Following the spin-off of its consumer healthcare partnership, GSK PLC (LSE:GSK, NYSE:GSK) will be the pure-play drug company many investors — including some pushy activist funds — have been pushing for years.
With the demerger and a solid performance in recent quarters, chief executive Emma Walmsley seems to have silenced most of her critics.
In its new form, sans Haleon PLC (LSE:HLN), the FTSE 100 group will be a “fully focused biopharma company with a new purpose; to unite science, technology and talent to get ahead of disease”.
‘New GSK’ will be focused on four therapeutic areas: infectious diseases, HIV, oncology and immunology, including respiratory diseases.
Walmsley and the management team have pledged to prioritise innovation in vaccines and speciality medicines, maximising opportunities to prevent and treat diseases.
The focus of the research & development pipeline is on the science of the immune system, human genetics and advanced technologies, as well as its strong capabilities in vaccine and medicines development.
Growth prospects
‘High level goals’ include 5% compound annual sales growth and 10% in adjusted operating profits out to 2026, with a progressive dividend policy.
GSK is on track to turn over £26bn this year, according to forecasts from Barclays, with underlying earnings of £6.84bn and earnings per share of 102.14p.
Analysts at Jefferies said four potential second-half events to watch for GSK are:
- Phase III data for older adult RSV vaccine in October, plus results from key competitor Pfizer;
- a potential sales uptick for long-acting injectable HIV drugs Cabenuva and Apretude as the market normalises post-pandemic;
- a readout from Phase III otilimab trials in rheumatoid arthritis for which consensus expectations are low;
- and a possible FDA Advisory Committee decision on daprodustat for anaemia before the 1 February PDUFA decision date.
Also worth noting, said UBS, was the GSK’s budget for M&A will go up, with analysts seeing potential firepower of around £12bn.
Valuation versus pharma peer group
“With mid-single-digit medium-term sales growth, New GSK screens better within its peer group than in recent years, but we think to re-rate substantially investors want to see the pipeline ex-vaccines and ex-HIV offer more,” UBS said of the shares.
“We expect deals with the potential to be taken positively are those that could help GSK establish an area(s) of strength away from its legacy respiratory business. Oncology is proving tough and we do not rule out the idea that such a pillar could end up being something else.”
New GSK will be worth around 1500p, according to JP Morgan, with GSK’s Haleon stake worth a further £4, given a combined value of £19.
Analysts at the investment bank see Haleon trading "at parity" with fellow Footsie consumer goods group Reckitt Benckiser Group PLC, on a multiple of 13.5 times 2023 earnings on an EV/EBITDA basis, which "equates to an equity valuation of £30bn".
GSK’s 68% share would therefore be worth £4 per share, £3.20 of which will be demerged to existing GSK shareholders, 80p held back by GSK, and monetised over the following 12 months.
As for GSK, JPMorgan sees it trading at 13.5 times 2023 core earnings per share, a 20% discount to the EU large cap pharma sector, but a 10% and 15% premium to continental rivals Sanofi and Novartis respectively.
The premium is "justified" by stronger medium-term EPS growth, the analysts said, with New GSK expected to grow 7.5% between 2023 and 2026, ahead of Sanofi at 6.5% and Novartis at 2.5%.