Shares in GlaxoSmithKline plc (LON:GSK) nudged higher on Wednesday morning after Barclays turned bullish and double upgraded the UK drugmaker.
Analysts at the bank’s well-respected London arm previously had the stock as ‘equal weight’ – essentially a ‘hold’ recommendation.
Concerns now priced in
That was due to caution over declining sales of asthma treatment Advair, optimistic forecasts for GSK’s ViiV HIV division, a weak pipeline and, latterly, dividend uncertainty.
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Shares have tumbled by more than 20% since the summer though, taking the stock to two-and-a-half year lows. As a result of that de-rating, analyst Emmanuel Papadakis reckons those concerns are now “fully priced in”.
Papadakis previously cited competition from Gilead’s bictegravir for his cautious view of GSK’s ViiV division last year.
Progress in HIV
Since his last note though, he reckons the two datasets – one from Gilead and one from GSK – that have been released put the FTSE 100 company marginally ahead.
“We view the H2H data as marginally positive for GSK relative to our prior base-case view, with statistical non-inferiority on efficacy for bictegravir but a clear numerical benefit in favour of dolutegravir.”
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Papadakis also notes that consensus forecasts for the HIV franchise have been negatively revised by 18% or so in recent months meaning that, for the first time, consensus is now modestly behind Barclays’ own estimates.
New shingles vaccine to be “major growth driver”
Away from HIV, the analyst really likes GSK’s new shingles vaccines, Shingrix, which he expects to emerge as a “major growth driver” in coming years.
We expect GSK’s new shingles vaccine Shingrix (FDA approved October 2017) to become the de facto standard of care given clearly superior efficacy and durability vs. Merck’s Zostavax,” wrote Papadakis.
“Shingrix has shown circa 90% efficacy across age groups, utility for immunocompromised patients and only slight waning of its protective effect after four years; indeed its only real drawback is the requirement for two intramuscular injections.”
He expects Shingrix to account for around a quarter of the vaccine business’ EBITDA in the long run and is forecasting sales of £670mln in 2020.
Acquisitions in focus
Chief executive Emma Walmsley confirmed GSK’s interest in snapping up Pfizer’s consumer products business – which includes Advil and Centrum vitamins – and Barclays think any deal could boost earnings per share by 5-11% in the midterm.
Elsewhere, Novartis has the option to sell its 36.5% stake in GSK Consumer Healthcare – the division that houses brands such as Beechams and Panadol –in March.
Papadakis concedes it is “unlikely” that both events will happen, but if they do, he would expect to see EPS accretion of more than 15%.
“Our view is that it is highly unlikely that both events will occur in 2018 (if any), more so if GSK pursues a deal with Pfizer for its consumer health business: both because we believe it is unlikely GSK would proceed in the first place unless Novartis agrees to defer, and because it would be in Novartis’ interest to retain ownership and benefit from further synergy delivery.”
Papadakis has moved to an ‘overweight’ rating (from ‘equal weight’), while he also hiked his price target by 14% to £16.50 (from £14.50).
Shares in GSK were up 0.9% to £13.66 in mid-morning trade on Wednesday.