The GSK (LSE: GSK) share price has soared 8% in Wednesday business. At £15 per share it’s now trading at its most expensive since early August.
The pharmaceuticals giant is also the biggest riser on the FTSE 100 in mid-week business.
So why are its shares rocketing right now? And should I buy the drugsmaker for my portfolio?
Investor appetite for GSK has picked up following a key US legal ruling related to its Zantac heartburn treatment.
The British firm — along with industry rivals Pfizer, Sanofi and Boehringer Ingelheim — face claims that the drug causes cancer.
But on Tuesday, Florida district judge Robin Rosenberg threw out tens of thousands of claims due to a lack of “admissible primary evidence.” The lawsuit brought together federal cases from across the US.
Not out the woods
Today GSK commented in a market statement that “the scientific consensus is that there is no consistent or reliable evidence that ranitidine increases the risk of any cancer.” This followed 12 epidemiological studies analysing the use of ranitidine in humans, a key ingredient in Zantac.
The company added that “yesterday’s ruling reflects the state of that science and ensured that unreliable and litigation-driven science did not enter the federal courtroom.”
The drugmaker isn’t out of the woods yet, however. Tuesday’s ruling could be overturned on appeal. It also has to battle claims in state courts that Zantac caused cancer.
GSK has said that it will “continue to defend itself vigorously, including against all claims brought at the state level.”
The Zantac case illustrates the risks investors must accept when they invest in pharmaceutical businesses.
Drug manufacturing is a complicated and expensive business. A regulatory delay, or a total failure to get a product past regulators can cost a fortune in lost revenues and additional costs.
And even if a drug receives such approval it can still end up costing manufacturers hundreds of millions (or even billions) of pounds in costs. The litigation process can also take years to resolve, which can be a drag on a company’s share price.
A stock Id buy today
But despite this risk — including those ongoing lawsuits concerning Zantac — I still believe GSK shares are an attractive investment today.
The company has a great track record of drugs development. It’s why the FTSE 100 business is one of the largest drugmakers in the world by revenue. Its Triumeq HIV treatment and Nucala asthma product, for example, are used by millions of people across the globe.
I think the business can expect demand for its prescription drugs to rise strongly too. This is thanks to a combination of global population growth and rising healthcare investment in emerging markets. GSK itself expects its own revenues to increase at an annualised rate of at least 5% in the five years to 2026 alone.
Today GSK’s share price trades on a price-to-earnings (P/E) ratio of just 10.3 times for 2023. With spare cash to invest I’ll be looking to add this cheap UK share to my own portfolio.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Gsk Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022