best and most effective vaccine. Our aim is to develop multiple adjuvanted COVID-19 vaccines. GSK has long been the leader in vaccine adjuvant technology and our expertise in this area is proven. As many of you know, the use of an adjuvant can be of particular importance in a pandemic situation, since it may reduce the amount of vaccine protein required per dose, allowing more vaccine doses to be produced and therefore contributing to protect more people sooner. One of the most recent collaborations to be announced was with Sanofi. Together, we bring proven technologies and considerable scale. We're planning to start trials in the next few months, and if successful and subject to regulatory considerations, aim to complete development and make the vaccine available by the second half of 2021. Of course, there is a lot of work to do and no guarantees, given this is an early stage of development. But we believe if we are successful, we'll be able to make hundreds of millions of doses annually by the end of next year. Data from our other collaborations will be available in the coming months. We remain, as we always have been, committed to global access, and across this portfolio of vaccine collaborations, we'll reinvest short-term profits generated in coronavirus-related research and long-term pandemic preparedness, either through GSK internal investments or with external partners. Alongside vaccines, we're also exploring therapeutic options, and earlier this month, we entered into a new collaboration with Zia Biotechnology. Together, we'll use VIA's proprietary monoclonal antibody platform technology to identify and accelerate new antiviral antibodies that could be used for therapeutic or preventative options for COVID-19 or future coronavirus outbreaks. Our first priority is to accelerate two very promising antibody candidates that target COVID-19 directly into phase two clinical trials within the next three to five months. The VEAR platform is highly complementary with our R&D approach to focus on the science of immunology. Additionally, and more broadly, we're screening GSK marketed and pipeline assets for antiviral activity or potential use in prevention or treatment of symptoms related to COVID-19. So all in all, you can see we're pursuing a broad set of initiatives as part of our response and commitment to being part of the solution. But let me now move to our Q1 performance. We've seen a very strong start to the year, with our performance reflecting good underlying execution, the addition of the Pfizer consumer healthcare portfolio, and towards the end of the quarter, a significant step up in demand, including patient and consumer stock building for many of our products as a result of the pandemic. Proforma group sales, growth of 10% in CER terms, reflected an increase in sales in all three of our global businesses. with a particularly strong performance again in vaccines, driven by Stringwix, and consumer, where we saw double-digit pro forma increases in four of our five main categories. Group-adjusted operating margin this quarter was 29.4%, reflecting the strong sales growth across all three businesses, a more favourable mix in vaccines, and the continued benefit of restructuring. On a total basis, earnings per share were up 89% to 31.5 pence, and adjusted earnings per share increased 26% to 37.7 pence. Earnings growth benefited from a reduction in our effective tax rate in the quarter, reflecting a number of one-off items, including the revaluation of tax assets. Our free cash flow this quarter was £531 million, benefiting from our strong operating performance across the business. We've also continued to make progress on our long-term priorities of innovation, performance, and trust. Sustained focus on commercial execution delivered good growth of our new products, Nucala and Trilogy and Respiratory, and our two drug regimens, Devato and Jaluka, in HIV. Meanwhile, Shingrix also continued to perform strongly with some RAL benefits as we further accelerate supply. although short-term demand is now being impacted by slowing vaccination rates in the U.S. under containment measures. We've also made progress on our pipeline. We've regulatory submissions accepted on three oncology assets. We're anticipating FDA approval of Zedula in the first-line maintenance setting for ovarian cancer shortly, and Luke will talk to the opportunity here in just a moment. We've also had regulatory submissions accepted for two other oncology assets, bilansumab macadotin in refractory multiple myeloma, and for Pistarlimab in the second-line treatment of recurrent oral fracture endometrial cancer. We expect the Belantamab review to complete close to the producer date in August. And as we've said previously, the ARCA events associated with Belantamab are a unique adverse event that we take very seriously, and we're working with the agency to ensure its safe and effective use in the target population. We were pleased to see our long-acting two-drug regimen in HIV, Cabinuva, receive approval in Canada, and we've been engaging with the FDA on the path forward for Cabinuva in the U.S. and expect to make a resubmission around mid-year. Also in HIV, we filed the European approval for Spenzivir for heavily pre-freetip patients. We look forward to making these important resubmit options available to patients. In performance, we've continued to drive growth in sales and have seen an improvement in our profitability this quarter with continued good cost control. We've built up capabilities in oncology, ready to support our expected launches. In consumer, integration of the joint venture with Pfizer is progressing very well. We're on track to deliver our cost energy targets and 90% of leadership roles are now in place. We've also, as planned, completed the divestment of our Indian nutrition business to Hindustan Unilever. We're progressing a number of other consumer-tailed brand divestments, and alongside streamlining our portfolio, proceeds from these divestments will also help fund cash costs of the integration. In February, we announced our program to prepare the group for separation into two new companies. We've now started this important project to get us future-ready, with no change to our medium-term targets and timelines. And finally, on trust, as I've already described, we've focused our efforts on solutions to the pandemic, and on supporting our people. So I'll now hand you over to Luke, who's going to give you more details on our commercial performance in pharma and vaccines this quarter.

Thanks, Hannah, and hope you're all well. So good news is that we've had a strong start in pharma in 2020 with growth in our new products across the portfolio. We did see some impact from COVID-19 towards the end of the quarter in Europe and in the last two weeks of March in the US. And this was most notable in HIV, which benefited from customer stockpiling, and as you'd expect, Ventolin, which saw some stock building but also increased use. Excluding COVID-19 impacts, the underlying trends are good and our new products continue to perform well. And to give you some examples, for Trilogy, we continue to see good growth in the class and in our share in all key markets, and we expect to get U.S. approval of asthma later this year. In the case of Nucala, we remain the market leader in the E.O.P. disease segment, and I'm pleased to say that we're benefiting from strong launches of our COVID men, especially in Europe, where we've seen a significant shift. We also have good data in nasal polyps, and plan to file in the second half of the year. Ben Lister, which is in its tenth year on the market, continues to generate strong double-digit growth and the subcut formulation is increasingly important here. We're pleased that the FDA designated our lupus nephritis indication as a breakthrough this quarter and filing is planned for later this year. On the jeweller, I'll talk to the first line ovarian cancer indication in a minute but we are picking up a greater share of new patient starts as we benefit from the operational and execution changes we've made. We've also increased HCP engagement and actively using the Quadra data that was added to the label late last year. As David can comment in Q&A, there's been a good uptake of the two-drug regimen in HIV, benefiting from divided inclusion in both US and EU guidelines. Like most companies, we did see some impact of COVID-19 towards the end of the quarter in Europe and the US. And I think this was seen across the portfolio and shown clearly here on the slide in the prescription data for some of our inhaled respiratory assets. We would expect some of that to unwind during Q2, but underlying demand for our products remains strong. Our people are focused and using this time as productively as possible. We move fast to adapt and to move calls and content onto digital very quickly. And right now, I mean, our people are at home, but they're engaging with HCP, and we are active in areas like virtual speaker programs. And I really want to stress this. From the start of the lockdowns, we've also focused not only on manage the initial phase, but on plans to re-engage when restrictions are lifted. We expect that going forward, we will see an increase in digital engagement, but we are ready to engage with more traditional means as well. So I think agility and flexibility here are going to be key. Next slide, please. Moving on to Zejula, with the strong Prima data that you all know, Zejula is positioned, if approved, to be the only part approved as a monotherapy in first line for women who do not have a BRCA mutation. which equates to about 80% of women with ovarian cancer. In March, we were also pleased and proud to see Zodula included in the NCC guidelines as a first-line treatment option with a recommendation that covers 80% of patients in the first-line maintenance setting. Upon approval, Zodula will be the only treatment option recommended for BRCA wild-type patients who did not receive Avast in their treatment Now, watch and wait is still an option here, but only for patients, if you look at the guidelines, with a complete response. Plus, Zedula is recommended for all BRCA mutant patients, which is at parity with Limpaza monotherapy. So we think this will put us in a competitive position once we receive approval, which, as Emma said, we expect shortly. Preparation for launch, as you can imagine, is very active and underway, and we've fully integrated the Tesaro teams, and we've got some really strong leadership in place. The sales team is fully recruited and we're equipped to launch virtually under COVID-19 restrictions. In the short term, I think it's fair to say we do expect that COVID-19 could have an impact on the diagnosis and treatment of ovarian cancer, but we remain confident in the long term in the profile of this remarkable product. Okay, so I'll finish on vaccines. In quarter one, we were really pleased to see the acceleration of Shingrix supply continue. and that drove excellent growth. I want to stress, though, that the underlying demand for this product remains very strong. That said, towards the end of the quarter, as the prescription trends illustrate, we began to see the impact of stay-at-home measures prompted by the pandemic. Although wholesalers and distributors kept ordering stock through April, we expect to see a significant impact in the coming months. Now, that being said, once the stay-at-home restrictions are lifted, and patients can visit their pharmacies in person and access routine physician visits. Once again, we expect demand to rebound and we're planning for that. We're planning for measures to accelerate, including driving prioritization of adult vaccinations and linking it to the upcoming Q3 flu season. In terms of supply, we're also on track for 2020 in our capacity expansion plans, including bringing new facilities online which remain unchanged. phased Shingwix launch in China this year remains set to commence as we move through this year, subject, of course, to appropriate market conditions. We filed Shingwix for expanded use in immunocompromised adults in Europe last year, and we're on track to file the FDA this year. So in conclusion, before I hand over to Ian, I'd just like to leave you with the following. So although we're seeing fluctuating demand for our products, the underlying dynamic remains strong. We're using this time as productively as possible to accelerate our digital capabilities and make changes to be more competitive. And finally, almost from the beginning of restrictions, we have been planning for a strong start when we are able to resume more normal activities. And with that, I'll hand over to Ian.

Thanks, Luke. I hope everybody's fit and well today. All the comments I make today will be on a constant currency basis, except for a specified otherwise. And I'll cover both toward unadjusted results. On slide 16 is assembly of the group's results for Q1, which is a very strong quarter with 19% reported turnover growth, affecting the addition of the consumer joint venture with Pfizer, turnover growth of 10% in a pro forma basis. As you've heard from Emma and Luke, we continue to see strong underlying performance of the business during Q1, even in these challenging circumstances. Additionally, this quarter, we saw turnover growth impacted by COVID-19 pandemic in various areas across our businesses. In pharma, we saw turnover growth of 6%, approximately half to two-thirds of which was related to pull-forward and stopping patterns, primarily in respiratory in Europe and international, and HIV in the U.S. In consumer turnover grew 11% pro forma, 14% excluding the impact of brands that are under review or being divested. again around two-thirds of which is related to increased COVID-19 demand, particularly in the US. Finally, in vaccines, while we've seen some adverse changes to prescription trends in the last few weeks, we did not see any material financial impact in the first quarter. I'll go into more detail on each of these businesses and the drivers in a moment. The total operating profit was up 42%, with total earnings per share up 89%, primarily reflecting the strong operating performance as well as an increase in the value of shares in Hindustan Unilever. On an adjusted basis, operating profit was up 24% reported and 14% pro forma, while adjusted earnings per share was up 26%, reflecting both the operating leverage as a result of higher sales and the one-off impact of a revaluation of deferred tax assets during the quarter. We delivered 531 million pounds of free cash flow in the quarter, also reflecting the strong sales growth, improved offering performance, and timing of ARR payments. And in currency, the net impact on sales was broadly flat, with a 1% headwind to adjusted earnings per share. The next slide summarizes the reconciliation of our total to adjusted results. The main adjusting items in the quarter were major restructuring, focused on improving the efficiency of the supply chain, with also some initial charges for the separation preparation program we announced earlier this year. Within transaction related, the main contributor was a charge for the remergement of the contingent consideration liability relating to beef, primarily as a result of movements in exchange rates. And finally, the disposals column includes a gain from the revaluation of the embedded derivative in respect of PSK's exposure to movements in instant and lever share price. My comments from here onwards are an adjusted result, unless I state otherwise. Slide 18 summarizes the pharmaceuticals business, where revenues were up 6% in Q1. As well as our new launches, which continued to perform well with encouraging trends, we saw some impact from COVID-19 towards the end of the quarter. This was primarily due to stocking and longer prescriptions being written, so we have seen an increase in demand for certain respiratory products. Luke's just taken you through the performance of some mercury products, so I'll just point out a couple of important considerations. Starting with respiratory, sales were up 38%, with growth from Trelji, Nucala, and Relharbrio across all regions. Relharbrio grew 32% globally, benefiting from a prior period RER adjustment in the U.S. While outside the U.S., sales grew 33% in Europe and 16% in international. Nucala continues to perform strongly following the launch of the at-home application, with growth of 38% globally. In HIV, revenues were up 8%, with the Dolotegravir franchise up 9% globally. In the U.S., Dolotegravir grew 10%, reflecting the shift within our portfolio towards our two drug regimens, where we continue to build momentum, as well as customer stock building related to COVID-19 towards the end of the quarter. Excluding the impact of customer stocking, we estimate that sales were flat year-on-year, in line with our previously stated expectations. Within the established pharmaceuticals portfolio, it declined 6% overall, driven by U.S. adverse sales, which were down 40%, as expected given generic competition. This was offset by continued strong performance from Benton, on which we saw some incremental demand as a result of COVID-19. Outside respiratory, the established pharma portfolio declined by 2%. Overall in pharma, trends remain encouraging and our new products continue to perform well. As I mentioned, we estimate approximately half to two-thirds of the turnover growth of 6% in Q1 was related to pull forward in stocking patterns. Over the balance of the year, we expect there will be volatility in demand due to COVID-19 and also a degree of unwind given the stocking impacts we saw during Q1 in respiratory and HIV. Turning to the farm operating margin, as anticipated in our guidance at the full year, we saw a decline in Q1, informed by decisions we've made to invest in R&D behind priority assets, promotional activity for new launches, and building specialty capability. In addition, this quarter, we also saw price impacts, including notably the impact of generic advert, as well as high provisions for legal settlements in the quarter. On slide 19, we give you an overview of vaccines performance, with sales up 19%, driven mainly by Shinrix, as well as our meningitis vaccines. As I mentioned, we did not see any material impact on vaccines in the quarter as a result of COVID-19. Shendricks continues to benefit from our actions to increase our supply capacity, with revenues in Q1 of £647 million, driven by continued strong uptake in the US, as well as the benefit from a one-off RAR adjustment. As Lucas covered, underlying demand for the vaccine continues to be very strong, and we're on track with our supply delivery plans for the year. However, we have recently seen a decline in Shindrick's prescriptions as containment measures have limited patients' ability to access the vaccine. We expect that during Q2 we'll see a significant impact on Shindrick's performance as a result. However, we see this as a relatively short-term issue and are putting the right plans in place to support increased demand once containment measures are relaxed, notably in the U.S., Other vaccines that may be impacted by the ongoing crisis are meningitis portfolio, with a potential impact linked to the back-to-school season in the U.S., as well as lower out-of-pocket sales in other countries, and also in hepatitis, which is likely to be impacted by the global reduction in travel. Note also that the divestment of the travel vaccines, Rabipur and Ensipur, will have a slight drag on sales growth this year, in the region of 3%. The operating margin of 48% primarily reflects operating leverage as a result of strong sales growth in the quarter, particularly from Shinrix, as well as improved product mix and higher royalties. Turning to slide 20, revenues of our new consumer healthcare JV on a pro forma basis were up 11%, with growth significantly impacted by consumer and government responses to COVID-19. We now have a revised category or reporting structure in place to appropriately reflect and help you understand the key drivers of the combined business. And under this structure, pro forma growth was 14%, excluding brands either divested or under review. The divestment of the Indian nutrition business, the Hindustan Unilever, closed on the 1st of April. And we're moving forward with other divestments, which will continue through this year to refocus our portfolio and finance creation and restructuring activities within consumer health care. Q is a strong quarter with good power bracket growth and the benefits from the formation of the GSK advisor JB becoming increasingly visible. We've also seen a significant impact in consumer from COVID-19 in the quarter. This varied across regions with a number of markets, including the US and UK, experiencing increased demand, while others, including China and India, were negatively impacted by retailer shutdowns. We estimate around two-thirds of the overall consumer growth in the quarter was related to increased COVID-19 consumer demand, We believe the majority of this is pantry loading, but there is some incremental consumer usage in the vitamins, minerals, and supplements category, and in pain and cough and cold. We expect much of the pantry loading to unwind through the year, particularly over the next few months. Operating margin for the quarter was up 320 basis points, mainly driven by higher sales. With integration on track, we're delivering the plan synergies and continue to maintain strong cost control while investing behind our brands. On slide 21, we summarized the sales and adjusted operating margin for the group. As I mentioned, our group operating margin, up 90 basis points, reflects primarily the operating leverage from strong sales growth in the quarter. However, this also reflects the high levels of resilience and agility we've demonstrated within our supply chain and the overall effectiveness of business continuity planning across the group. We're also seeing the continued benefit of restructuring and tight control of operating costs across the business. Moving to the bottom half of the P&L, I'd highlight the following. Interest expense was £187 million in line with the last year, despite higher debt levels, reflecting the financing actions undertaken in 2019. The quarter also included a fair value gain on interest rate swaps, offsetting lower interest income on cash and adverse foreign exchange. The effective tax rate of 13.7% reflected the one-off non-cash impact of the devaluation of deferred tax assets as a result of the cancellation by the UK government of a previously planned reduction in the corporation tax rate. A non-controlling interest reflected Pfizer's share of profits of the new consumer healthcare JV. We delivered a cash flow of £531 million in Q1, higher than expected, reflecting the strong operating performance we've seen across the business. The increased operating cash flow is accompanied by beneficial timing of IR payments, offset by adverse working capital, primarily driven by higher trade receivables. We also received a milestone income from Novartis relating to Ostermalab. And as well as the positive cash flow we delivered in Q1, we closed the quarter with strong cash balances, an effective approach to working capital management, and maintain access to extensive undrawn committed facilities. Turning now to our outlook and guidance for this year. When we first issued our guidance, we specified that it excluded any impact of coronavirus, which, as we've discussed, has already had an impact on our performance in Q1. We present a good set of results today with continued strong underlying performance, along with some additional demand across our businesses reflecting customer behavior and stocking patterns as a result of COVID-19. With the dynamic and uncertain situation, there are significant risks to business performance for the remainder of the year, and particularly over the next few months. In the coming months, as government-imposed containment measures remain in place, we do expect to see the impact of changes in stocking patterns and reduced demands for those products which are at patient or consumer discretion, notably vaccines, including Shindrix. We're confident underlying demand dynamics are strong and are focused on supporting patient access as restrictions are relaxed. Based on our current assessment of the impact of COVID-19, we're maintaining our full year 2020 guidance at this time. We will, of course, if needed, update guidance as more information becomes available to inform our expected financial performance for the full year. There is no change in our capital allocation priorities, investing in R&D behind priority pipeline assets, and returns to shareholders. And as noted in our earnings release, we've declared a 19 pence quarterly dividend in line with last year, and the expectations we set out earlier this year. As mentioned, we've got strong liquidity and access to substantial undrawn committed facilities. We're focusing on business continuity, the safety and well-being of our people, and delivering solutions. And with that, I'll hand over to Emma.

Thanks, Ian. So, in summary, the business has performed strongly in the first quarter, although of course we have uncertainty, especially over the next few months. We're confident we can navigate this crisis by prioritizing our people, business continuity, and leading the way on solutions. At the same time, we remain very focused on delivering our long-term priorities of innovation, performance, and trust, and our 2020 areas of focus. We're progressing our pipeline. We continue to drive improvements in our operating performance. We're moving at pace with the consumer JV integration. And finally, we've staffed our program to prepare the group for separation into two new companies. One, a biopharma company focused on the science of immunology. The other, dedicated to everyday consumer health. These two companies' purposes, priorities, and capabilities have never seemed more relevant. Ultimately, we remain confident in the resilience and sustainability of GSK's business, our ability to deliver on our strategic goals, and that we can be part of the solution for the COVID-19 pandemic. We're now joined for Q&A by Hal, Brian, David, and Roger. And so with that, operator, this team is ready to take your questions.

Thank you. If you wish to ask a question, please do so. Then one on your telephone. You then decide to restore your question by clicking star 2 to retract it. And as a reminder, to ask a question, just key star, then 1 on your phone. And the first question comes from the line of James Gordon, J.P. Morgan. Please proceed.

Great, thanks for taking the questions. James Gordon, J.P. Morgan. Two questions, both on vaccines. The first one was about vaccines' recent performance. If I heard correctly, pharma consumers did get a bit of a COVID boost in Q1, I think 4% and 8%, but the vaccines' growth rate was clean. But then the vaccines' pressure probably only really started right at the very end of the quarter in the West. So could you talk about what you saw at the end of Q1? What was the exit rate for vaccines division performance? Or can you talk about what you've seen for April? How much deceleration have you seen already in Is the US prescription trend for machine rates much of a guy that was a lot more benign than that? And then the second question also vaccines was flu. So we'd speculate that the governments might want to mandate or much more strongly encourage people to get flu vaccinations this year and for the next few years because they don't want to deal with flu and COVID at the same time in older people. But if that happens, is GSK faced to capitalize on much of that? Could you really scale up your flu vaccines? Or is that much more challenging because I think yours is egg-based and our synopsis is cell-based. So is your... for food scalable, or can you participate in that also? Thanks.

Thanks, Dave. Well, I'm going to pass this to Luke because it's related to commercial and frontline demand. But, you know, headline is, you're right, great demand and a clean performance from vaccines in Q1. But definitely, as both Ian and Luke mentioned, we're expecting a slowdown in Q1. Two, just because of both healthcare capacity and patients' enthusiasm for, or consumers' enthusiasm for going outside. But we are expecting a rebound, and it's not least linked to the flu demand, in fact. Although you should anticipate reasonably no significant incremental supply on flu from us. But Luke, do you want to talk through the dynamics there?

Sure. Yeah, sure. So, James, I'll answer your second question first. So, last year we sold 46 million doses in the U.S., which was pretty much everything we had allocated. And we've been able to do that consistently because our supply is, so far, touch wood, very predictable, which purchases like that. But as Emma said, we rely on GMP chickens for the source of this, and that's a 12-month, at least, notice time. So, there's limited upside for us in the coming flu season. But linked to your other question, there is the benefit of having this blue volume there linking it to the Shingrix recovery. Before I go through specifically individual vaccines and the dynamics there, if you take a medium to longer term picture, I think we'd all agree that the world is in a way seeing a very unpleasant experiment where you don't have vaccine coverage They're quite an aggressive pathogen. So I think when people reflect on this overall and physicians, their confidence to suggest vaccination to patients should be increased than it was before COVID-19 emerged. Now, if you look in the U.S. – actually, I'll go to Europe first. So Europe, we saw a big drop-off in vaccines. If you look at Spain and Italy, it dropped off. But we're already seeing signs of the early shoots of a recovery. led by pediatric vaccines, and that's very clear. Governments are signaling that they want these vaccines recruited very quickly, and the U.S. is along with that. If you look at retail pharmacy in the U.S. and doctor visits, they follow the CDC guidance. When you look at in-arm administrations, the Shingrix has dropped by about 90%. But again, I think the key thing here is we haven't seen a reduction of people wanting to get a Shingrix shot. What we've seen is a reduction of people who don't want to get COVID-19, and who've been told to stay at home. So our expectation is that when people can go back out there, they're going to seek these doses out. And what's interesting is we have two ordering points in April for the major wholesalers. And the first one in April covered about 80% of the April sales, and that was filled. So this actually helps us restock and clear some back orders. If you look at the rest of the business, It was interesting. So pediatric vaccines are really being prioritized. You don't see a big drop in visits. So PDRX ship-outs went down about 40%, but we do see a bigger impact in Bexero, for example. Now, normally Q1 is our lowest month, but the volumes went down in terms of shipping to practices and wholesalers by about 80%, and Boostrix and Minvea are about 70%. So there is an impact there. It makes sense. Wellness visits are down by about two-thirds. But I think ultimately we're in a position to capture these back. I think some of these orders were also driven by physicians being careful financially. And I think that's the other important thing to remember, which is once these restrictions are lifted, these physicians are going to seek to recover these patients. They've got practices to run, staff to pay. So we think there's going to be a surge in activity after the restrictions are lifted. And as I said, early signs of Spain-Italy would indicate that's true.

Thank you very much, Lou.

Next question, please. Thank you. Next question is from the line of the of Cohen. Please proceed.

Thank you. I have two questions. First, just to be clear, is the Shingrix 2020 guidance, which I think is about flat to slightly up with 2019, still intact? And then second, GSK has 96 recruiting trials on clinicaltrials.gov. That number is down by only 12 in the last five weeks. These facts don't seem to fit with your cautionary comments on trials overall. So can you clarify these two points?

Sure. So I'll come to Hal to comment on the overall trials. You're right, Steve, that the vast majority of our trials are not significantly impacted today, but I'll comment in more detail. And just to be clear, on the Shingwick's guidance, what we guided was a maintained runway plus a bit. of the Q4 sales at the end of last year, which would still be certainly not flat year on year. And that guidance at the moment is unchanged. There's no update to that. We obviously had a strong Q1. We're really pleased with the progress we're making on supply. We do expect Q2 to be tougher because of the drop in rates under containment, but the underlying demand is very strong and our supply is on track. So we think we would you know, be talking about because containment is sort of relieved. So, that would be no changes there in overall outlook at this stage. Obviously, we'll update you as we get more information. But Hal, would you like to comment on the to-date impact on trials, please?

Yeah, well, thanks for the question. I think the simple answer is that data is consistent with what we said that we haven't really terminated only a few programs. So, most programs continue to enroll, albeit some of them less robustly than had been previously anticipated. So, as I mentioned, one to three months delay for the vast majority of few have been significantly impacted more than that, and a couple have been terminated or put on pause. But I think that data is very consistent with the impact we're seeing, which is non-trivial, but because of the importance of the programs that we have, ongoing and the ability for us to come up with somewhat novel ways of doing these trials, we're confident that the impact is modest.

Thank you. Next question, please. Thank you. Next question is from the line of Geoffrey Portis of SBB, New York City.

Thank you very much, and congratulations, by the way, on doing all of this and also delivering good results. So, just on... First of all, the COVID vaccine efforts. You must be taking a close look at these programs now. Are you confident that you have a surrogate for protection yet? And could you just talk about the scale of safety that you think you'll need for a general use vaccine? And then, Luke, could you just talk about the upcoming pharmaceutical launches you have? Obviously, Zijula, Volantimab. Are you intending to launch, first of all? And secondly... What kind of degree of your typical effectiveness are you expecting, given the way that you're going to have to introduce them more or less on a virtual basis? Thanks.

Okay, we'll come to Luke on the commercial launches and readiness in a new environment first. And then I think maybe hear from Roger first on the overall vaccine candidates and how we see that space. We've got multiple partnerships going on. But Luke, do you want to speak first?

Sure. So the short answer is Prima will go ahead virtually. I think we can do that quite effectively and have been very thoughtful about that. And we've actually started that process with the NCC and guidelines as well. With BCMA, ideally we'll wait because it's a novel agent, it's new, so we were going to hold back until the restrictions were lifted. I hope that answers your question, Jeff.

Great. Thanks, Luke.

Oh, hang on. And he also asked about effectiveness. So, yeah, I mean, there's lots of consultants running around right now with reports. I think, you know, the data that we've seen just through our own good sell outcomes, so this measures whether the call related in a change in behavior, it's about 20% to 30% on average as effective as a face-to-face call. That being said, there are some very, very interesting outliers where you can see some physicians really, really go with this medium and we're seeing calls in people who normally might have only seen someone for 10 or 15 minutes drawing their calls out to 35 minutes. Now that might be because they don't have much to do because they're not seeing many patients but interestingly even in some of the more busy physicians like pulmonologists right now, we're seeing longer calls. So I think it's going to be very stratified by the individual physicians what they prefer The bulk of value, though, is still going to be derived from face-to-face rep calls and HCP events.

Great, thanks. Thank you. Roger?

Hi, listen, thanks for the question. I think from a vaccines point of view, Emma's mentioned collaborations we believe are going to be key to, we think, finding a vaccine solution. We've got seven partnerships in place, and I think it's a busy few months ahead as we start to see the data read out in those various I'd say on your specific questions, I think it's too early to say if there is a surrogate, but obviously we'll be in discussions with the regulator about that. In terms of the level of safety testing as well, that's another regulatory discussion that we'll have as we look ahead at what are quite aggressive accelerated timelines for vaccine development compared to what would normally be considered. What I would say is with our adjuvant technology, this is a proven adjuvant that has been used before. in previous pandemics and has got very strong patient safety data and history as well, which means we've got a proven track record here of a platform that can be used for a number of partnerships to develop vaccines going forward.

Great. Thanks, Roger.

Next question, please. Next question is from the line of Andrew Baum of City.

Thank you. I was listening carefully to how Emma you described GSK taking very seriously the, I can't remember who said ophthalmic, but you referenced the adverse event associated with belantamab. Perhaps you could share with us, now that the FDA has advanced discussions with you, the type of monitoring restrictions you might expect in the label. I'm more focused on the earlier lines of therapy than the third line, given the commercial opportunity, but how restrictive they may be, that would be helpful. And then secondly, On your HIV franchise, I would imagine switching patients is going to be increasingly problematic if it presents in person. Perhaps you could talk to Jaluka in the current environment. Thank you. Devata, rather, in the current environment.

Yeah, sure. Thanks, Andrew. And you're absolutely right. So we'll come to terms on that, that the switch market is going to be a bit tougher. But Hal, why don't you give a bit more commentary on BCMA and views on that, and then we'll come back to David.

Yeah. Thanks, Andrew. You know, I want to be careful. Our discussions with regulatory agencies are confidential, and therefore, I'm not going to comment on the ongoing discussions. But I think a couple things are important to remember. You know, the data in this heavily pretreated refractory relapse patient population from DREAM-2, was very robust, and we see the benefit outweighing the adverse events experienced, particularly the ocular ones in the program. What we have noticed, and I've discussed with you and all of you on the call several times before, is that these ocular adverse events are unique, and although they were well-managed in the clinical programs, it's important to us to make sure that myeloma experts and eye care professionals in the real world are able to work together ensure that the drug is used safely in patients. And, of course, we're open to any approach that ensures patient safety is well handled. In addition to managing it well, we also have, as we move into earlier lines, the opportunity to do more dose exploration when belantamab is added onto standard of care therapies or other effective medicines. It's possible that the dose needed will be lower and, therefore, managing these unique adverse events through dose reduction is possible. In addition, we're evaluating various schedules that might enable that. And lastly, the one combination that I've mentioned, and this is part of an ongoing proof-of-concept study is, and I think, Andrew, you're aware of this study, but the really interesting data with the gamma secretase inhibitors, small number of patients and much support from preclinical data looking at inhibiting gamma secretase to prevent the clipping of the BCMA off the plasma cell. And in CAR T therapy, this has resulted in a very high response rate and, again, a small number of patients. And we're cautiously optimistic that that combination may even be a third avenue by which we can lower the dose and, in addition, manage the ocular adverse events. So, we're, again, continue to believe the benefits seen in the 2.5 mgs per Q3-week dose and TrimQ outweighs that. be adverse events, but we take those seriously and are looking at ways to optimize how the drug is used in the real world.

Thanks, Al. David, do you want to talk about the 2DR and switch dynamics, please?

Yeah, sure. Thanks, Andrew. Well, I think the first point is, of course, HIV is a lifetime disease, and patients dealing with HIV, of course, need to take daily oral medication, otherwise their viral load will rebound and they get sick and potentially ultimately resistant. And bad oral medication, it's pretty straightforward to renew prescriptions on an outpatient online basis. So overall, we expect the HIV business to be pretty robust and resilient through COVID-19 period. And as you've seen, pretty strong sales in the first quarter. Of course, there was some stocking in that. We've been in Europe probably about a week of early refills and extra stock coming forward. But the underlying performance, I think, was still strong, particularly at 2DRs at 186 million. We're pleased with the progress on Devasto and Jaluka. Devasto now recommended third in the guidelines in the U.S. and Europe. But you're absolutely right, Andrew. I mean, there's definitely less switching. It was down about 60% in the U.S. I think it's probably down about 40% right now as provisions change. just renewed patient prescriptions online and they're not coming in and being revisited. So that will kind of lock in the market shares for the moment. It would probably mean we sell a bit more Triume and Contivacay and Devato will stay stable. But hopefully once patients get revisited, that will start to rebound. But there is definitely an impact of the switching in the short term. on the two DRs.

Thanks, David. Next question, please. Thank you. Next question is from the line of Jo Walton of Credit Suisse.

Please proceed. Thank you. If I can return to vaccines, and in particular your COVID vaccine work, are you largely related to helping other people with adjuvants and then doing manufacturing of the resulting vaccine? Just wondering where you have this sort of spare capacity. We know how difficult it is to add capacity for something like Shingrix, and yet between you and Sanofi, you seem to be able to promise hundreds of millions of doses. So just some sort of help on how that comes about. And if you could give us some sense of if you're planning on this being an annual or every few year vaccine, or whether you think it's likely to be effectively a one and done, even if it's you know, a couple of shots within that. And secondly, if I can just push you on Shingrix, the level of the RAR that came in there versus the incremental supply. Clearly, if we were just to take four times the first quarter, we'd be way higher than consensus for the year. I'm just wondering how big that RAR component was. Thank you.

Yeah, I think the RAR, Ian, correct me if I'm wrong, was 50 for the quarter, is that right? In the quarter, it was 50, yeah. In the quarter, it was 50, 5-0. And, you know, obviously, and there's no change, as we said earlier, to our overall outlook for the year on Stringrich. We had a great Q1, Q2. It's expected to look a bit different, but, again, we're working on the rebound, and supply is very much on track with what we've been aiming for. And I completely understand your question in terms of, you know, how come we can, a vaccine that normally takes 10 years is 18 months and you're in this kind of capacity provision. I'll ask Roger to explain the very significant differences. And by the way, it's one of the reasons why, when the question we were trying to answer is how do you get to a vaccine that works at scale, the best probability of success as fast as possible with COVID, a very different scenario in a pandemic crisis. than with the new technology of Shingrix. But perhaps, Roger, you can give a little bit more kind of colour on that in terms of the difference between that and the Shingrix capacity expansion that you've done.

Exactly. Listen, thanks very much for the question. I think, to be clear, that the partnerships that we have in Phaeser Adjuvant partnerships, so we're obviously providing our adjuvant, which for those who don't know, it's a separate vial of product that we deliver and is in preclinical and then moving into clinical testing. I think it's important to know that that adjuvant technology already exists. It's a proven adjuvant that we have supplied before. It's our adjuvant system number three. So the supply chain actually already exists for it and is a discrete supply chain. It's quite different technically from from Shingrix, completely different technologies. So the two aren't interchangeable. And we keep some redundant capacity in it for this very reasons for pandemic preparedness on flu. So the supply chain is there. Now, we still have expansion to do. So to reach the levels that we believe that will be required for the partnerships that we have and for the populations involved, we believe that we will have to expand and that will take time, but we're not starting from zero. like some other vaccines will have to. So I think that's important. Shingrix is also a very much more complex bulk process and also supply chain as well. So I think that's a difference. On the seasonality question as well, I think it's too soon to tell. Who knows? But the fact that we'll be part of a number of different vaccines hopefully means that if that does become seasonal, we'll be part of that solution as well.

No problem. Next question, please. Next question is from the line of Manuel Barclays, please proceed.

Thanks for taking the question. Maybe one of the central perspectives on the data you reported earlier this month in terms of the nasal polyps opportunity, it seemed somewhat at face value inferior to the incumbent competitor in that space. But perhaps you could just give us some early thoughts in terms of the commercial potential a degree to which that's synergistic on your current business in severe asthma and timing for that ramp, if any. And then perhaps the second question, just coming back to HIV, you said you're going to refile in the summer. Any colour you can give us now in terms of the class response, timing could be on the market and indeed assuming we're back in a semi-normalised world, the speed of launch we might anticipate. Thank you.

So David, do you want to talk about CAB, and then we'll come to Luke for the lifecycle management commercial potential on Hucala.

Yeah, thanks, Manuel. We've had discussions with the FDA on CAB, and as we said today, we expect to resubmit in the middle of the year. We do expect it to be a type 2, so that can take up to six months for the FDA to review. So on that basis, If all goes well, we would expect back end of this year or the early part of next year. And just remember, this is entirely related to CMC and particularly data on the specific quality controls. It's not related to the clinical or safety data.

Thank you.

Yep, sure. So, Emmanuel, great question. I think the key thing to zone in here, if you compare our study synapse versus sinus 24 and 52 with dupilumab, the key area to look here is the number of previous surgeries. So, for nepaluzumab, Nucala, 100% of these patients had had at least one previous surgery, whereas with DUPI in sinus 24, it was around 69%. And in sinus 52, it was 58%. And similar rates for the placebo in both those arms. If you look at three or more previous surgeries, so very, very resistant disease, complex disease, one in four MEPO patients had previous surgeries, three or more previous surgeries. where that was 23% and 15% respectively, and sinus 24% and 52%. So our thinking is that the numeric differences there are really driven by difference in patient populations, with 34% of patients in duty studies had no previous nasal polyp surgery and therefore had less persistent polyps, which may theoretically be more easy to treat. In terms of the opportunity, I would say, if you look... If you look about five years out, it's probably 80 to 100 million pounds, the opportunity. So it's a nice add-on. It reinforces the product, but it's not transformational in itself.

Thanks, Luke. Next question, please.

Next question is from the line of Kerry Holford of Barenboe. Please proceed.

Hi. A couple of questions for me, please. Firstly, on SG&A, some of your global peers reported SG&A figures were lower. than the previous run rate. That's not happened with you in this quarter, but is it something we should anticipate being more apparent into Q2? Have you seen a significant decrease in your marketing spend, travel budget, and the like, or is that simply being reinvested into digital and telemarketing? And then secondly, thinking about utilization, particularly in the U.S., how do you think about the risk to your business in the rising U.S. unemployment? And could the effect of negative pay and mix shifts be a significant risk to you this year, if not next? And I wonder if you would comment on which of your products may be most at risk. Thank you.

Thanks, Gary. Well, I'm going to ask Luke to comment, although it's very much in the bucket of sort of unknown, although clearly unemployment figures are significant. But in terms of direct impact, and I'm not sure we're going to give a lot of details of which products, but Luke can talk a bit about the shifting And just in terms of SG&A, I think half of that growth came from either one-off legals or Cesaro. Is that right, Ian?

Yeah, that's right. So, yeah.

And clearly, you know, our goal is to invest behind our new launches and oncology preparedness and make sure that non-customer facing costs just keep coming down. And obviously, we're going to make savings in travel like everybody is. And as Q2 starts, what it does, we'd expect that to see a lot of control. But exactly as said, we're very vested in making sure we have fast start as opening, you know, markets do open up and the investment in digital is ongoing. And, you know, obviously we're not making COVID-related redundancies. But, Luke, do you want to talk a little bit about thoughts on... Thanks, Emma, and thanks, Kerry.

I mean, you can imagine we're looking at this very, very closely. As Emma said, it's very hard to predict, but if I could just lay out our thinking and I'll just take you through the products after that. As you know, if you get laid off in the US, you have the option of COBRA to bridge your commercial insurance. Some people are going to go into the Obamacare health exchanges and people can enroll in those. Unfortunately, some people may fall into the Medicaid category or that may be expanded. What's interesting is Congress did provide subsidies for COBRA in 2008, but they don't seem to be signaling that they're going to do this in 2020. And also, let's not forget that employees who are furloughed, they lose their salary, but so far not their health insurance, and there's good examples with Disney and other companies like that that are doing that. So we're trying to calculate where everyone will land, and it's really hard at this stage. I mean, the baseline, if you look at... Right now, we think it's about a reduction of $9 million so far. So that's roughly where we think it is. But, yeah, I think it depends. You know, with bankruptcies, I mean, companies can still provide insurance under bankruptcies unless they choose to walk away from their plan, and then people aren't eligible for COBRA at that point. So Chapter 11 doesn't necessarily mean that you lose your benefits. Now, in terms of the products... The ones which have the higher commercial component are Brio, Adver, Floman, and Venton. So they're the ones which obviously we'll watch closely. Nucala is a bit lower. I mean, there may be some impact on biologics because they're a bit more expensive. But again, these patients tend to have severe disease as well. Trilogy and Noro are mostly Part D, so they're in a good spot as is InCruise. Vaccines, we think, are going to behave differently. Again, these are single events or double events. So from a cash flow point of view, not as challenging as a quark medication. And we think that if you look at pediatrics with the existing government-private partnerships in place, they won't be disrupted. In terms of Shingrix, again, you know, 2 times 150 is in reach for many people versus chronic medications. So, again, I think we're confident on the mid to long term there. And then I guess on Zedula, I think ultimately it's going to be driven by the level of people that are coming forth for treatment. We're seeing that drop. But again, I think in the mid to long term, we should be okay with this product. So I hope that answers your question. So short answer is some of the respiratory products are more exposed, but they're ones which are under pressure anyway. The ones that we need to grow aggressively, like Trilogy and the vaccines and Eucala, are less exposed. And Sejula, of course.

Thanks, Luke. So I think we're at the hour, but maybe one more question.

Thank you. Our last question comes from the line of Graham Parry, Bank of America. Please proceed.

Hi, Graham.

Great. Thanks for taking my question. So just firstly on Schengen, I just wanted to swear a couple of comments. So you said the full year guide is unchanged, but Q1 was running quite a long way above the fourth quarter plus a bit rate. So is there a level of conservative in the Q1, sorry, in the full year guidance and Q1 capacity, though, indicative of what you think you can actually produce through the year? And you also said you expect an impact in 2Q, but also the fact that the April orders are being filled. So, again, is that just sort of anticipating some sort of drop-off down in April? And then, secondly, in your comments around COVID impact, you specifically mentioned supply chain manufacturing as a COVID risk. And I'd say that's an area that most other companies have been perhaps more robust in their statements on. Is this because of their particular difference in GSK supply chain vulnerability or just a different communication style in terms of communicating risk to the market? Thank you.

I suspect... Thanks, Graham. So, first of all, on Shingrix, there is no change to our outlook because, as we've said, we've had a very... We're actually on track with our supply plans. We have had a strong quarter, but there is no question Q2 will be tougher when, as Luke said, the vaccination rates drop by... 80%, 90% in the U.S. market. The signals from wholesalers in the first two ordering dates of April are positive signals on the underlying demand, but that is going to flow through, but it's a signal of the confidence of a bounce back. So we do think the curve will be differently shaped, and we'll obviously update you as we go through the year and results come through. And in terms of supply chain, I certainly wouldn't want to be signaling any specific concern. You may be right in terms of different company styles and communications. We think we've got a very robust supply chain. We're really pleased with the way our 70-plus factories have mobilized to fluctuating demand. We just want to make sure that we are responsibly signaling the potential risks with a lot of uncertainty in the world. And this may be related to third-party suppliers or indeed government actions that one can imagine in the external environment, perhaps more fundamentally than internally. But no specific concerns that we're looking to play.

I think I'd only add there, Emma, that our commentary in the earnings release is directly responsive to guidance from both the SEC and and the FRC in terms of laying out the risks that may be forward-looking. But I'd echo completely Emma's comments with respect to the resilience and the performance of our supply chain.

Okay. So, with that, everybody, again, thank you very much for taking the time to join us. Please do stay well, and we'll look forward to catching up with you soon.

Thank you. To everyone that likely heard the call, you may now disconnect. Thank you for joining us.