Company Reports

GSK reported first-quarter results largely in line with our expectations, and we are holding firm to our $54 fair value estimate. We continue to view GSK as undervalued with the market not fully appreciating the company’s solid product portfolio that is driving steady growth and securing a wide moat.

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company's innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.

GSK reported strong fourth-quarter earnings ahead of our projections, but we are holding firm to our fair value estimate, as we have already incorporated a steady growth outlook into our valuation. We continue to view GSK as significantly undervalued with the market not fully appreciating the firm's growth prospects and margin improvement while likely overly concerned about ongoing Zantac litigation.

GSK reported strong third-quarter results slightly ahead of our expectations, largely driven by excellent sales of RSV vaccine Arexvy. We are holding firm to GSK’s fair value estimate and continue to view the stock as undervalued with the market likely missing the firm’s growth potential, partially driven by new products like Arexvy. The new product launches and strong vaccine entrenchment also reinforce the firm’s wide moat.

GSK hosted an analyst presentation on its HIV segment (close to 20% of total sales) signaling increased focus on developing longer-duration therapies. While the updates don’t have an impact on our fair value estimate, the development of longer-duration treatments should help mitigate the 2028-29 patent losses on GSK’s key HIV drugs Tivicay, Triumeq, and Dovato (collectively representing close to 15% of total sales), which should reinforce the firm’s wide moat.

GSK reported better-than-expected second-quarter results and slightly raised 2023 guidance, but we don’t expect any major changes to our fair value estimate based on the minor outperformance. We continue to view the stock as undervalued, with the market not fully appreciating the growth potential of the firm’s key innovative products that also support GSK’s wide moat.

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company's innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.

GSK reported strong first-quarter results, but we don’t expect any major changes to its fair value estimate as the outperformance was largely driven by one-time events and inventory patterns that should reverse. We believe the market is underappreciating the steady core sales growth that was shown in the quarter, which we expect to continue for several years. We also feel the market is overly concerned by the Zantac litigation, which we expect will be settled for close to $1 billion.

GSK’s $2 billion acquisition of Bellus Health nets phase 3 cough treatment camlipixant at a reasonable price. We don’t expect any major changes to our fair value estimate for GSK based on the deal. Also, we don’t expect the acquisition to have an impact on the firm’s wide moat rating, but the added drug helps to expand GSK’s late-stage pipeline.

GSK reported fourth-quarter results and provided 2023 guidance that ran slightly above our expectations, but we don't expect any major changes to our GSK fair value estimate based on the update. We continue to view the stock as undervalued, with the market likely overly concerned about Zantac litigation and not appreciating GSK’s steady growth outlook, which also supports its wide moat.

Consistent with our expectations, the Multidistrict Litigation, or MDL, Zantac ruling dismissed cases claiming the drug caused cancer. While we don't expect any changes to our fair value estimates for GSK, Sanofi, and other drug firms that have sold the gastroenterology drug Zantac, the market's overreaction in late summer appears to have largely reversed course based on this ruling, and the shares have largely recuperated the over $30 billion in market capitalization lost when significant investor concern over Zantac litigation emerged in August. Even with the rebound, we continue to view the stocks as undervalued, with the market not fully appreciating the growth potential of the firms and their wide moats.

GSK reported better-than-expected third-quarter results largely driven by strong sales of COVID-19 treatment Xevudy. However, given the likely decline in Xevudy sales over the next year due to the pandemic receding and strong competing oral COVID-19 treatments, we don’t expect any major changes to our GSK fair value estimate based on the solid results.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company's innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.

Shares of GSK and Sanofi are under pressure due to increasing concerns regarding legal cases related to a potential cancer side effect from the over-the-counter heartburn medicine Zantac, according to several news sources. We view the pressure as overdone, as we do not expect major legal settlements regarding the medicine. We are not changing our fair value estimates for the companies as we have already factored in minor payouts related to drug liabilities for both companies. Also, we do not expect this ongoing litigation to have an impact on the moats of GSK or Sanofi, which are much more related to strong innovation with prescription drugs that should not be affected by the Zantac legal issues.

GSK reported strong second-quarter results ahead of our expectations, but we don’t expect any major changes to our fair value estimate based on the minor outperformance. We continue to view the stock as undervalued with the market not fully appreciating GSK’s growth potential and pipeline advancements that support the firm’s wide moat. Additionally, with GSK’s divestment of consumer healthcare products (Haleon) completed, GSK is now focused on branded prescription drugs and vaccines that look poised for faster growth over the next five years than the consumer product segment.

With the completion of GSK’s demerger of its consumer healthcare business, Haleon, along with the reduced share count, we are increasing our fair value estimate for GSK to GBX 2,230 per share (and $54 per ADR). The divestment of Haleon weighed on GSK's valuation by just over 10%, but this was more than offset on a per share basis due GSK reducing its share count by 20%. The demerger will allow the new GSK to focus purely on biopharmaceuticals and vaccines. We continue to believe the remaining GSK business should retain its strong competitive position stemming from intangible advantages related to its large patent-protected portfolio of drugs and vaccines, key to the firm’s wide moat. We also continue to believe GSK looks undervalued, with the market not fully appreciating the firm's growth potential.

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company's innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion.

GSK’s demerger of its consumer healthcare business, Haleon, will create a new independent firm, which we believe would have an implied market capitalization of just over $40 billion (based on our comparable analysis). We think Haleon will have solid competitive positioning, as evidenced by its well-recognized portfolio, including a leading position in five global categories. We believe the demerger stands to create value for current GSK shareholders, as the remaining GSK company (after the Haleon divestment) should hold faster growth potential, and Haleon should gain a higher valuation multiple (as consumer product firms tend to trade at higher multiples than Big Pharma stocks). In our view, the demerger (slated to take place on July 18) will allow new GSK to focus purely on biopharmaceuticals and vaccines.

Glaxo’s over $2 billion acquisition of Affinivax yields an intriguing late-stage pneumococcal vaccine at a reasonable price, but we don’t expect any major changes to our fair value estimate based on the transaction. The deal shows the strength of Glaxo to bring in external innovation to reinforce its pipeline, a key element to Glaxo’s wide moat.