EUR 4351.14 For Business Accounts Only

GSK - Where is the Upside?

As the 26th July strategy day approaches we have
conducted an analysis of what GSK could announce to
drive upside and show that there are limited levers to
be pulled. More importantly we’ve conducted an HIV
deep-dive with a detailed bottom-up model. We show
that ViiV growth is set to slow materially, limiting
group margin progression and making GSK more
reliant on Vaccines & Consumer for growth. The 2
main sources of upside are 1) NOVN Put option (+6%
to 2018 EPS), 2) Potential R&D value realisation from
asset sales. We prefer AZN & NOVN.

ViiV Boost to Slow – ViiV has been a major boost to the GSK
group in recent years and has masked the weakness in the
Pharma business. We show that a combination of a slowing
market, lower share gains for ViiV and worsening price will
lead to just 4% CAGR sales growth 2017-22 for ViiV.

ViiV Market Shares to Peak in 2019 – We show that Gilead
can now stem its market share losses with B/F/TAF and GSK’s
duals are likely to cannibalise Tivicay & Triumeq. As a result,
we expect the dolutegravir franchise to peak in 2020.

Strategy Day Unlikely to Excite – Given the lack of levers
that CEO Walmsley can pull, we believe that the strategy day
will fail to drive the shares materially higher. We show that
Pharma SG&A spend is likely too high and could fall
materially to help fund the likely growth in R&D.

Limited Near-term Upside Drivers – With Pharma growth
likely to slow due to Advair generics and a slowing ViiV
business taking its toll, GSK must look elsewhere for upside.
We believe that the potential for value crystallisation from
R&D exists and that the Novartis put option would be 6% EPS
accretive in 2018.