GSK’s share price [GSK] is likely to be at the forefront of many equity investors’ minds right now, after the pharmaceutical giant announced its malaria vaccine is now set for mass production, while fresh rumours circulate around the company’s split into two separate companies next year.
The UK’s second-largest healthcare company is, however, capping its malaria vaccine profit potential to no more than 5% above cost, which means this particular medical breakthrough is unlikely to realise a direct profit and positively affect revenue. But there could yet be further positive news on the horizon, with the US Food and Drug Administration (FDA) set to approve an HIV prophylaxis in 2022, which may prove far more financially lucrative.
So what’s the outlook for GSK and how could these announcements affect the GSK share price?
What’s happening with the GSK share price?
GSK’s share price leapt 5.60% to 1,460.43p intraday on Tuesday last week, before closing the day at 1,405.00p, a rise of 1.59%, after Bloomberg revealed that GSK’s consumer healthcare division – which is being split into a separate entity next year – is garnering interest from potential buyers. GSK’s share price eventually closed out last week at 1,399.60p, a minimal gain of 0.44%.
Looking back over the longer term, the GSK share price hasn’t outperformed. Over the last year, the shares have fallen marginally, by 0.74%, with a slim year-to-date rise of 1.72%, as at Friday 15 October’s close. The stock did rally to a 52-week high of 1,528.80p on 18 August, but has since slipped back 8.45%, valuing the firm at £70.42bn.
GSK finally achieves Malaria vaccine breakthrough
It’s been a long road, stretching back to 1987 and with over $750m invested in its research and development, but GSK's malaria vaccine, Mosquirix, has now finally received approval from the World Health Organisation (WHO), who have recommended its widespread use for children. WHO director-general, Tedros Adhanom Ghebreyesus, described it as "a historic moment", saying, "the long-awaited malaria vaccine for children is a breakthrough for science, child health and malaria control", reports the Motley Fool.
The significant breakthrough, however, is unlikely to make much of an impact on GSK’s revenue or profit. The pharma giant has committed to supplying up to 15m doses per year at a maximum of 5% above cost, and intends to reinvest profits into further research on malaria and other tropical diseases.
Amount GSK has invested in its R&D
What’ s the outlook for GSK?
The FDA is also set to reveal approval of GSK’s cabotegravir drug as an HIV prophylaxis on 24 January 2022, which is likely to be much more financially lucrative and a “big winner in this market”, according to the Motley Fool’s Keith Speights. He also points out that the company offers a “juicy dividend yield of 5.7%”, which should keep GSK shareholders happy in the meantime.
According to the Motley Fool’s Cliff D’Arcy, GSK has “fallen behind the curve in developing effective vaccinations against the coronavirus”. However, in another promising development, he reports that the German biotech firm, CureVac, has abandoned working on an initial vaccine to partner with GSK on a promising new vaccine, which could offer “ten times more antibodies“ (than CureVac’s first vaccine), reports the FT.
Meanwhile, with GSK "firmly on track" to deliver on plans to turn its consumer health business into a separately listed company in mid-2022, Bloomberg reported the new division is attracting interest from private equity firms Advent International, CVC Capital Partners and KKR, and could also see potential bids from big pharma and consumer goods companies.
Investment bank Jefferies believes the spin-off offers a “significant opportunity to crystallise value”, reports Proactive investors, while D’Arcy suggests a potential bidding war for the new consumer healthcare arm could inject fresh impetus into the GSK share price.
What’s next for GSK’s share price?
Among brokers covering the stock, Jefferies has the highest price target at 1,925p, which indicates a potential upside of 37.54% on Friday’s close at 1,399.60p, and is unsurprisingly coupled with a ‘buy’ recommendation.
While not quite as optimistic, the consensus view among analysts covering the stock reinforces this positive outlook on GSK’s share price. While 14 analysts recommend a consensus hold rating, with five ‘buy’, seven ‘hold’ and two ‘sell’ ratings overall according to MarketBeat, the average price target at 1,571.15p still represents a 12.26% upside from Friday’s closing price.
While the groundbreaking malaria breakthrough is unlikely to reap financial rewards for the company, there appears to be much to look forward to in 2022 for GSK shareholders.