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Pop goes the BOOOOOMMMM

After all the excitement and all the chatter and the RNS and the conspiracy theories we find ourselves with the SP a little lower than it started the week. Patience is called for. Perhaps when we have the next trading update with an improved sales performance an uptick in the SP will be sustained.

GSK has received a buy recommendation and a healthy price target upgrade from analysts at Deutsche Bank, which has the UK pharma as a top pick in the sector.

Deutsche Bank’s target price for GSK rises to 1850p from 1700p

What was interesting in the RNS from my perspective was the comment from Jeff Needham Chairman of FUM “…as we continue to monetise our key asset, Eroxon…” The company is in play and now it’s a question of when and how much FUM will fetch.

Jeffries suggests GSK is “deeply discounted” as it lifted its recommendation to buy from hold. They estimate that GSK will pay between $3bn-$4bn to settle the Zantac litigation within the coming months. The company’s growth profile is under appreciated and the current share price offers attractive risk reward. Jeffries raises its target price on GSK by 23% to 1900 pence from 1550 pence.

RBC capital markets initiates coverage on 3i with outperform rating and £25.50 price target.

Noting 3i has a healthy track record on total shareholder return, with a compound annual growth rate of 18% over the last ten years. Stating they expect growth in the discount segment plus a strong and proven store expansion strategy to drive multi year growth for Action.

They see good value in 3i at current levels given its growth and strong balance sheet, differentiated long term strategy and defensive asset allocation.

The share price performance of 3i over the last 14 months has been simply stunning. Three to four years ago I started seriously buying significant numbers of shares in 3i due to their excellent CEO, the relentless focus on shareholder returns and the delivery of outstanding sales and profit performance quarter after quarter. Two years ago I sold 90% of my SSE holding, 100% of my National Grid holding and 100% of Vodafone and invested all the proceeds in 3i. What we are now witnessing is the compound effect of the groundwork being done on Action over a decade. The leadership have made 110 times their original investment in Action. They believe they can get 200 times the value of their original investment over the next 2 to 5 years. This would result in the share price rising to just under £30 per share. If the current CEO stays the course I for one won’t be cashing in anytime soon.

Remember the stock market is fickle. What we do know is there have been Getting ahead of Infectious Disease, HIV and Respiratory Disease with GSK management presentations with Oncology to come next year. Peak Year Sales for late stage assets have been stated as follows :

RSV. £3bn

Men ABCWY. £2bn

Gepotidacin, tebi & Brexafemme. £2bn

HBVASO. £2bn

Pneumococcal £4bn

Cabenuva/Prep. £2bn

Depemokimab. £3bn

Camlipixant. £2.5bn

Nucala COPD. £1bn

Assuming no change from two years ago for Jemperli and half the sales for Zejula and nothing for Blenrep (v conservative given Dream 7 last week)

Jemperli £2bn

Zejula. £1bn

Assume Ojjaara £1.5bn

Total PYS of £21-26bn across a number of assets. We also know the SP will go nowhere until Zantac litigation is resolved. If management can resolve Zantac next year and start to deliver on the pipeline the future is brighter than the current SP would suggest.

Article in Barrons this morning saying uptake for RSV vaccines is strong. Prescription data reviewed by Jeffries suggests Pfizer have a 35% market share and GSK 65% share. Three weeks ago Bloomberg estimated RSV sales would be $2bn in 2023, giving GSK sales this year of £1074m vs £219m included in consensus sales. An upside of £855m. It will be interesting to see what Luke Miels says about the potential for Arexvy at the Q3 results next week.

Interesting article from Bloomberg yesterday mentioning that GSK and Pfizer RSV vaccines will bring in $2 billion in sales this year. Assuming Arexvy takes 55% share that is a c£700 million sales upside to the £219 million currently pencilled in by the City.

Ojjaara (momelotinib) approved in the US as the first and only treatment indicated for myelofibrosis patients with anaemia. Luke Miels said with this broader label Ojjaara will be able to generate peak sales comfortably above blockbuster status.

Patients who are anemic at diagnosis make up about half of the first line population according to Miels. In the second line around 60% to 70% of patients are anemic.

Miels said the broad approval is a recognition there’s a very elegant mechanism of action at play.

Specifically JAK inhibition gives Ojjaara the ability to reduce the size of the spleen and address other symptoms for myelofibrosis patients. But an off target mechanism against activism A receptor 1 could explain the drug’s additional benefits in controlling anemia. That’s really important in the context of myelofibrosis because anemia status and transfusion requirements frequency are directly correlated with life expectancy” Miels noted.

Terrific news for patients and GLA

Only three months ago shareholders were capitulating with the SP at £10.62. Well done to all who held on to their holdings. This is a gem and owners are and will continue to be rewarded. The change in sentiment has been stunning

Up 40 % in a month FUM was less than 40p a month ago and momentum is accelerating with half the share price rise coming this week.

There is nothing like momentum when shareholders BEGIN to believe.

GSK defeated thousands of US lawsuits claiming that the heartburn drug Zantac caused cancer, as a judge found the claims were not backed by sound science. The ruling by US district judge Robin Rosenberg knocks out 50,000 claims in federal court. A spokesperson for GSK said the company welcomed the decision.

SSE Renewables profits in the six months to September fell from £25.4m to £22.5m a reduction of 11.4%, with “wind volume lower than expected…” pulled out again. Renewables made up 3% of the Group’s Operating Profit of £716m. It would be interesting for shareholders to have visibility of SSE’s Renewables Return On Invested Capital (ROIC). It would be great for the CEO to be honest with investors on the investment returns on each part of the business.

Despite beating consensus earnings forecasts by 17% yesterday SP was unmoved yesterday. No doubt GSK in unloved by the market at the moment. Until there is some clarity regarding Zantac litigation this situation will not change.

Liberum raises price target to £1.21 from £1.09 and keeps buy rating. Let hope we start to see excellent trial results translate into a higher SP.

As GSK’s SP continues to drop (now at £58bn) even with a takeover premium of of 30-40% there are a number of US Pharma co’s who could be afford the £75-80bn price tag. However GSK’s poison pill Zantac strategy may deter any would be suitors? There would likely be a host of weary long term investors who would jump at a good cash bid offer.

Perhaps part of the reason is that the US govt has passed legislation allowing Medicare to negotiate prices with drug manufacturers. As the US market is the most lucrative the stock market is worried it will ultimately adversely impacted companies such as GSK in future in its most important market.

We’ve seen a 25% increase in the SP in a week. It would appear somebody is buying…