Are GSK shares cheap after slump on US vaccine decision?

GSK (LSE:GSK) shares are back near where they started the year after an adverse ruling in the United States dealt a blow to the blockbuster potential of one of its key vaccines.

The FTSE 100 stock fell 83p to 1,516p, leaving it 17% below this year’s mid-May peak of 1,823p, after the setback for GSK’s Arexvy jab for respiratory syncytial virus (RSV).

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Launched in the third quarter of 2023, Arexvy had protected more than seven million of the 83 million at risk US adults aged 60 and older by the spring. It generated £1.2 billion in sales last year, the vast majority in the US where Arexvy is available in major retail pharmacies.

GSK reported Arexvy revenues of £182 million in the first three months of this year, with UBS forecasting a global peak of at least $4 billion by 2031.

However, the immunisation advisory committee of the Centers for Disease Control and Prevention last night postponed a vote on the use of RSV vaccines for people aged 50-59 pending more safety data.

It also recommended limiting the vaccines to those at-risk in the 60-74 age category, while approving a single dose for older adults.

US bank Jefferies estimates the decisions may cut the addressable US market to about 55 million, from 80 million in the 60-plus age range and 13 million among at-risk 50–59-year-olds.

Pfizer Inc (NYSE:PFE) and Moderna Inc (NASDAQ:MRNA) have also developed RSV vaccines, but GSK is the company most affected because it has been seeking endorsement for the 50-59 age range.

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UBS, whose forecasts for Arexvy assumed some 50-59 use and a three-year re-vaccination schedule, estimates the value of the franchise at 276p a share, or 9.5% of the group. It calculates 10% of group earnings per share in 2024, rising to 14% in 2028.

The bank said: “We look to GSK for more insights into the split of sales by age, and the timing for real world evidence on revaccination efficacy.”

Despite the negative impact of the recommendations, UBS has maintained its Buy rating.

It highlights the potential of shingles vaccine Shingrix and HIV treatment Cabenuva in 2028, as well as the likely improvement in gross margin from a shift in mix towards more specialty drugs versus lower priced primary care products.

The recent share price weakness, which also reflects the impact of ongoing US litigation on heartburn drug Zantac, has come amid a strong start to the financial year.

First-quarter revenues of £7.36 billion topped City hopes by 4%  for a 16% beat on the earnings per share result of 43.1p. As we report elsewhere today, this will mean shareholders receive 15p a share on 11 July compared with the City consensus of 14.7p and last year’s 14p.

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Jefferies, which has a price target of 2,100p, is well above the City consensus forecasts on 2026 earnings as it believes long-acting HIV injectables, vaccines and new pipeline launches mean profits are likely to face a "blip" not "cliff" on 2028 HIV patent expiries.

The bank said: “We argue given this underappreciated growth profile, the shares offer attractive risk-reward ahead of potential Zantac class action settlement.”

The positive stance is shared by many retail investors, with GSK the most bought stock on our platform in the wake of this morning’s share price slide.

Graeme Evans owns GSK shares