It’s hard to deny the dark past that has shrouded GSK PLC (GSK) for much of the new millennium. For years, this pharmaceutical giant was akin to a money-devouring black hole, courtesy of questionable M&A decisions and a focus on financial machinations over research and development. The global pandemic, while a turning point for many, failed to jolt GSK into action, leaving it out of the lucrative COVID vaccine race.
At the close of the last century, GSK stock stood at $56.88 per share. Fast forward to today, and it hovers around $42 per share, albeit with the bonus of one share of its over-the-counter meds spinoff, Haleon PLC (HLN), for each GSK share. However, as 2024 unfolds, a glimmer of hope is finally emerging on the horizon for shareholders. GSK is once again a viable investment option.
CEO Emma Walmsley’s upward revision of sales growth, adjusted profit, and profit margins following the successful roll-out of its shingles and RSV vaccines is indicative of this progress. The company now forecasts 2024 revenue growth of 5% to 7% and adjusted operating profit growth of 7% to 10%.
GSK: A Vaccine Resurgence
Investor unease over GSK’s drug pipeline seemed justified, particularly in the face of impending patent expiration for dolutegravir, a crucial component of its HIV portfolio. However, this apprehension is starting to dissipate, thanks to the robust performance of GSK’s new RSV vaccine, Arexvy, showcased in its recent earnings report.
On January 31, GSK reported higher-than-expected sales figures for Arexvy, with the vaccine raking in $1.5 billion despite being launched only in the second half of 2023. Overall, the company’s vaccine business witnessed a 24% growth in 2023 compared to the previous year. This surge can be attributed to the impressive performance of Arexvy and the continued adoption of GSK’s shingles vaccine Shingrix, which saw a 17% sales increase.
It’s worth noting that May of last year marked the FDA approval of Arexvy for use in adults aged 60 or above, making it the first preventive vaccine for RSV. GSK claims a two-thirds share of the U.S. market, which accounts for nearly all Arexvy sales. The vaccine is widely available in major retail pharmacies, with approximately 6 million out of the 83 million U.S. adults aged 60 or older already vaccinated, as per GSK.
GSK’s chief commercial officer, Luke Miels, expressed confidence in the vaccine’s potential, stating, “We remain very confident this vaccine can achieve more than £3 billion ($3.78 billion) in peak year sales over time.”
GSK’s Promising Trajectory
A significant untapped market opportunity awaits with the FDA soon to consider recommending the vaccine for use in 50- to 59-year-olds, and with rollouts planned in Europe and Japan. This, among the 71 vaccines and specialty medicines in GSK’s clinical development pipeline, with 18 in the final trial stage, should assuage concerns about its pipeline.
Underestimating the multifaceted transformation that GSK has been undergoing is a blunder by Wall Street. The company’s strategic demerger of its consumer health business, Haleon, has split its strong vaccine business, marked by the soaring success of the Shingrix and Arexvy vaccines, along with its formidable positions in the HIV and respiratory sectors.
It’s important to recognize the extraordinary potential within the vaccine business. Once entrenched in a specific disease sector, market share becomes immensely challenging to dislodge. Unlike most drugs, vaccines do not face the same patent expiry challenges.
While GSK endures lingering legal concerns linked to the Zantac lawsuits due to the drug’s alleged carcinogenic nature, recent trial dismissals due to weak evidence are easing this burden for the company.
Considering the array of positives and negatives, GSK’s well-positioned nature for the long term, modest Wall Street rating, robust cash flow, and relative insulation from economic fluctuations make it a compelling buy option at any price below $45.
On the date of publication, Tony Daltorio did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
