GSK Earnings: Strong Results and RSV Vaccine Launch Support Long-Term Outlook

GSK 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.

In the quarter, total sales increased 11% operationally (excluding COVID-19 product sales), a rate that should likely continue over the next two years. Key to continued growth is shingles vaccine Shingrix (up 20%), representing close to 12% of total sales. While Shingrix growth in the U.S. will likely slow as the penetration rate is close to one third, we expect continued growth in the U.S. to approach the flu and pneumococcal vaccine penetration rates (over 60% for ages 65 years and older, according to the Centers for Disease Control and Prevention). The decline in U.S. sales of Shingrix (down 10%) in the quarter was partly due to stocking patterns. Also, in most markets outside the U.S., the penetration rate is low single digits, opening up major avenues of growth.

The HIV franchise (up 12%) and respiratory drug Trelegy (up 30%) look poised for continued gains through 2028 when patent pressures emerge. However, the long-acting HIV drugs should mitigate some of the HIV generic pressures. Also, the complexity of creating a generic respiratory drug could slow generic Trelegy efforts as it took almost a decade for generic Advair (respiratory drug) to emerge after a key patent loss.

Offsetting the eventual generic pressures, GSK is making progress with the pipeline. In particular, RSV vaccine Arexvy looks poised to post peak annual sales of close to GBP 3 billion based on strong efficacy, which should support gaining close to half of the market versus Pfizer’s Abrysvo (approved in May) and Moderna’s mRNA-1345 (approval likely in 2024). We expect GSK to meet its 2031 goal of sales over GBP 33 billion.