UK drugmaker GSK is struggling to convince the market that it can deliver on its plans to refill its pipeline ahead of a key patent expiry, as US hedge fund Citadel took the largest short position against the company in more than a decade.
Shareholders and analysts question GSK’s plan to deliver $40bn in annual revenue by 2031, which is based on replacing income from its majority-owned blockbuster HIV drug dolutegravir towards the end of the decade.
Ken Griffin’s hedge fund has shorted the company at a time when its shares are trading below their price of a decade ago, having been knocked back by US lawsuits over the alleged cancer risks of discontinued heartburn drug Zantac. Even after GSK reached a $2.2bn settlement in October, resolving the majority of cases, its shares still did not bounce back.
GSK has historically been strong in vaccines and respiratory medicines. But Arexvy, its vaccine against respiratory syncytial virus, suffered a setback when a US immunisation advisory group delivered a more limited recommendation than its previous advice. Now, there is uncertainty over the whole market because of the appointment of vaccine sceptic Robert F Kennedy Jr as US health secretary.
A top-30 shareholder said GSK had demonstrated some success in its pipeline and had made “rational decisions” but pointed to the “volatility in vaccines”.
Jo Walton, a UBS analyst, noted the large gap between the company’s forecast of £40bn of revenues in 2031, and the analyst consensus of about £32bn. “The £8bn . . . difference is big, and the key debate for investors is how do [GSK management] close that gap?” she said.
Last year, GSK generated £5.6bn from HIV drugs containing dolutegravir, however its patents expire in the next few years. “The issue with GSK is that it is getting closer and closer to the dolutegravir patent cliff in 2028 and 2029 and people just don’t see them as having enough in the pipeline to go through that,” said Emily Field, a Barclays analyst.
GSK noted that it had recently announced “very good results”. It added: “What we hear from shareholders is that they want to us to continue with this and deliver the very promising opportunities we have in the pipeline, particularly in speciality medicines and in areas like oncology.”
The drugmaker does not have one potential blockbuster or disease area, focusing instead on a range of drugs. It had 13 positive late-stage trials last year — a record for the company — and is planning 14 drug launches between now and 2031. It expects each of these will generate at least £2bn in revenue in their bestselling year.
Tony Wood, GSK’s chief scientific officer, acknowledged it might be easier to communicate the company’s potential if he could point to “one big drug”, but said: “It is in some ways an advantage that I’m not reliant on a single asset should something go wrong with that asset’s performance.”
Another big challenge for GSK is to persuade investors it can rebuild its oncology portfolio, after leaving the market in 2015. It subsequently went back in with its acquisition of ovarian cancer specialist Tesaro in 2018.
David Redfern, president of corporate development, said investors were confident about the company’s ability to commercialise products, but saw its research and development as more of a “work in progress”.
“I think people want to see the execution, particularly a lot of that comes from oncology growth. We’ve obviously had a complicated history in oncology, but now we have real momentum,” he said.
The drugmaker hopes Blenrep — a treatment for relapsing or treatment-resistant bone marrow cancer that was withdrawn from the US market in 2022 after a trial did not meet FDA requirements — will be reapproved this year. It now has strong data showing it boosts overall three-year survival rates.
But analysts have raised concerns that Blenrep has side effects that doctors will have to manage, and about whether sales of endometrial cancer drug Jemperli will be affected when competitor, Merck’s Keytruda, goes off patent in 2028.
GSK said Blenrep’s side effects, which do not affect the majority of patients, were manageable and reversible, and that Jemperli was a more targeted treatment than Keytruda.
Emma Walmsley, GSK’s chief executive, has already faced an activist investor, when Elliott Management took a stake and questioned her leadership in 2021.
She has now run the company for eight years but she does not have a scientific background and investors are still divided on whether she is the right leader.
One long-standing shareholder noted that she did spin off the consumer health business, as Haleon, but was not seen as a pharma expert. “She has a consumer background . . . So when she talks about drugs people know she doesn’t know what she’s talking about,” the investor said.
A person close to the company rejected the accusation, saying: “Anyone who has seen her in action knows how focused and on top of the detail she is.” Redfern praised her leadership. “Emma has driven an incredible uptick in performance, and driven a very strong performance culture,” he said.
Other investors think she has a “tough gig”. One top-20 shareholder said it would not be easy for anyone else to “turn around GSK overnight”. “The company is a behemoth and tough to turn around.”
Field meanwhile thinks GSK could be a “dangerous short” because of its low valuation. “With sentiment this negative, all it takes is one narrative changing thing to snap back really hard,” she said.
Additional reporting by Costas Mourselas in London
