Broker snap: Vaccine demand to give Glaxo shot in the arm

14th Jul 2009 11:50

Panmure Gordon has reiterated its recommendation to buy shares in pharmaceuticals giant GlaxoSmithkline after the World Health Organisation described the spread of the H1N1 flu virus as unstoppable."GSK [GlaxoSmithKline] should benefit from the situation medium term, and it is worth noting that GSK received an order from the US government totalling US$71m for its adjuvant technology, which should provide upside to forecasts beyond any specific H1N1 vaccine the company manufactures," Panmure analyst Tom Kemp said. "In addition to H1N1 vaccine manufacture (which could be as much as £1.2bn in 2010E), this could result in EPS upgrades," Kemp added.The World Health Organisation (WHO) has exhorted drug makers to produce vaccines against the pandemic flu strain in sufficient quantities to enable mass vaccinations to take place, with healthcare workers first in the queue to get the jab."According to GSK, it is possible that H1N1 vaccine manufacture will be incremental to the current seasonal flu vaccine capacity. The company has already received orders totalling upwards of 130m doses (cf. Panmure Gordon note, 15 May 2009) ... If we assume a price of US$10 per dose and a capacity of some 300-350m doses per annum, we could expect peak sales in 2010 to reach some US$2.0bn (£1,230m)," Panmure Gordon calculated.The broker said the stock is trading on a projected price/earnings ratio of 10.4 based on projected 2010 earnings, a 1% discount to the European sector. Panmure continues to prefer AstraZeneca but rates Glaxo a buy, not least because of the 6% dividend yield.