GlaxoSmithKline PLC (LON:GSK) is “very much a work in progress” according to Morgan Stanley, and analysts at the US investment bank aren’t convinced there is much money to be made by investing in the drugmaker right now.
The number crunchers have resumed their coverage of GSK with an ‘underweight’’ recommendation – essentially advising punters to limit the amount of stock they hold in their portfolio.
That’s alongside a price target of 1,520p, slightly below where the shares currently find themselves.
Unsurprisingly, GSK was down 0.3% to 1,579p in early-afternoon trading on Monday.
Much of Morgan Stanley’s cautiousness stems from the fact that GSK is going through some big changes at the moment.
The FTSE 100 group is in the process of bedding in Tesaro, which it recently bought for more than US$5bn to help grow its presence in the lucrative cancer space.
That is part of a wider plan to rebuild its pipeline, which has slipped behind many of its rivals in recent years.
Pound could also dent performance
Although the tie-up gives GSK “greater critical mass” in cancer, the analysts noted that “commercial risk in oncology will remain high”, while there are also long-term challenges associated with building an innovative pipeline.
Morgan Stanley argues that this integration will have to go well to paper over short-term pressures in GSK’s HIV arm, which is seeing a drop in prices and new treatment start share.
Compounding the difficulties is the Great British pound, which the chin scratchers expect will head up to US$1.45 over the next 18 months, hitting dollar-denominated sales somewhat.