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GlaxoSmithKline plc  (NYSE:GSK)
Q3 2019 Earnings Call
Oct. 30, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Analyst Call on the GSK Third Quarter 2019 Results. I will now hand you over to Sarah Elton-Farr, Head of Investor Relations, who will introduce today's session.

Sarah Elton-Farr -- Head, Investor Relations

Thank you. Good morning and good afternoon. Thank you for joining us on our Q3 2019 results, which were issued earlier today. You should have received our press release and can view the presentation on GSK's website so there is not able to view the webcast slides that accompany today's call are located on the Investors section of our website.

Before we begin, please refer to Slide 2 of our presentation for our cautionary statements. Our speakers today are Chief Executive Officer, Emma Walmsley; Iain Mackay, Chief Financial Officer; Luke Miels, President, Global Pharmaceuticals; and Dave Redfern ,Chief Strategy Officer & Chairman of ViiV. Hal Barron, Brian McNamara and Roger Connor are joining us for the Q&A section of the call. We request that you only ask a maximum of two questions. So that everyone has a chance to participate. And with that I will hand the call over to Emma.

Emma Walmsley -- Chief Executive Officer

Thank you SEF. 2019 is an important year of execution for GSK and I'm pleased that we've made continued good progress this quarter, with growth in sales in constant exchange rates across the Group. Group sales growth of 11% in CER terms or 6% on a pro forma basis reflected an increase in sales in all three of our global businesses with a particularly strong performance in Vaccines.

The Pharma business continues to shift its portfolio shape, with strong growth from our newer respiratory products and Benlysta. Consumer benefited this quarter from the consolidation of the Pfizer Consumer Healthcare business powering sales growth of 25%. On the pro forma basis, the consumer business grew at 3% in line with our expectations. Group adjusted operating margin this quarter was down 2 percentage points on a CER basis, primarily due to the impact of generic competition to Advair in the US, while also substantially increasing investment in R&D and support for new launches. This was partially offset by a strong contribution from Vaccines.

On a total basis, earnings per share declined 1% to GBP0.314, and adjusted earnings per share increased 1% to GBP0.386, reflecting both our operating performance and a lower tax rate. Iain will give you more detail in a moment, but based on this delivery and our outlook, I'm pleased that we're able to again update our 2019 earnings guidance. Our free cash flow year-to-date was GBP2.5 billion in line with our expectations, as guided previously cash flows are weighted to the second half of the year.

This quarter, we've continued to make progress against our priorities for the whole Company with innovation, performance and trust, all to be powered by an ongoing culture change. We've continued to execute on new product launches and have demonstrated strong growth with Nucala and Trelegy in Respiratory and most notably in Vaccines with Shingrix, now expected to deliver high teens millions of doses this year with continued improvement in supply. This has been a very important quarter of progress against our top priority of strengthening our pipeline, including three positive readouts in three pivotal oncology studies. In August, we reported positive headline results from our DREAMM-2 study of our BCMA antibody-drug conjugate belantamab mafodotin in fourth line multiple myeloma. We are on track here with regulatory submissions, supporting potential first launches next year to help patients who are refractory to daratumumab and they're running out of treatment options.

In September, we presented positive data as supporting the use of Zejula monotherapy for women with ovarian cancer in the first-line maintenance setting irrespective of biomarker status. And we are on track here to make regulatory submissions by the end of the year. We also last week received approval for Zejula in the later-line treatment setting. We also presented at ESMO encouraging data on our ICOS agonist, supporting a move into Phase 3 studies in head and neck cancer in combination with pembrolizumab by the end of the year. And we now have positive data in-house and our PD-1 inhibitor dostarlimab. We plan to make a US resubmission for use in second line endometrial cancer by the end of this year too.

Beyond oncology, it has also been a busy pipeline quarter. In Respiratory, we recently made a US submission for Trelegy, in the treatment of asthma and received European approval for Nucala self administration. In HIV, we received positive data in the ATLAS two-month study looking at eight-week dosing now for a long-acting HIV treatment. This build on pills and what has already been a very strong year of data supporting the two drug regimens in HIV. We also recently started Phase 3 studies of our novel antibiotic gepotidacin, the first in a new class of antibiotics in uncomplicated urinary tract infections and urogenital gonorrhea.

Moving to performance, I'm pleased with our delivery on sales growth, on cost control and on strength and cash flow. We completed the creation of the joint venture with Pfizer and have started work on integrating these two businesses under Brian's leadership, building a world leader in consumer health, with a strong and exciting portfolio of brands. And in Pharma, we continue to build our specialty capabilities, ready to support the three oncology launches we anticipate next year. We're hiring people with the right oncology experience in the key markets and doing so at pace.

And finally on trust, we want GSK to continue to lead with a broader contribution to society and this quarter, I was delighted to see that ambition reflected in the Dow Jones Sustainability Index, where GSK was listed for the first time as the top ranked company in the pharma sector. And this week, we were pleased to see the final results of our Phase 2 study for our candidate TB vaccine published in the NEJM, potentially providing the global health community with a new tool to help provide protection against TB. So in summary, Q3 represents another quarter of strategic progress and good growth with all our priorities remaining on track.

I'll now hand you over to Iain, who is going to give you some more detail on our Q3 financial performance.

Iain Mackay -- Chief Financial Officer

Thanks, Emma. All the comments I make today will be on a constant currency basis, except where I specify otherwise and I'll cover both total and adjusted results. On Slide 8 is a summary of the group's results for Q3, which was a strong quarter across all three businesses. Reported turnover growth was 11% reflecting the closure of the consumer joint venture with Pfizer on 31st July with Group revenue growth at 6% on a pro forma basis. Total operating profit is up 3% with Total EPS down 1%. On an adjusted basis, operating profit was up 3% reported and was down 1% pro forma, while adjusted EPS was up 1%. I'll go through the drivers behind these in more detail in a moment. We delivered GBP1.9 billion free cash flow in the quarter, in line with expectations reflecting higher operating cash flows and improvements in working capital. In currency, a weaker sterling, particularly against the US dollar and Japanese yen, resulted in a tailwind of 5% in sales and 8% to adjusted EPS.

Slide 9 summarizes the reconciliation of our total to adjusted results. The main adjusting items in the quarter were major restructuring focused on the supply chain with also some initial charges for the integration of the consumer healthcare JV with Pfizer. Within transaction related, a remeasurement of the ViiV contingent consideration liability, primarily driven by changes in exchange rates as well as the unwind of the fair value uplift on inventory taken on as part of the consumer healthcare JV. And within the disposals column, the main contributor is a gain from the revaluation of the embedded derivative in respect of GSK's exposure to movements in the Hindustan Unilever share price.

Comments from here onwards are on an adjusted results, unless stated otherwise. Slide 10 summarizes the Pharmaceutical business where revenues were up 3%. Luke, and David will take you through the performance of some of our key products, shortly. So I'll just point out a couple of important considerations. Starting with respiratory, sales were up 19% with continued growth from Trelegy and Nucala across all regions. This was partly offset by Relvar/Breo, which declined 8% globally driven by a 32% decline in the US, reflecting the impact of generic Advair on pricing in the ICS/LABA class. We continue to have good growth expectations outside the US and this quarter sales grew 19% in Europe and 22% in international. Overall revenues in HIV were flat with dolutegravir franchise up 2% globally, the dynamics in this market reflect the impact of competition, as well as the shift within our portfolio toward our two drug regimens, with growth in Juluca and Dovato offsetting declines in Tivicay and Triumeq.

At regional level dolutegravir grew in Europe and international and was flat in the US. We've seen an encouraging start for Dovato, both in the US and in Europe, where we had our first launches this quarter. We continue to build momentum with the two drug regimens, but as anticipate it will take several quarters for them to become a significant contributor to growth. Our Established Pharmaceuticals portfolio declined 5% overall, driven by US Advair sales, which were down 64% as expected given generic competition. This was offset by continued upside on Ventolin from the authorized generic launched in the US earlier in the year, which you remember is in your benefit ahead of the introduction of the substitutable generics expected in 2020.

We also saw favorable RAR true-ups in the US primarily on Flovent. Outside respiratory, the remainder of the Established Pharma portfolio grew by 1% in the quarter, helped by the phasing of some tenders in Europe. Our expectation for the longer term for this part for established products portfolio excluding respiratory remains a mid-to-high single-digit decline. Overall, benefiting from some in Europe size, we now expect to see pharma sales broadly flat in 2019.

Turning to the operating margin, we saw a decline in the quarter mainly driven by an unfavorable product mix and price impacts, including notably the impact of generic Advair. TESARO dilution, which in line with previous guidance, we expect to have a sustained impact over 2019. In SG&A, some provisions for ongoing legal cases as well as investments in promotional activity for new launches. In pharma R&D spend, which increased by 19%, reflecting our investment behind priority assets.

Slide 11 gives you an overview of Vaccines performance in Q3, with sales up 15% driven mainly by Shingrix, but also by meningitis and flu vaccines. Shingrix continues to benefit from our actions to increase our supply capacity with revenues in the quarter of GBP535 million, driven by continued strong uptake in the US as well as in Germany and Canada. With our strength in supply position, we now expect to achieve high teens of millions of doses this year. We expect to be able to supply slightly more doses in 2020 than in 2019. As we've said before, we do not expect a significant step change in doses until we bring a new facility online.

In our meningitis portfolio, Bexsero continue to perform well growing 19% in the quarter with share gains in the US and strong demand across all regions. Flu is up 15%, which was help in earlier season compared with last year. It also reflected share gains given our speed to market and a favorable impact from a prior year returns provision reversal. The phasing benefit will wash through in Q4, where we expected a decline in flu given the higher comparator. Overall, I expect our full year volumes to be slightly ahead of last year. Q3 operating margin of 50% reflects enhanced operating leverage from seasonality of the business as well as product mix, including Shingrix and Bexsero and higher royalties.

Looking forward, Q4 is normally, one of our lower margin quarter for Vaccines given mix iin seasonality trends throughout the year. Wile we expect to see a Vaccines margin this year above the mid '30s, in the longer term we will increase investment in SG&A as we expand Shingrix geographically and in R&D as we invest behind priority assets. Also note that this quarter, we announced the divestment of travel vaccines Rabipur and Encepur, reflecting actions to further simplify our supply chain and increase focus on and investment in innovation.

Turning to Slide 12, consumer now includes the Pfizer portfolio after the closure of the JV at the end of July with sales of the new JV, up 3% on a pro forma basis, despite a drag of around 1% from the combined impact of divestments and the phasing of low margin contract manufacturing. We saw a good performance from our power brands, particularly in the US and international. We also saw Europe return to growth this quarter. In Oral Health, Sensodyne grew double-digits in the quarter; while in Wellness, Panadol continues to perform strongly and Advil was flat reflecting a partial recovery from historical supply issues. Integration has started well and we expect of a revised external category reporting structure in place from Q1 2020 to appropriately reflect key drivers of the combined business and to take into account divestments.

The divestment of the Indian Nutrition business to Hindustan Unilever is progressing and we now expect closure in Q1 2020, subject to receipt of regulatory approvals. We're also moving forward with other divestments, which will continue through next year proceeds of which will help fund integration and restructuring activities. Operating margin in Q3 was 24%, higher as expected, reflecting the benefit of sales of seasonal cold and fruit products as well as the strong ongoing focus on cost control and benefits from restructuring and manufacturing. Worth bearing in mind that Q3 is usually our highest quarter given the seasonality and therefore, in Q4, we expect higher cost and lower margin as we promote to drive consumption.

On Slide 13, we summarized sales and adjusted operating margins. At the Group level SG&A increased, reflecting investments in Tesaro, a new product launches, alongside continued tight cost control. Our R&D increased as we invest in development of our pipeline, including the Tesaro assets. In royalties. these were higher, driven by Gardasil and we now expect royalties for the year to be around GBP350 million.

Moving to the bottom half of the P&L, I'd highlight the following. Interest expense, we continue to see the benefits of our refinancing activities, also note that this quarter also included a fair value gain and interest rate swaps. We now expect an interest expense of between GBP850 million and GBP900 million for the year. Effective tax rate in the quarter of 15.8%, reflects our ongoing progress in settling historic tax matters in key jurisdictions and now have a rate of 16.9% year-to-date. The changing shape of our business and the transformational M&A we've undertaken, together with the progress in settling historic tax disputes, means that we now expect an effective tax rate of around 17% for the full year. We continue to expect to see an average effective tax rate of 19% over the medium term. On non-controlling interest, we saw the initial impact of Pfizer share of profits of the new consumer healthcare JV and in Q4, we'll see the first full quarter impact on this line.

On free cash flow, we remain focused on driving greater cash discipline across the group and generated GBP2.4 billion of free cash flow in the first nine months of the year, very much in line with our expectations. This was driven by improved operating profits and working capital management as well as the benefit from FX so far this year. Offset by the launch of generic Advair and related phasing of rebates, and the upfront payment of EUR300 million to Merck KGaA. We're pleased with the progress on cash flow. As previously noted, we do expect to see a step down overall this year versus 2018, as the impact of Advair genericization flows through. A number of the factors that we incorporated into our previous guidance are playing out very much as we expected; however we are seeing better operational performance in Pharma and Vaccines businesses and are benefiting from lower interest expense and a lower effective tax rate. In the remainder of the year, we'll will see continued impact from generic competition to Advair. Higher non-controlling interest, increased targeted promotion in priority markets and R&D spend continuing to grow. Taking these factors into account, we now expect adjusted 2019 earnings per share to be own flat compared to 2018.

With that I'll hand over to Luke.

Luke Miels -- President, Global Pharmaceuticals

Thanks Iain. Good morning and good afternoon. So within Pharma and Vaccines our focus on improved commercial execution continues. Overall our growth this year is clearly impacted by the launch of generic Advair, we're seeing a strong performance from our new product. I'm going to take you through a few examples of where we've made changes to refocus our resources and are seeing positive results.

starting with Respiratory on Slide 18, Trelegy, I'm pleased to tell you continues to do well with sales of GBP139 million in Q3. Globally launches have had a good start and we continue to drive uptick. We have submitted the data from the CAPTAIN study in asthma to the FDA and hope to get approval next year. Around 30% of asthma patients taking an ICS/LABA still experienced symptoms, so this filing is an important step of what's giving them an additional treatment option. Trelegy is now launched in 38 markets around the world, including Japan. We're planning for launch in China later this year. In asthma biologics, Nucala remains the market leader in total sales in major markets around the world and continues to grow quarter-over-quarter. Launch of the at-home self-administration combined with improved execution has increased our performance in the US retail segment and assisted in our ability to remain the market leader despite competition.

Also this quarter, we presented data from the real-world evidence study at ERS, demonstrating highly positive results on reduction in exacerbation, and reduction in oral corticosteroid steroid use. We are the first biologic agents to present this data and further reinforcing our leading market position. At this conference we were pleased to hear feedback that indicated that our monthly at-home dosing seen by physicians as a very positive in terms of patient compliance and the opportunity with biologics remain significant with slightly more than 25% of suitable patients receiving therapy today.

Moving to Slide 19. I want to highlight that our PARP inhibitor Zejula, which remains an important treatment option for ovarian cancer patients in the second-line maintenance setting. We're maintaining our leading position in this indication and are now focused on the opportunity to expand the reach of Zejula to women in the first-line maintenance setting through PRIMA data, which we presented at ESMO last month. PRIMA data show a clear benefit in using Zejula because all biomarkers approved, providing unique opportunity to help patients in the first-line setting regardless of HRD status. We think the PARP inhibitors are an underutilized class. In the US, only 31% of patients currently received one in the second-line maintenance setting falling to 12% in the first-line setting. With the data presented at ESMO, I'm confident that this will change . We've now shown that Zejula has proven to be a better option than watch and wait and anticipate filing based on this data by the end of the year.

And finally, we are pleased to receive approval for sNDA for Zejula in late stage ovarian cancer based on our QUADRA data. This approval allows us to address unmet clinical need patients and demonstrate that Zejula is active as a late-line therapy for women beyond those with BRCA mutation. We are making rapid and material progress on building out our oncology commercial capabilities and the acquisition of Tesaro has catalyzed this process. We've also rebalanced ourselves across territories in the US and have been actively recruiting people with a great track record of success in oncology in the key markets. We're already seeing some of the benefit come through and expect to see this reflected in our sales performance, starting from the end of this year as our refocused approach flows through.

Moving to the next slide. I think it's fair to say Benlysta is a good example of how we are investing more broadly in Specialty Care and accelerating our growth. With the approval of the sub-cut formulation in 2017, and increased support behind the product and a new team, we have driven strong performance this year. Benlysta remains the first and only medicine for SLE in over 50 years and yet this condition remains significantly under-treated. We are also working hard to generate more data to support the increased use of Benlysta. On the back of an investigator sponsored pilot study, we're evaluating Benlysta with a single cycle of rituximab in the Phase 3 BLISS-BELIEVE study, which started in March last year. Two agents have different complementary mechanisms of action and early data suggests that a single priming co-administration of rituximab could enhance the treatment effect of Benlysta to provide sustained disease control and could also potentially lead to remission. We will have the headline results from this study by the end of 2020 and we also expect to say lupus nephritis -- a lupus nephritis at the end of the year and if positive these studies could become a key contributors to the future growth.

Moving on to Vaccines. We continue to be delighted with the performance of our business, particularly the contributions to growth from a shingles vaccine Shingrix and a meningitis B vaccine Bexsero. We're pleased with the commercial execution of Shingrix particularly in the US market, where we think good progress in accelerating our supply delivered sales at $535 million this quarter. We look forward to our phased launches in China and Japan next year. Bexsero has also made a meaningful contribution to growth. We saw strong demand across the regions, share gains in the US market where we are benefiting from the convenience of our dosing schedule relative to competition. And in Europe, with disease burden is highest in infants, both are differentiated by a label where we have the only meningitis B vaccine indicated to this age group.

And now to David to take you through performance in our HIV business.

David Redfern -- Chief Strategy Officer, Chairman of ViiV Healthcare

Thanks Luke. Good afternoon, good morning, everyone. In Q3, sales of dolutegravir grew 2%, while declines in the material products resulted in HIV sales overall being flat during the quarter. In the US total dolutegravir was flat, reflecting a slight year-on-year share decline that we transitioned to the new two drug portfolio. However Juluca and Dovato combined, now account for approximately 3% of TRx and over 5.5% of NBRx, with weekly scripts of approximately 2,700 and 900 respectively. In particular, we are encouraged by the progress of Dovato, where NBRx is now approximately 3.5% head of the Juluca launch trajectory and with positive feedback received from the early physician and patient to doctors.

In Europe, we started the launch of Dovato during the quarter and so dolutegravir were up 3% with good volume growth and market share gains across all major market offsetting some price cuts. In international, we continue to see strong dolutegravir growth, which was up 9%, although slightly lower than previous quarters due to the timing of certain tenders. The launch of Dovato and the strong flow, two-drug regimen clinical data will help support the ongoing growth of the portfolio.

In addition to the important 96-week GEMINI data for Dovato and the TANGO switch study that we presented at IAS in July and which was very well received. During the course we also announced the positive ATLAS 8-week data for cabotegravir. We showed the potential of this medicine to be a once every two months treatments. We expect a regulatory decision on cabotegravir from the FDA by the end of this year. Fostemsavir filing with the FDA by the end of 2019 is also on track. Overall, we continue to be confident in the growth potential of our HIV portfolio.

With that, I'll hand back to Emma.

Emma Walmsley -- Chief Executive Officer

Thanks, David. So, as a reminder, we've seen good growth in all three businesses this quarter and have made excellent progress on our three priorities of innovation, performance and trust. We are on track with our key areas of focus. We are progressing our pipeline with a number of positive data readouts in hand, importantly in our three key pivotal oncology studies, but with regulatory submissions to come, but also in HIV with our long-acting -- in HIV with a long-acting HIV treatment, where we filed for approval for four-week dosing and also have data in hand for 8 weeks, we've also filed for approval for Trelegy in asthma and received European approval for Nucala self-administration. And we progressed to other assets too, with the Phase 3 study started in gepotidacin and plans to start pivotal studies with ICOS in head and neck also by year-end. We're continuing to drive improvements in our operating performance and our specialty capability, and we're working toward a successful integration with Pfizer, now that the consumer JV has completed. Successfully delivering these priorities over the coming years, we'll provide a clear pathway to the creation of two great businesses, one focused on Pharma and Vaccines, the other on Consumer Health.

So we are now joined for Q&A by Hal on the phone and Brian and Roger. And so with that, operator. The team also here in the room is ready to take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instruction] Your first question comes from the line of Andrew Baum Citi. Please go ahead. You're live in the call.

Andrew Baum -- Citigroup -- Analyst

Thank you. Couple of questions please. Firstly to Luke. The Senate Finance Committee recently proposed to step-up a funding by the industry and PBMs, the catastrophic coverage in part the -- in exchange for a cap on out-of-pocket payments. Thinking about Zejula, a more broadly your oncology pipeline of small molecules, is this the proposal that GSK supports, thinking about both the direct and indirect potential hit from that revenues, although offset by volumes? That's the first question. Second question much shorter, I didn't see any commentary on GSK Pharma in China, perhaps you could talk to that performance? Many thanks.

Emma Walmsley -- Chief Executive Officer

Thanks, Andrew. So I'll ask Luke to comment both on China and then add anything on what's happening in the sort of pricing and regulatory environment in the US. I'd just say that it's obviously extremely dynamic at the moment. There are a lot of different proposals potentially under review as you know. We're monitoring all of them very carefully in terms of -- and obviously also engaging with the administration on them. I mean, just in terms of big picture principles, what GSK support is working toward addressing some of the real challenge in terms of patient out-of-pocket, why we are particularly supportive of rebate reform overall and being able to pass on -- pass through to patients some of the discounts. That in our sense a cap on out-of-pocket is potentially a sensible idea. We also support transparency and anything that simultaneously drives access and innovation, and we continue to monitor, which bits will come through in terms of the direct impact overall for us. So Luke, I don't know if there is anything you want to add on that, but then, specifically on for the China question?

Luke Miels -- President, Global Pharmaceuticals

Yes Sure. So on China, Andrew, if you look at quarter 2 [Phonetic] is the latest information we have, but gross is around 20%, so that's respectable in the middle of the pack there. I think in terms of the future, the key thing is we're putting the building blocks in place now. You've got the launch of Trelegy coming, where a key component of that will be to build acceptance on the part of Chinese physicians to treat COPD more aggressive, the background population is significant, it's enormous actually, and you have background things such as pollution and smoking, etc,, which drive this. So that's one product that we're very interested in. I think with Cervarix, things are starting to improve, being a bit bumpy, but we're now getting about 120,000 shops per month and the trend is upwards there. If you look at Benlysta, which we now are in the process of launching in China, that again is something that will take some time to build, but again, it is an innovative product with limited direct competition.

And also we are increasingly competitive with Seretide [Indecipherable] Ventolin. So I think, again off a smaller base than some of our competitors, but the pieces are falling into place. We then have the launch of Shingrix next year, which will be a very targeted initial launch because of the supply elements that you know well and we're also looking right now in terms of negotiations through our access for Anoro and Relvar in China. So hopefully over time, we can get a few of these things lining up and we'll start to grow our base business in China.

Emma Walmsley -- Chief Executive Officer

Thanks, Lou. Next question please .

Operator

Thank you. Next question comes from the line of Steve Scala, Cowen. Please go ahead, you're live in the call.

Stephen Scala -- Cowen and Company -- Analyst

Thank you. Two questions, the first is a follow-up on reform, but in GSK's 19-year history, this could be the first time, raised guidance twice in one year, let alone the first time in -- let alone in the first three quarters. This obviously shows the strength of the business, but Emma, what does it, tell us about your real concerns around US Healthcare reforms and Brexit? It would seem GSK would not want to show its full strengths if it were truly concerned about upcoming changes either in Washington or London?

Secondly on Shingrix, the company continues to say that we should not expect a significant increase in doses produced in the near term, but the high teens, number of doses GSK will deliver this year was to have been achieved in two to three years. So some major gains have been achieved despite management's cautions, are you saying that a year from now, the number of doses produce absolutely will not exceed $20 million? Thank you.

Emma Walmsley -- Chief Executive Officer

Thanks Steve very much. Actually your two questions are linked to a degree, in terms of what we've been able to over-deliverance, in terms of that initial expectations in terms of operating performance, because obviously Shingrix is going extremely well. This is very much a supply driven business for us, but it is a fantastic product and we do expect it to be a material contributor to growth for the Company for quite some years yet. But once we got the preferential recommendation and could see the demand was going to very swiftly outstrip supply, we did mobilize very materially across all of Roger's team to try and increase our supply. It's very complicated to produce a vaccine and I think whether it be through -- I mean all across that value chain, we've been quite successful in making that progress, which is why we were allowed to bring forward that delivery to high teens. Now, I am not going to put an additional number specifically on the doses for next year, but if you listen to Iain's outline, we said we would expect slightly more doses in 2020. But we don't expect a step change until we have that new facility in place, which we've said externally is, we took about, around 2024.

So at this stage that is the -- the overall commentary I can provide on Shingrix. And in terms of your point on guidance for this year, I mean, again, as I think in work to step you through on his presentation, we -- the upgrade this quarter is in part because of operating performance in both based Vaccines and in Pharma, but also we are benefiting from a shift in our guidance around tax rate, which contributes again this quarter, but is both aspects of it. The linked development in terms of impact of Brexit and the US reform, obviously in terms of materiality, the UK is less than 4% of our global business and the US remains our biggest market and the most important market for innovation is still at the moment. And Brexit, we've been long prepared for operationally and all of that's been in place, frankly, because we had to secure supply both in the UK and in Europe. We're more focused on it securing regardless of the new government a life sciences friendly environment for our heavy investments still in the UK beyond the upcoming election. And I'm quite confident about that on the basis that it is a strategic industry for this country, whether it's also other large company or indeed the sort of biotech and education environment here.

For the US, I see it -- it's, as you all know extremely dynamic as we've already said. We're watching it carefully, but in some ways is uncomplicated because as long as we innovate differentially and price responsibly that will be our best opportunity for driving growth and we'll just monitor it live with the lens respond if impact comes through. I [Indecipherable] to answer to your two detailed questions. The next one please. Thank you.

Operator

Next question comes from the line of Peter Welford Jefferies. Please go ahead, you're live in the call.

Peter Welford -- Jefferies International Ltd. -- Analyst

Oh, hi, thanks for taking my question. And firstly, I just wonder if you can talk a little bit of a 2020. I appreciate it's early to give guidance for this year already, but can you just perhaps give us some broad terms, what the potential pushes and pulls we should think of, I guess, aside from Shingrix where obviously, I think you've outlined that pretty clearly, but just in terms of both the top line, but also in terms of the earnings momentum?

And then just secondly for Hal perhaps on the pipeline, I noticed the projects that looks as though it's slightly earlier than we had anticipated, now we should get those reads, just wonder if there's anything we should read into that? And then also 772 RIP1k, if you could just perhaps give us some insight into why that come back into research phase, it will be much appreciated? Thank you.

Emma Walmsley -- Chief Executive Officer

Okay, so I'll come to Hal in a second on the dapro and the RIP1-2 question, but the short answer on 2020s we'll tell you in February. There is no expect to change whether there are puts and takes and the overall outlook for the 2020 that we've guided to previously. And we'll give more detail on that in Feb. So Hal, do you want to pick up the other two questions please?

Hal Barron -- Chief Scientific Officer and President, R&D

Yeah, thanks for the questions. In regards to depro you say we've moved up the interim analysis. But I should say that -- that's an analysis we're doing for internal purposes only, as you know, we have a very robust program and while we think have very high confidence that the drug and probably the class is useful in terms of improving hematocrit. The real question is compared to [Indecipherable] whether the cardiovascular profile will be equivalent or superior, and so we thought it prudent to do an interim analysis and based on events, we felt that we could move up the timing of that. But, but again that's internal and more of a safety look.

So that's why that is, as you know the full data will be later and that's event driven and so we'll put that out if we can. Your other question was about RIP1 kinase. We have decided based on an examination of the data generated in three different clinical trials, small Phase 2a-type trials, to move the molecule back to research. We haven't killed the program, but we felt that based on the data that there is a number of outstanding research questions that need to be addressed to understand why the effect was less than we had hoped for and we have a number of hypothesis that we're not willing to share at this time, but we'll be exploring them either in research studies or even possibly shed some of those hypotheses bear out preclinically, potentially even moving it back to Phase 1, that will be dependent on some research studies that we're going to undertake to understand why the molecule was unfortunately not as active as we had hoped.

Emma Walmsley -- Chief Executive Officer

Thanks Hal. Next question please.

Operator

Next question comes from the line of Graham Parry Bank of America Merrill Lynch. Please proceed .

Graham Parry -- Bank of America Merrill Lynch -- Analyst

Great, thanks for taking my question. So firstly on Shingrix, could you just help us quantify slightly more in 2020 and is that slightly more each year out to 2024 when the capacity kicks in? So for example, if you take in all the Cervarix capacity out of the glycoprotein bioreactors already or is that still an improvement you've got to come? When you bring more capacity online in 2024, where you have the adjuvant capacity to match or is that going to start becoming a constraints at that time? And then secondly on the ASO HBV, see if you've got data coming on that now at AASLD, for the Phase 2 data. Is this a game changer, I think, how you called this out as one of the two most exciting assets with the proof of concept readout, that your first R&D Day, do you still think that's the case? Thank you.

Emma Walmsley -- Chief Executive Officer

Hi Graham. So I'll come to Hal on the second question. And the short answer, I'm afraid to you first question is, we can't give you any more detail than we've just outlined. We reconfirm slightly more in 2020, but obviously we're working on this continuously and it remains fluid, but we wouldn't commit to any step change until 2024 with a new site and obviously we work on all aspects concurrently to make sure that's that change can be delivered, but I'll then come back to Hal please for HBV.

Hal Barron -- Chief Scientific Officer and President, R&D

Hi Graham, thanks for the question. I think we remain excited about the potential for the ASO HBV program for lot of reasons. First of all, it's an incredibly important medical problem. I mean somewhere over 200 million people chronically infected with HBV and many of them probably over 1 million will die of hepatic failure cirrhosis or even hepatocellular carcinoma and available treatments are very limited in terms of the efficacy and they are certainly not without the toxicity. So, a novel therapy can be, can be a significant advance for patients in a very important asset for GSK at work. We've reported that the Phase 2a data did show significant activity with a reasonable well tolerated safety profile that is the 836 [Phonetic] molecule and we'll be sharing that data within the next, I think it's three to four weeks at the AASLD. It's also important that it's a very novel approach using ASO, as we mentioned so that opens up an opportunity for us to think about that as a novel modality for interviewing particularly in liver disease. So we're excited about that, but it's early days and we're working with the regulators in multiple countries actually to figure out how to move the asset forward into a Phase 2b study. But as I said the data will be forthcoming at the Liver Meetings next month.

Emma Walmsley -- Chief Executive Officer

All right, the only other things with that while reiterating the early Dave's point is the relevant potentially of that asset, should the data be -- make it work progressing for the China market, really to reinforce what Luke was saying earlier, that is obviously a deregulating, increasingly innovation focus market where we're starting from a low base, but we're thoughtful about the pipeline we may be able to bring over the years ahead. Next question please.

Operator

Next question comes from the line of Richard Parkes, Deutsche Bank. Please go ahead.

Richard Parkes -- Deutsche Bank -- Analyst

Hi, thanks for taking my questions. First on financial, one of then the pipeline once, so it given the try to Peter's question on outlook for 2020, just more whether you could give us some directional steer on the the pushes and pulls on the margin in 2020? I think you've already highlighted there's likely to be pressure on the Vaccines margin, so given to reinvest, so I'm wondering what are the positives and negatives that might be and kind of directionally where R&D spend is a sensitive to sales might be moving. So just some detail there? Second question, I wonder if you could give us some clarity on when we might see the efficacy data from the PRIMA study by starting dose and if you could help us understand how confident you are, you can get that individualize dosing in the label given that only a third of patients in the previous study were eligible for that revised starting dose? Thanks very much.

Emma Walmsley -- Chief Executive Officer

Thank you. So we'll come to Hal in a minute on PRIMA and dosing. On 2020, I'm going to reiterate that we will update you on 2020 in 2020. Iain might want to add a couple of comments really repeating what he said in his introductory remarks around some of the dynamics between Vaccines and our choice to invest in R&D. The only thing that I would say quite firmly is we do not believe in targeting a fixed percentage of R&D spend. We are very clear on our capital allocation priorities and right at the top of that list is strengthening our pipeline for future growth and that means investing behind new launches as we have been in our execution, but also investing in R&D and that's been a big driver, as you've seen with increases this year. And as data demand, we would expect to continue to do so, but certainly not just some kind of target because people going to spend money. So it is a discipline that how is driving them out. But, likewise in Vaccines and as Iain also mentioned over the next few years as proof of concepts come through for next wave of Vaccines pipeline should that data merited, we will want to back those. So long may the Shingrix contribution continue, but we're obviously very thoughtful about what may come in the longer life cycle of Vaccines development. Iain, would you like to be any more generous in the insight into 2020?

Iain Mackay -- Chief Financial Officer

I won't use up too much of the clock talking about things that we will do and talk about it when we do the full year results in 2020. But I think if you reflect on what we talked about as we walk through the numbers and the priorities of the Company from an innovation. performance and trust, it's clearly focused on growth and an important part of that is supporting launches of assets in priority markets and investing behind R&D. So the broad shape of where we will allocate capital in our energy and resources and will not be significantly different to where we've invested those resources over the course of 2019. But we will give you guidance that you can sink your teeth into when we get the full-year results out in February next year.

Emma Walmsley -- Chief Executive Officer

Thanks Iain. Next question please.

Operator

Next question comes from the line of Keyur Parekh, Goldman Sachs.

Emma Walmsley -- Chief Executive Officer

Oh, sorry. Sorry, sorry, sorry. I forgot, extremely important. I'll come back to Hal on PRIMA, sorry.

Hal Barron -- Chief Scientific Officer and President, R&D

Okay, yeah, thanks. So thanks for the question. And I think it was related to the subgroup that received the Weights and Plates in a prospective manner. We're in the midst of evaluating that data right now. As you can imagine -- as you said, it's a smaller subset. So that's challenging to do both the analysis overall, but more importantly, you need to the subgroups, but we're mostly through that. Once that data is analyzed, we will be submitting that to regulatory authorities and publishing that in a meeting, although we don't have it -- a date set for that. I should -- I should point out that two things first, clinicians I think are very cognizant of the fact that using the Weights and Plates dosing regimen, where you adjust the dose down to 200 milligrams when the body weight is in excess of 77 kilograms, though the platelet count is below 150,000 and I think we're pretty confident that that does reduce the incidence of thrombocytopenia, the prospective analysis is looking at how similar the treatment effect is. But -- and as I said, we'll have that data soon, but the most of the clinicians are already sort of using that kind of dosing paradigm if they treat their patients today.

Emma Walmsley -- Chief Executive Officer

Thank you Hal, I apologize. Back to the next question please.

Operator

Thank you. Keyur Parekh, you're live in the call, please ask your question.

Keyur Parekh -- Goldman Sachs -- Analyst

Good afternoon.

Emma Walmsley -- Chief Executive Officer

Hey, we lost you. Hello. Okay. I think we've lost Keyur. Maybe I can come back and ask for another question please and will come back to Keyur in a minute.

Operator

Thank you. Next question comes from the line of Geoff Porges, SVB Leerink. Please go ahead, you're live on the call.

Geoffrey Porges -- SVB Leerink -- Analyst

Oh, thank you very much for offering chance to the call. Just like pipeline question, if I may. Could you give us a sense of when your pentavalent men vaccine, when we'll see that Phase 2 data. You haven't given a timeline and what would be the criteria if you proceed to Phase 3? Thanks.

Emma Walmsley -- Chief Executive Officer

Sure, I'll say Roger, over to you.

Roger Connor -- President, Global Vaccines

Yeah, thanks for the question. I think from an ABCWY point of view, we're obviously committed to developing our product. As you know, we're bringing together Bexsero, the world's leading meningitis B vaccine with Menveo [Phonetic]. We have just completed Phase 3 in terms of studies. We have looked at 1,400 subjects in that study. We expect to see the final Phase 2 data during the first half of next year. And I see at the moment, we're engaged in regulatory discussions around the pathway and how we take it forward into Phase 3, probably through the first half of next year that we'll be looking at the data from the Phase 2.

Emma Walmsley -- Chief Executive Officer

Thanks Roger. Do we have Keyur back yet. No. Okay, next question please.

Operator

The next question comes from Laura Sutcliffe, UBS. Please go ahead, you're live in the call.

Laura Sutcliffe -- UBS -- Analyst

Hello. Thank you. Two questions please, both on HIV. I think you've talked about the business transitioning to new portfolio in terms of HIV drugs and so while Triumeq obviously is still going to be an important drug for many patients, how should we be thinking about the resources, you'll be putting behind that versus other drugs in the portfolio in future? So in other words, should we be looking at this as more of a legacy product from now on? And also, you should, all being well, be able to launch injectable product next year, assuming it becomes a product that has a once every 8-week option further down the line, is that ultimately the optimal profile for that sort of product or would you try to refine this or any other injectable any further? Thank you.

Emma Walmsley -- Chief Executive Officer

Thanks. Both of those are for David, please.

David Redfern -- Chief Strategy Officer, Chairman of ViiV Healthcare

Yeah. Hi, Laura. So I think we've said several times that we really see the future growth of the HIV portfolio coming from the two drug regimens, whether that's oral or as you say hopefully the first long-acting on the market next year. In the case of oral and principally Dovato, that of course is part by dolutegravir and our efforts are really promoting two drug regimen. So that is where we're putting our results. So this year behind Dovato and Juluca, next year including cabotegravir. As I said in my remarks, it's relatively early days, but we're pleased with the progress, sales in the two-drug regimen to GBP119 million in the quarter and hopefully more to come as we get the guidelines updated and the label updated in the US, the positive TANGO data, and I would also say that weight gain is on the top side, it's becoming a growing issue. We saw a bit of that with the ADVANCE study with IAS, but more recently, the [Indecipherable] analysis, I think there are about 5,700 patients from case studies. [Indecipherable] analysis is never perfect as you know, but there is growing noise around that . So we'll have to see how that plays out. I think on cabotegravir, look we are excited about this great data, FLAIR and ATLAS studies and then we've supplemented that with the 8-week data this quarter and it won't be for every patient. I think there'll be a lot of patients, happy to continue on oral therapy. But for those patients that are interested in moving very passionate about it, clearly, every 8-week I think would be preferable to every month, ultimately if we could move it up to coincide with patient visit, which typically now every six months, that would be better. But every eight weeks is a major step forward and we're very excited to produce the first long-acting medicine on the market.

Emma Walmsley -- Chief Executive Officer

Thanks, David. Next question please.

Operator

Next question comes from the line of Keyur Parekh, Goldman Sachs.. Please go ahead. You're live in the call.

Keyur Parekh -- Goldman Sachs -- Analyst

Hi, can you guys hear me OK now.

Emma Walmsley -- Chief Executive Officer

So, just perfectly Keyur.

Keyur Parekh -- Goldman Sachs -- Analyst

All right. Thanks. Two questions please, one for Luke. On Zejula, look, given the data we've seen at ESMO, would you expect Zejula to be on the NCCN guidelines and can you help us think about the timelines associated with that pre FDA approval? And then secondly on China and I know you've made some comments about the growth rate, but clearly the base of business still remains to be very small, Merck has reported a 90% growth for Gardasil this quarter. When do you think China will become a relevant/substantive part of the business? Is it likely in 2020 or should I think of it as an opportunity beyond that? Thank you .

Emma Walmsley -- Chief Executive Officer

All right, so I will put both those questions to Luke.

Luke Miels -- President, Global Pharmaceuticals

So I think in terms of China, beyond that Keyur, I mean I think if you're going to meet the assets like Shingrix and the full supply to really shift our base business in China, and Cervarix again, our target right now, about 60% of our business from school age girls and that's a program, which we only launched a couple of quarters away, ago and it's been very successful. So again it's an interesting battle there. We do have some age advantages versus Cervarix. And we're now concentrating on that. We've also made changes to the team in China, which again I think will become more visible in time, but material change to significant scale is further out.

In terms of Zejula, so we believe the NCCN guidelines committee is going to be meeting around 31st October. I guess the question is we have published PRIMA in the New England Journal. We have yet to see a publication from the other study, and we have not filed the PRIMA data with the FDA as you said, at this point. So I guess the open question is going to be, will the committee move ahead and signal thier support for PRIMA based on that scenario or will they wait to either that we filed or the second study is published. It's hard to speculate. As you can imagine, we're certainly making our case that we believe the guidelines should change. And whether they change in October or whether they change in a couple of months time, I still think the days of watch and wait are going to be increasingly difficult to justify and again when we announced the deal that was a key assumption of our that, as Hal has said the PARP class are underutilized. So I think it's a matter of time, but we would like it to come sooner, obviously for the benefit of those patients and we see that flow through for Zejula.

Emma Walmsley -- Chief Executive Officer

Thanks very much Luke. Next question please. I think we have one more. Yeah, one more question.

Operator

Thank you, Tim. Anderson, Wolfe Research. Please go ahead. You're live in the call.

Tim Anderson -- Wolfe Research -- Analyst

Thank you. I have a Vaccines R&D question. So with Shingrix you've shown that you can go into an existing market with a better product and do quite well. And I'm wondering if that is capable of being repeated in a couple of other areas, where you already have a presence. So with Gardasil for example with Merck, that can be $7 billion or $8 billion product over time. You have a product in this space, didn't gain much traction, but what about trying to come up with a new version that is more competitive? Same question in the Prevnar space too where you have Synflorix. So should we assume that you will not try to reenter these areas with new and improved products or could this be a possibility?

And then second question on consumer, now that the transaction is closed with Pfizer, just an update on timing of the shift. I guess the real question is why it really needs to take three years, could it be pulled forward and is that guidance of three years overly conservative?

Emma Walmsley -- Chief Executive Officer

Okay, thanks very much Tim. So I'll ask Roger talked about the Vaccines pipeline, then I will come back on the -- finally, on the group demerger.

Roger Connor -- President, Global Vaccines

Thanks very much for the question. I have to say there is a high degree of excitement in Vaccines about the pipeline that we've got. A couple of general comments first. Obviously, we're pleased with the breadth that we have and the shift that we're making into therapeutic vaccination, treating disease rather than simply preventing. I think the backbone of that strategy is our Adjuvant technology, actually our Adjuvant platform .

As many of you know, but Adjuvant System is a key part of what is mid Shingrix through successful. And then there are Vaccines pipeline, we're really looking to maximize that a couple of assets that I would draw that I think, we can really use to optimize that. Our COPD vaccine for chronic obstructive pulmonary disease, an exciting next year when in the second half, we should see the proof of concept data that has ASO1 and that has [Indecipherable], that's the only vaccine really in development for COPD. Huge opportunity there just given GSK's legacy. And to take the US alone with our 16 million people suffering from COPD, we really believe that, that vaccine could have really significant impact to reduce acute exacerbation and disease progression with such a proportion of exacerbation linked to infection of the vaccine will treat.

On RSV as well, I think we're looking to use our platform technology and our science to differentiate. I've mentioned before, we've got three vaccines in the RSV space, again maternally we think, just linking to your question around work and we exploit our knowledge and experience. We've maternal vaccination experience which restricts for example, and we really feel a lot of experience, we can drive our maternal vaccination in RSV. Our older adult vaccine, I'm excited about as well. Again it builds off the Adjuvant platform also, big opportunity there are again in the US, 70 million people over the age of 60. And then we have a pediatric vaccine in RSV too, which still of another platform we have, which is our viral vector platform. So lots going on in the Vaccines space. And other assets in the early stage, like our hepatitis B vaccine, our C. Diff vaccine, again held off our Adjuvant platform.

Emma Walmsley -- Chief Executive Officer

Thanks, Roger. And then on consumer health there's no change to our declared intend to separate the consumer business, around three years from close, but it's not a rolling three years. We've already closed down a quarter. And the reason that we think that is around the right time is because we have the experience of doing this before. And, both Brian and I and the Board believes and know well how big a job is to integrate two companies successfully, while continuing to perform competitively and extract the synergies that we're confident and committed to delivering, but also at the same time as making sure that that business is set up for success and the great so independently. It is during this period that we're continuing to work to make progress on our pipeline, both in Pharma and in Vaccines in the build of our specialty capability as well. So we think this is around the right timeline. Obviously, that is -- this time around a decision that GSK is in control of up to five years and should we ever change of view on the target date to that, we'll update, but for now that certainly no change to that at all. When we think about right. So with that, thank you very much everybody for joining the call today and we should look forward to talking to you soon. Thank you.

Operator

Thank you.

Duration: 62 minutes

Call participants:

Sarah Elton-Farr -- Head, Investor Relations

Emma Walmsley -- Chief Executive Officer

Iain Mackay -- Chief Financial Officer

Luke Miels -- President, Global Pharmaceuticals

David Redfern -- Chief Strategy Officer, Chairman of ViiV Healthcare

Andrew Baum -- Citigroup -- Analyst

Stephen Scala -- Cowen and Company -- Analyst

Peter Welford -- Jefferies International Ltd. -- Analyst

Hal Barron -- Chief Scientific Officer and President, R&D

Graham Parry -- Bank of America Merrill Lynch -- Analyst

Richard Parkes -- Deutsche Bank -- Analyst

Keyur Parekh -- Goldman Sachs -- Analyst

Geoffrey Porges -- SVB Leerink -- Analyst

Roger Connor -- President, Global Vaccines

Laura Sutcliffe -- UBS -- Analyst

Tim Anderson -- Wolfe Research -- Analyst

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