As any Christmas cook will know, it is not nice when one’s hard work goes unappreciated. By this reckoning GSK’s chief executive Emma Walmsley will be feeling pretty frustrated this festive season. Despite all her labouring, the £58bn UK pharma group still trades at a stubborn one-third discount to the sector.
Walmsley, under pressure from activist hedge fund Elliott, appears to be working from the right recipe sheet. GSK has spun off its consumer arm, improved its balance sheet and increased investment in R&D. Earnings guidance has risen twice during 2022, helped by strong sales of shingles vaccine Shingrix. A greater focus on vaccines and HIV medication should achieve profit growth of one-tenth out to 2026.
But for the pharma crowd, this is just the trimmings. The meat is the company’s ability to develop new drugs. GSK can point to some success. It plans to launch a jab for respiratory disease RSV next year; assets in late-stage development have doubled. But investors still feel GSK’s turkey is underdone.
It is late to the party in growth areas of oncology and immunotherapy — where rival AstraZeneca delivers hit after hit. Recent trials to treat rheumatoid arthritis and blood cancer have been disappointing. GSK might be better off buying platforms rather than trying to build from a subscale base. Chef Walmsley might also ponder the merits of focusing on vaccines. They are a valuable market niche after all, where patents do not expire, and new entrants struggle.
Regardless, a greater focus on innovation — organic and acquired — should top Walmsley’s list of New Year’s resolutions. Confidence in the pharma group’s pipeline would narrow the valuation gap.
GSK got an early Christmas present in December when a US judge threw out a case related to Zantac, a heartburn medication allegedly linked to cancer. From now on GSK should be judged on its ability to deliver new drugs — and improve the lives of patients.
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