Two years after the vision unveiled by research and development chief Hal Barron, a former Genentech Inc. scientist responsible for developing some of Roche Holding AG's best-selling cancer medicines, GlaxoSmithKline PLC's research pivot is nearly complete, as the company prepares to split off from its consumer health business and more closely align its vaccines and pharmaceuticals divisions.

Three-quarters of Brentford, U.K.-based GSK's pipeline is now focused on the science of the immune system. But this shift in focus has come at the expense of its respiratory business, long dominated by Advair, its former blockbuster asthma treatment. Coinciding with its July 29 earnings results, GSK shelved three more early-stage respiratory medicines — two of which target chronic obstructive pulmonary disease — as well as one in HIV and another in cancer.

With only one compound left in oncology two years ago after swapping the rest with Novartis AG in 2015, GSK has plowed resources back into cancer research under Barron's leadership and now has 14 oncology medicines in development, out of a total of 35 therapies.

Potential for vaccines

Fifteen of these therapies are vaccines, and CEO Emma Walmsley highlighted a potential vaccine for respiratory syncytial virus that is entering the last of three phases generally required for approval. "This is potentially a significant vaccine," she told reporters on a conference call following the second-quarter results.

GSK has struck alliances with biotechs and academic institutions in a bid to tackle the COVID-19 pandemic, ranging from the U.S. and China to a deal with France's Sanofi. A fellow large drugmaker, the Paris-based group is one of only a handful of companies across the world that, like GSK, have a much-needed complex vaccine manufacturing capacity and global supply chain. GSK said supply discussions are ongoing with the European Union and other unnamed governments for the experimental COVID-19 vaccine it is working on with Sanofi, after agreeing July 29 to supply the U.K. government with 60 million shots. Walmsley has committed to making a billion doses of adjuvant for the vaccine available next year — more than GSK produces for all its other vaccines combined, she said.

"One consequence of the COVID crisis has been the acceleration in and focus on new vaccine technology," Walmsley said. "We announced the deal with CureVac AG last week because it gives us access to cutting edge mRNA technology, which adds to our own in-house research in this area, and we'll work together to develop vaccines against a range of pathogens. Beyond vaccines, we're also making good progress with two promising therapeutic antibody options."

The CEO said vaccination rates have been impacted by the coronavirus outbreak, although pediatric vaccinations are now back to pre-COVID-19 levels. Second-quarter sales of GSK's best-selling Shingrix vaccine for shingles in older adults came in at £323 million, below Cowen estimates of £350 million.

"With what has gone on in the world, never have we been more confident in the relevance or competitiveness or prospects of our vaccines business," Walmsley said. "Clearly, in the second quarter with lockdown measures, we have seen an impact as people's confidence in being able, or willingness in being able, to access vaccines slowed a bit."

"GSK offers the highest dividend yield of EU large-cap pharma, which is likely sustainable providing downside support, at least until the proposed split of the consumer joint venture," said Jefferies analyst Peter Welford. Reiterating a buy rating on the stock, he highlighted the strategic rationale for a U.K. demerger around mid-2022 as an opportunity to crystallize value, given that a stand-alone consumer unit can support higher debt levels, thereby deleveraging pharma/vaccines.

"2020-2021 is set to be a transition period before Zejula, Trelegy, Nucala and later Shingrix drive growth, plus we see clinical news kick-starting belief in the steadily reinvigorated pipeline," Welford said.