Liberum downgraded GSK to a ‘hold’ rating from ‘buy’ but raised its target price to 1,700p from 1,630p, saying “nothing has changed except the valuation”.
Shares in GSK have risen 21% in the year to date, largely due to the unwinding of overhanging issues such as slowing demand and tough competition in the HIV business, worries about the dividend and uncertainty over whether it would offer to buy Pfizer’s consumer assets.
In a boost to GSK’s HIV business, its majority-owned ViiV Healthcare unit said in early August, its experimental two-drug injection of cabotegravir and rilpivirine proved as effective as standard daily pills for controlling the AIDS virus.
In other recent developments, GSK in February promised to hold its dividend firm next year and in March, it pulled out of the race to buy Pfizer’s consumer healthcare business.
R&D plan is sensible, says Liberum
Liberum thinks the company’s plan to shift its R&D focus towards immunotherapies and genetics is “sensible”.
“However, we are concerned by comments that the previous team could have underpowered some of the key proof of concept studies,” the broker said.
“Furthermore, the potential of the key assets profiled is unlikely [to] deliver enough productivity to drive the valuation or fully replace lost earnings from the mid-late 2020s without above industry average success rates.”
'Markedly less upside than before'
Liberum said GSK’s shares now price a recovery in R&D to breakeven productivity despite “only being in the foothills of a turnaround”.
The broker added following upgrades to consensus forecasts, it is now only 5% ahead on 2022 earnings per share estimates.
“We therefore see markedly less upside than before, while we also think the recent HIV scrip share trends could negatively impact near-term sentiment (we remain optimistic on actual outturn).”
The downgrade came as GSK announced that the European Commission had granted marketing authorisation for Nucala as an add-on treatment for severe refractory eosinophilic asthma in paediatric patients aged six up to 17 years.
Shares in GSK fell 0.8% to 1,586p in late morning trading.