The FTSE 100 group plans to split into two companies in 2022, consumer health and biopharma, and the outlook for the latter is regarded as the benchmark for the success of the spinoff.
The City broker looked at the key product and franchise areas that will define GSK’s biopharma business over the next decade.
Strong organic growth in oncology and vaccines will deliver steady growth from this year until 2030, analysts said, which will allow margin leverage and an earnings profile that is not properly reflected in the valuation.
Two recent approvals, bone marrow cancer treatment Blenrep and HIV/AIDS drug cabotegravir, have blockbuster potential depending upon Blenrep’s ability to move to earlier lines and cabotegravir’s potential in HIV prevention.
Alongside the other four lead assets – anaemia treatment daprodustat, RSV vaccine, antibody otilimab and antibiotics gepotidacin – they are estimated to generate peak sales of US$7.4bn (GBP5.3bn).
In Liberum’s bear case that drops to US$1.8bn (GBP1.2bn), but in the bull case it exceeds US$12bn (GBP8.6bn).
Comparing the sales profile to EU peers, biopharma is facing a “challenging” immediate outlook due to strong currency headwind in 2021 and the absorption of headwinds in the established pharma business.
Beyond 2022 it “dramatically” improves as the pharma giant is expected to face very few headwinds while some competitors will have notable expiries, such as blood thinner Xarelto at Bayer.
GSK will have a GBP3bn hole to fill after the loss of exclusivity of HIV medication dolutegravir in 2028, but Liberum reckons the cabotegravir family of products can “significantly” offset it, as the ViiV business is expected to reach GBP5bn sales by the end of the decade.
Analysts said investors will be concerned but the expiry needs to be seen in context: it is geographically staggered, with the US to see erosion in 2028 and the EU in 2029, while its impact on the bottom line is less than for a typical blockbuster expiry.
Biopharma’s underlying (EBIT) margin of 28% is at the low end of the peer group, but it is expected to rise to 30% thanks to a greater number of blockbuster drugs and a higher percentage of sales from specialty areas.
“In summary, the GSK Biopharma business is well-positioned to deliver steady sales growth from 2021-2027 at least, and versus its EU peers, GSK’s growth profile is respectable and under-appreciated,” the broker commented.
Liberum has a ‘buy’ stance on the stock with a 1,700p target price.
Shares were trading at 1,347.4p on Monday morning, 19% below last year’s levels.