It’s been a tough few years for UK pharmaceutical giant GSK (GSK). Arguably the time is ripe for health care stocks. They enjoy decent pricing power, demand is relatively uncorrelated to a troubled global economy and margins are typically strong.

Added to this, the Covid-19 pandemic offered a reminder of just how crucial the sector’s products and services are. However, while AstraZeneca (AZN) shares have doubled in the last five years and recently traded at record highs, GSK is pretty much flat over the same period.

This is reflected in their respective stock market valuations, AstraZeneca trading on 16.7 times 2022 earnings while GSK is on a price to earnings ratio of just 10.8 times. Can GSK do anything to change this, starting with its imminent third quarter update on 2 November?

Several factors have held the share price back. Despite being much more experienced in the development of vaccines, GSK was left behind by its UK peer AstraZeneca which teamed up with Oxford University to develop a Covid jab which, while not without its issues, was vital in the battle against the disease.

The company has also struggled to generate returns commensurate with its research and development spend and this has undermined its case for keeping dividends flat to prioritise R&D and subsequently rebasing the payout after the spin-off of its consumer health arm which now trades as Haleon (HLN).

More recently risks from US litigation associated with claims its Zantac heartburn treatment might have links to cancer have hit the stock – with a key trial date coming in February 2023.

However, there are signs that GSK might finally be able to deliver meaningful growth – a new respiratory syncytial virus (RSV) vaccine candidate is seen as highly promising. With no vaccine in place for the prevention of RSV, the company has touted a similar potential to its flagship shingles vaccine Shingrix with sales of up to £3 billion.

Shingrix continues to perform well and so are the company’s roster of HIV drugs. Chief executive Emma Walmsley, in place since 2017, will have to deliver sooner rather than later though, or her position might come under greater scrutiny.

MARK GARDNER

It is with great sadness that we announce the death of Shares journalist Mark Gardner.

Mark started his career in the 1990s focusing on the tech, media and telecoms space. After working for several investment banks, he spent nine years at research group Gartner before joining Shares in 2021, where he became a highly respected member of the team.

Everyone at Shares and AJ Bell would like to extend their deepest condolences to Mark’s family.

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