ii view: GSK details positive cancer drug development

Its shares are down 26% over the last five years, but this stocks offers an attractive dividend yield. Buy, sell, or hold?

7th January 2025 11:21

by Keith Bowman from interactive investor

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US regulatory bone cancer drug approval

Global R&D Head of Oncology Hesham Abdullah said:

"This latest regulatory designation for GSK'227 exemplifies the potential of our targeted ADC in patients with difficult to treat cancers. For patients with relapsed or refractory osteosarcoma, there is an urgent unmet medical need with no approved treatment options once the cancer returns a second time, and chemotherapy provides limited benefit in this setting."

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Drug maker GSK (LSE:GSK) today announced US regulatory approval for a drug aimed at treating a rare bone cancer.

The US Food and Drug Administration (FDA) has granted Breakthrough Therapy Designation for GSK’s antibody-drug conjugate (ADC) known as GSK'227. The drug is being assessed for the treatment of adult patients with relapsed or refractory osteosarcoma (bone cancer) who have progressed on at least two prior lines of therapy.

GSK shares were marginally lower in UK trading and against a backdrop of weaker UK markets. GSK shares fell 7% over 2024 with fellow FTSE 100 company and UK rival AstraZeneca (LSE:AZN) down by just over 1% during the year. That’s in contrast to a 5.7% gain for the FTSE 100 index in 2024.

GSK operates across the three areas of speciality medicines, general medicines and vaccines, with cancer treatments sat within 'speciality'.

The FDA approval is supported by data from a phase II clinical trial with more than 60 patients enrolling and including 42 patients with osteosarcoma.

In 2022, GSK acquired late-stage US based cancer treatment developer Sierra Oncology for $1.9 billion (£1.5 billion). It also later poached a top executive from cancer focused AstraZeneca.

Osteosarcoma mainly affects children and young adults and is the most common primary bone cancer, accounting for 20-40% of all bone cancers. It is a rare disease with an annual incidence of 3.3 patients per million in the US, representing less than 1% of all new cancer diagnoses.

GSK’s fourth quarter and full-year results are scheduled for 5 February.

ii view:

Formed in 2000 via a merger of Glaxo Welcome and SmithKline Beecham, GSK today employs around 70,000 people. A constituent of the FTSE 100 index, global competitors include Merck & Co Inc (NYSE:MRK), Johnson & Johnson (NYSE:JNJ) and Pfizer Inc (NYSE:PFE). For the full year 2023, the USA was by far its biggest market, accounting for 52% of sales, with its home UK coming in at just over 2%.

For investors, currency adjusted sales rose by just 2% during the third quarter to late September. The recent appointment by President elect Trump of vaccine sceptic Robert F Kennedy Jr now places some doubt over potential future US demand for GSK’s vaccine suite of products. Drug development remains a risky and expensive business, while litigation for drug side-effects and government investigations are now common for the industry as a whole.

On the upside, speciality drug sales during the third quarter and including high profit margin cancer and HIV treatments rose 19%. New drug development remains ongoing with plans to launch five major new product approval opportunities previously flagged. Costs remain a high focus, uncertainty regarding Zantac litigation has been largely removed, while share sales for former group business Haleon (LSE:HLN) have helped reduce group net debt.

In all, and while pedestrian revenue growth should not be ignored, a forecast dividend yield of over 4%, shares trading at the bottom of a long-term range, and a consensus analyst estimate of fair value above £18 per share are of interest to investors.

Positives

Defensive qualities. Consumers need medicines even in a recession
Artificial Intelligence or AI could favourably impact future drug development

Negatives

Generic competition
Currency movements can hinder

The average rating of stock market analysts:

Strong hold

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