The GSK (LSE: GSK) share price has dropped nearly 12% from its 6 April trading high this year. Since the same point, the FTSE 100 has dropped just over 3%. And during this period, GSK’s closest peer — AstraZeneca – has made a modest gain. This could suggest that there is something amiss with GSK, but I think otherwise.
Overreaction to bad news?
It seems to me that the catalyst to GSK’s share price decline from April was news of possible strikes. These began in May across all six of its main UK sites. The outlook on further industrial action is unclear, and uncertainty is one thing that investors really do not like.
Not helping it either was the approval of a new respiratory syncytial virus (RSV) vaccine for its US rival, Pfizer. The US Food and Drug Administration’s approval came less than a month after it approved a similar vaccine from the UK firm.
Big new product pipeline
This said, there have been positive developments for it as well in the same timeframe.
On 15 May it saw Teva Pharmaceuticals’ challenge to a $235m award made to GSK in a patent dispute dismissed. Just three days before, the company also announced promising late-stage data for its meningococcal vaccine.
Overall, it has 68 products pending, and is confident about the potential sales for these new lines.
One key area for it is respiratory medicine, and to this end it bought Bellus Health in early April. It believes the company has a potential world-leading treatment for chronic coughs. And it expects this to be a big seller through to 2031, adding to adjusted EPS from 2027.
Its Shingrix shingles vaccine also continues to perform strongly, generating £833m in revenues in Q1 2023. This compared to consensus analyst expectations of £829m.
GSK also affirmed its earlier guidance for increases in turnover, profit, and earnings per share (EPS) this year. Turnover is expected to rise by 6%-8%, adjusted operating profit by 10%-12%, and adjusted EPS by as much as 12%-15%.
The increases will mainly come from growth in two of its three core business lines. Turnover in Vaccines is expected to increase in the mid-teens percent; Speciality Medicines in mid-to-high single-digits; but turnover in General Medicines should be flat to slightly down.
Healthy dividend yields
The shares came with a dividend yields in 2022 of 3.1%, down from 4% and 4.8% in the two previous years. These are healthy in themselves but look better when compared to rival AstraZeneca’s. These were 2.1%, 2.7%, and 3.1%, respectively.
There are risks for me in the share price, of course. Pharmaceutical companies spend much time and money on product development and if one fails then it is a huge setback. They are also open to legal action against them if products cause problematic side effects. Additionally for GSK, there is the threat of further strikes.
I have maintained unbroken holdings in GSK for many years now and am happy to hold on to them. They have provided me with considerable gains in terms of share price and dividends. If I did not own it, I would buy the stock now to provide me with similar gains over the long term, regardless of short-term setbacks such as strikes.
