Kepler upgrades Glaxo, says worst-case scenario priced in

Kepler's 'reduce' case had been based on investors underestimating the impact of generic US Advair on the pharma business's operating profit, as well as stronger-than-expected HIV competition. But investors appear to now be pricing in worst-case scenarios for HIV and US generic Advair, both of which catalysts have become less negative since the new guidance issued by the company this week.

It noted that the last of the three generic Advair developers had a complete response letter from the FDA on 8 February. The FDA sends a complete response letter when it has completed its review of a new or generic drug application and decided that it will not approve it for marketing in its present form.

Kepler also pointed out that GSK is suing Gilead, the maker of bictegravir and its key HIV competitor, for patent infringement, which could lead to a royalty stream.

Still, it argued that the stock is not a 'buy' given the lack of near-term positive catalysts and the risk of GSK buying Pfizer’s consumer unit. In addition, Kepler pointed out that while GSK has made high-quality hires and new management is revitalising R&D productivity, the fruits of this are still a way off.

Kepler now estimates a 5.2% 2016-2010 earnings per share compound annual growth rate, leaving upside to Glaxo's mid to high single-digit guidance.

At 1050 GMT, the shares were down 0.5% to 1,297p.