Bullish GSK upgrades guidance on strong sales

Recent sales progress at GSK (GSK) has largely been driven by two things: the Shingrix shingles vaccine and its HIV franchise. The drugmaker’s half-year results confirm that this is still the case – and momentum has been so strong that management has upped its full-year earnings forecasts. 

Turnover is now expected to increase somewhere between 8 and 10 per cent, up from the previously stated 6 to 8 per cent. Meanwhile, adjusted operating profit is predicted to rise by 11 to 13 per cent (instead of 10 to 12 per cent). However, this may not fully allay lingering concerns that the group’s portfolio is too concentrated in a handful of therapeutic areas.

The so-called 'patent cliff' – the point at which a drug loses exclusive marketing rights and generics become available – is a major headache for most pharmaceutical companies. However, they can minimise the hit to earnings by continuing to develop new drugs across a broad range of disease categories. 

Analysts have long been concerned about GSK’s patent cliff exposure and the size of its pipeline. This is something that chief executive Emma Walmsley has made efforts to address. In the last quarter, the company’s RSV vaccine for older adults was approved by regulators in the US and EU and it completed the acquisition of Bellus Health, a Canadian biotech with a near-to-market treatment for chronic cough.

However, it is likely to take GSK a bit longer to build a comfortably-stocked pipeline. It has only been a year since it sold off its consumer healthcare business, now trading as Haleon (HLN), in an effort to focus more on vaccines and prescription medications. The company’s valuation, which is still under 10 times projected earnings for the full year, arguably reflects this uncertain outlook.

It also speaks to continuing market jitters about the potential impact of the ongoing Zantac litigation in the US. Manufacturers stopped selling the heartburn drug four years ago over concerns that it contained harmful levels of a probable carcinogen called NDMA. But a Florida judge threw out thousands of claims last December, and GSK settled out of court with another plaintiff in California last month.

The shares rebounded in both instances – although they’re still down 20 per cent over the past year. With the next bellwether trial scheduled for November, some investors might be hesitant. At its current bargain price, we’d argue GSK appears worth the risk. Buy.

Last IC View: Buy, 1,425p, 1 Feb 2023