GSK Earnings: Solid Growth Led by New RSV Vaccine Arexvy

GSK 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.

Arexvy sales of GBP 709 million in the quarter show an excellent start as the vaccine’s first full quarter on the market. The strong launch gives us confidence in the vaccine’s peak annual sales of close to GBP 3 billion, in line with management guidance. We believe the vaccine’s leading efficacy will likely drive leading market share against competitive vaccines from Pfizer and Moderna. Also, recent positive Arexvy data in patients aged 50-59 should expand the potential beyond patients aged 60 and older.

Adding to the Arexvy strength in the quarter, the majority of GSK’s larger products posted solid gains, leading to overall company sales growth of 16% (excluding COVID-19 products). While we expect this growth rate to slow, we continue to expect steady gains over the next five years driven by recent product launches. GSK’s largest product, Shingrix (shingles vaccine), gained 15% as international rollouts are progressing well, but we do expect U.S. sales to flatten, as market penetration has reached 33%. HIV drugs posted 15% growth, with recent launches of long-acting medicines offsetting competitive pressures to older drugs, a trend that should continue.

Looking ahead to 2024, there are some positives and negatives. Negatively, GSK will lose royalties on HPV vaccine Gardasil and likely pay a higher tax rate due to recent legislation. Positively, we expect accelerating sales from Arexvy, continued Shingrix sales growth, minimal patent losses, and new product launches (including recently approved myelofibrosis drug Ojjaaro).