GSK PLC (LSE:GSK, NYSE:GSK) shares have been slapped with a 'sell' rating by UBS, which downgraded its recommendation as it sees two big long-term risks ahead.
Admittedly, the risks are all the way out in 2027, when the Swiss bank worries that blockbuster shingles vaccine Shingrix will "exhaust its catch-up patient pool in the US" and HIV product dolutegravir faces patent expiry.
This could erode around 20% of revenues, analysts predict.
The current valuation of around nine times 2023 earnings implies at least £2bn higher Shingrix revenues than UBS sees as "feasible" or else tat the HIV franchise remains sustainable but "both are uncertain".
On the plus side for GSK, it has time to continue with its R&D re-set and also has options, including potentially allocating more capital (£20-30bn was suggested) to "smooth over" the 2027 bottleneck, but this could lead to earnings dilution.
"And if GSK takes a wait and see approach to the HIV conversion strategy and waiting for improved R&D productivity, that could imply meaningful earnings risk longer term," said analyst Michael Leuchten in a note to clients on Friday.
"We are concerned that these scenarios could leave the stock on a much higher effective multiple than is the case at face value."
UBS's updated near-term estimates reflect a better gross margin excluding Covid solutions, but 2027-and-onward earnings per share estimates are cut roughly 30%.
This results in the share price target being cut to 1,300p from 1,820p.