GSK Earnings: Strong Growth and Steady Pipeline Advancements Support Undervalued Stock

GSK GSK reported strong first-quarter results, but we don’t expect any major changes to our 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 think the market is overly concerned about the Zantac litigation, which we expect will be settled for close to $1 billion.

In the quarter, total sales increased 10% operationally excluding the expected COVID-19 product sales decline. The growth was broad-based with solid traction from vaccines (up 15%), HIV (up 15%), and general respiratory (up 10%). Shingles vaccine Shingrix (up 11%) looks well positioned to post significant gains as more manufacturing capacity has been building. Sales of longer-acting HIV drugs Cabenuva and Apretude each grew over 100%, representing close to 10% of HIV drug sales. The strong efficacy and convenience of these drugs should support long-term gains, which is increasingly important as other HIV drugs (Tivicay/Triumeq) likely face generics in 2027. Respiratory drug Trelegy (up 28%) is poised for further gains based on leading efficacy in chronic obstructive pulmonary disease (COPD), and the complexity of the molecule likely means less competitive pressure following the 2027 U.S. patent loss.

On the pipeline side, GSK is making solid progress, reinforcing its wide moat. We expect U.S. approval for GSK’s respiratory syncytial virus vaccine in May, with peak annual sales potential over $2 billion. Also, later in the quarter, we expect solid data for the RSV vaccine testing durability over two years, enabling increased pricing power and a stronger position versus competing vaccines. Also, we expect approval for myelofibrosis drug momelotinib in June with a strong label for patients at higher risk for anemia, setting up close to a $1 billion annual sales opportunity.