GSK's Sluggish Shares Seen at Risk of New Activist Campaign

Yahoo

21-02-2025

(Bloomberg) -- GSK Plc is a long-term underperformer among Europe's Big Pharma stocks. And with key drug patents set to expire and vaccine sales falling, some market participants say it may draw in activist investors again.
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Shares in the British drugmaker have fallen about 19% since it spun off its consumer health business in 2022, a move that activists had supported. Analyst sentiment has been turning more negative, as patents for medicines including HIV treatment dolutegravir are set to expire in coming years. GSK said this month that it's making progress in late-stage development of several oncology drugs, though vaccine sales are falling.
'There needs to be material progress on the pipeline or successful M&A to help address the chronic long-term underperformance of the share price,' said Ketan Patel, fund manager at the family office Whitefriars. In the meantime, 'activist investors will be knocking on the front door.'
GSK previously came under pressure from activists Elliott Investment Management and Bluebell Capital Partners. While both broadly agreed with the company's plans to spin off its consumer-health unit, they questioned whether Chief Executive Officer Emma Walmsley was the right leader for GSK. Even so, she has remained at the helm.
During Walmsley's near eight-year tenure, GSK shares have delivered a total annualized return of about 3%, compared with more than 7% for peers, according to data compiled by Bloomberg. GSK has also trailed the UK's benchmark FTSE 100 Index during this time, while AstraZeneca Plc has gone on to become the UK's biggest company by market value.
'We believe the current situation at GSK is ripe for an activist to shake up the business given the chronic underperformance compared to chief rival AstraZeneca,' said Emmanuel Valavanis, senior vice president of equity sales at Forte Securities. That could take the form of M&A, a carve out of the vaccines business or a push for more shareholder returns, he said.
Dominic Rose, an analyst at Intron Health, also sees shareholder activism as a possibility given GSK's share-price underperformance. 'If activists were to step in, they might push for a sharper strategic focus — potentially advocating for a pure-play vaccines business,' he said. Rose also highlighted operational efficiencies, pipeline acceleration, or capital allocation adjustments as other potential angles.
According to David Redfern, president of corporate development at GSK, shareholders 'are very aligned' with what the drugmaker is doing. 'We're pretty focused around building a bigger specialty business, we're focused around our main product areas,' Redfern said in an interview. 'I think all of that is supported — they really just want to see ongoing execution.'
The looming patent expiries and concerns about vaccine sales have kept analysts fairly cautious on the stock. GSK's consensus analyst rating — a proxy for the ratio of buy, hold, and sell recommendations — is currently at 3.27, according to data compiled by Bloomberg. That's the lowest score in more than five years, and less than all other major European pharmaceutical companies.
Not all analysts are gloomy on GSK. Redburn Atlantic's Simon Baker increased his price target on the stock to 2,650 pence this week, the highest among those tracked by Bloomberg, after the company boosted its 2031 sales forecast to over £40 billion ($51 billion) earlier this month.
While that announcement and a buyback plan led to a rally in the stock, those gains have mostly faded since since. GSK shares fell as much as 3.1% to 1,402.5 pence on Friday morning.
GSK's new forecast is up from the more than £33 billion it had predicted in 2021. The firm is optimistic about generating sales from drugs it has in development, as well as the potential re-launch of its blood cancer drug Blenrep this year.
The shares have also been under pressure in recent years because of ongoing litigation over GSK's old reflux medication, Zantac. The company agreed last year to pay as much as $2.2 billion to resolve the vast majority of court cases.
All of this has left GSK trading relatively cheaply. The stock's multiple of about 8.4 times estimated earnings compares with AstraZeneca at about 16 times and is roughly half that of the Stoxx 600 Health Care Index.
GSK is 'cheap but challenges persist,' Sarita Kapila, an analyst at Morgan Stanley, wrote in a recent note. The valuation largely reflects longer-term growth challenges, as well as 'the lack of innovation momentum in 2025.'
Despite the pessimism, GSK continues to attract investors looking for steady capital returns. The drugmaker's 12-month dividend yield is the highest among peers, while the £2 billion buyback announced this month is the company's first stock repurchase program in more than a decade.
Another positive is specialty medicines, including cancer and HIV drugs, for which GSK forecasts a low double-digit percentage revenue increase this year. The company's earnings growth continues to look underappreciated, according to Shore Capital analyst Sean Conroy.
For Nick Kirrage, a fund manager at Schroders Plc, GSK has done 'really good work' in terms of restructuring its business. 'They now just have to deliver on the R&D,' he said. 'And I think if you wait five years, they will.'
--With assistance from Ashleigh Furlong.
(Adds Friday's share price performance.)
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