What is behind GSK’s valuation gap to its rivals?

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Pharmaceutical giant GSK has traded at a persistent valuation discount to global peers due to investor anxieties around patent cliffs (loss of drug exclusivity) in its key HIV franchise and a perception that its research and development pipeline is not up to scratch.

 

CEO Luke Miels, who took over from Emma Walmsley at the beginning of 2026 has promised to address these issues by increasing the speed of drug development, reducing organisational complexity and embracing artificial intelligence.

Following a portfolio review in July, Miels announced a £1.9 billion cost-savings programme aimed at funding GSK’s late-stage drug roster which has been increased to 25 studies by the end of 2026, compared with a prior target of 10.

The company upgraded its operating margin outlook to ‘stable to improving’ from ‘stable’ while also reiterating a long-term ambition to generate more than £40 billion in annual revenue by 2031.

In June GSK made its largest acquisition in more than a decade, with the purchase of Nuvalent for $10.6 billion, which pivots GSK’s portfolio into the lucrative lung cancer market.

 

Has the market picked up on the recent moves?

Berenberg believe these changes are underappreciated by the market: “After a flurry of business development and pipeline momentum, we are increasingly optimistic about GSK’s growth outlook,” say the analysts.

Consequently, Berenberg has upped its 2031 revenue forecast to £39 billion, which is ahead of the average market forecast of around £36 billion, and just shy of GSK’s internal £40 billion target.

GSK’s recent (28 October) third-quarter sales and profit came in ahead of forecasts, but GSK lowered full-year core earnings growth to the lower end of its 7% to 9% range due to higher research and development spending.

Miels said the company was ‘slightly ahead’ of its restructuring plan which is anticipated to have ‘limited’ impact on UK jobs after earlier announcing more than 1,000 job cuts in Belgium.

What is the threat from the HIV patent cliff?

As a reminder, drug companies secure legal protection on new drugs via legal documents called patents, which gives exclusivity for up to 20 years.

Expiries are referred to as a patent cliff, as it opens the door to cheaper unbranded generic versions which flood the market and typically cannibalise between 80% and 90% of branded sales.

GSK’s oral HIV drug Dolutegravir loses its exclusivity in a staggered manner across global regions between 2028 and 2033, with the bulk of the patent expiries coming at the tail end of 2029.

For context, global sales of Dolutegravir reached $5.65 billion in 2025, accounting for around 15% of group sales.

Does GSK have a plan to mitigate patent expiry?

GSK’s is transitioning the HIV market towards long-acting injectable formulations built around Cabotegravir. It is aiming to launch a twice-yearly regime or self-administered option by 2030.

The idea is that by moving patients to more convenient injectables, it will potentially ‘lock-in’ market share before generics arrive.

Outside of HIV, GSK has highlighted 12 new product launches which possess peak sales potential of £2 billion each, which could replace declining sales of Dolutegravir.

What are GSK’s key areas of therapeutic expertise?

GSK is organised around three divisions, the largest of which is specialty medicines which accounted for around 41% of group sales in 2025.

 

This division covers treatment areas like HIV, oncology (cancer) and respiratory, immunology & inflammation.

HIV is the core franchise making up the largest slice of specialty medicines with GSK’s long-acting injectable portfolio accounting for 25% to 30% of HIV revenues.

Oncology is GSK’s fastest growing segment led by its blockbuster endometrial cancer treatment Jemperli which generated global sales of $644 million in the first half of 2026, equating to 34% annual growth. Management projects peak sales of more than $2.7 billion.

Respiratory, immunology & inflammation grew sales by 19% in the second quarter driven by GSK’s asthma drug Nucala which generated around $1.4 billion in global sales in the first half of 2026 and is expected to have peak sales of $2.4 billion.

Vaccines

GSK owns one of the largest and most globally diversified vaccine portfolios in the industry. Vaccines accounted for around 28% of group sales in 2025.

Key products include shingles vaccine Shingrix, RSV (respiratory syncytial virus) vaccine Arexy and a widespread meningitis portfolio. Vaccines account for around 28% of total sales.

The cash cow division

GSK’s general medicines division is primarily comprised of established medicines prescribed in primary care. The business is cash generative but gradually declining in importance as faster growing areas drive growth of the overall business.

Sales declined by 1% in 2025 to £10 billion, representing around 31% of the group.

What do GSK’s finances look like?

GSK retains roughly 30p in operating profit from every £1 of sales, before financing costs and taxes, which represents a healthy operating margin.

 

The company is cash generative with free cash flow averaging around £3.5 billion a year over the last three years. Free cash flow is the money left over after deducting operating expenses, interest, taxes, movements in working capital (like inventories and debtors) and investments.

Return on equity has averaged a healthy 33% over the last three years which means GSK is very efficient at using its capital to generating profits for shareholders.

While most pharmaceutical companies make good returns on equity and generate high operating margins, it should be remembered that drug discovery is a risky business with no guarantees of commercial success.

That’s why pharmaceutical companies develop large drug pipelines which can replenish products facing patent expiry. In effect, companies need to reinvent their product suite every decade to replace declining sales and remain profitable.

Finally, it is worth remembering that litigation is part and parcel of the pharmaceutical industry. Drugs are designed to do good, but occasionally they can do harm which can result in big fines, as GSK experienced with its heartburn drug Zantac.

GSK agreed to a £1.8 billion settlement in 2024 to resolve around 90% of outstanding cases, without accepting any liability.

How do GSK’s financial compare with peers

As the table shows, GSK trades at a discount to most large pharmaceutical groups except French pharmaceutical company Sanofi, which is also suffering from investor concerns over the depth and credibility of its drug pipeline.

 

GSK is not involved in any significant way in the race to develop weight loss drugs, so we have excluded Danish company Novo Nordisk and US obesity giant Eli Lilly from the peer comparison table.

Shares magazine
Martin Gamble

Martin Gamble: Shares and Markets Writer

Martin Gamble is Shares and Markets writer at AJ Bell. He was previously the Education Editor of Shares Magazine. He has been with the business since 2019.

Martin graduated from the University of Kent in...

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