GlaxoSmithKline PLC (LON:GSK) shares edged lower on Friday after UBS stripped the drugs giant of its ‘buy’ recommendation amid concerns over its HIV division.
ViiV has been a major growth driver for GSK in recent years and has helped to offset declining sales of its Advair inhalers and a weak pipeline.
READ: GSK to take £790mln hit from launch of Advair copycat
Last year it made up more than a third of the FTSE 100 firm’s annual revenue and accounted for 18% of earnings, despite Gilead launching Biktarvy – a rival one-pill, once-a-day HIV treatment.
“[But] there is now investor concern over ViiV performance in '19 – a time when there are also questions over what the pharma division can deliver and when,” read a note to clients.
Analysts said that patients switching to other treatments is “a real problem”, while they also concluded that forecasts for 2019 are “still slightly too high”.
“ViiV is stepping up in terms of commercial activity but we think growth for Triumeq (one of tis HIV drugs) in particular will be more subdued than consensus currently accounts for.”
Downgrade to ‘neutral’, target price trimmed
They now expect to see “fairly flat” revenues at ViiV this year, while the “knock-on impacts” of that lead them to their new price target of 1,650p, down from its previous call of 1,700p.
With shares already at 1,530p, they have decided there isn’t enough value in them to hold onto their ‘buy’ recommendation and have lowered the stock to ‘neutral’.
UBS concluded: “We remain optimistic about the turnaround at GSK in the long-term but think the shares will struggle to perform in the near-term if there is nervousness around ViiV.”
Juluca still needs time
Much of that long-term optimism centres around Juluca – one pill which contains two drugs as opposed to the usual three.
Longer-term, the abacus rattlers believe this can be a “significant off-set” to growing competition fears.
Before Juluca is able to start racking up some big sales numbers, GSK needs to convince doctors who are wary of therapy deintensification.
“Surveys conducted by GSK suggest that acceptance is increasing but it is clear there is a substantial confidence gap between GSK's position and the market's. Sales ramp up is likely to take time and so can't provide a meaningful fix in '19.”
GSK shares were down 0.5% to 1,530.4p on Friday morning.