On July 7, GlaxoSmithKline Plc (GSK) announced that data from a large efficacy study showed that Cervarix, its human papillomavirus (HPV) vaccine, is highly effective in protecting against the two most common cervical cancer-causing HPV types, 16 and 18. Cervarix provided 92.9% protection against cervical pre-cancers associated with HPV 16 or 18.

HPV types 16 and 18 account for an estimated 70% of cervical cancer cases and can lead to vulvar and vaginal cancers. The study also showed that Cervarix provides cross-protection against HPV types 31, 33 and 45, which are most likely to lead to cervical cancer after 16 and 18. Results from this study, which was conducted with 18,644 women aged 15-25, were published in The Lancet.

We expect Cervarix to be a significant contributor to the company’s topline over the next several years. Cervarix is already approved in 97 countries across the world, including the European Union [EU]. Cervarix is approved for women between the ages of 10-45, which represents a significant advantage over Merck’s (MRK) Gardasil, approved for ages 11-26.

However, the vaccine is yet to be approved in the U.S., where it is currently under FDA review. Data from the above-mentioned study forms a part of the NDA filing and a response from the FDA should be out by the end of this year.

Although Merck beat Glaxo to the market, we believe that Cervarix offers a broader base and has more patent protection than Gardasil. Glaxo is currently conducting a head-to-head clinical study (n=1000+) that will attempt to prove Cervarix’s superiority over Gardasil. We expect Cervarix to post peak sales in the range of £2 billion.

We believe Glaxo offers one of the stronger late-stage pipelines in big pharma, and with the Avandia issue already baked into the stock price, the shares are currently fairly valued. The vaccine and consumer businesses are performing well and we believe that Glaxo remains interested in accelerating growth through acquisitions and partnership deals.

Although the company is faced with a number of challenges, we continue to like the fundamentals at Glaxo. We rate the stock a Hold with a $40 price target.

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