Big, Safe and Barely Growing

Full-year 2025 results, year ended 31 December 2025. GSK reports in sterling; share price and earnings per share are stated in pence throughout (1,817.50p = £18.175 per share).

GSK, formerly GlaxoSmithKline, is a pharmaceutical company and one of the largest in the world, with a market capitalisation of £72.8bn. It develops medicines and vaccines to treat and prevent disease, with a focus on the immune system and advanced technologies.

The company comes up with medicines and vaccines to help treat diseases. There are three core divisions:

• Specialty Medicines: HIV, oncology (cancer), respiratory, immunology and inflammation — treating conditions from severe asthma and cancer through to HIV and autoimmune diseases such as lupus.
• General Medicines: the more mature part of the business, holding a broad range of applications from inhalers for asthma and chronic obstructive pulmonary disease through to antibiotics, alongside older established medicines.
• Vaccines: self-explanatory — a large range targeting infectious diseases including meningitis, shingles, respiratory syncytial virus, hepatitis and many more.

Commercial Operations made £16.3bn of operating profit in 2025 (2024: £15.3bn) before centrally funded research and development costs of −£6.3bn.

Divisional turnover (£m)

In a general sense the company is seeing rises in turnover, but they're quite lackadaisical. Total sales rose 3.4% in 2023, 3.5% in 2024 and 4.1% in 2025. What we can safely take from that and the long-run turnover trajectory is that the company is already very large and struggling to increase sales anywhere near fast enough to meaningfully outperform, for instance, inflation.

Profitability does move around a little and is growing. 2024 was a very bad profitability year, driven by significant legal charges and remeasurements of the contingent consideration owed on ViiV Healthcare. In 2025 there was a rebound, with adjusted earnings per share reaching 172.0p — its highest on record. The gross margin has been increasing gently over the last couple of years and reached 72.4% in 2025, which is very high.

While the company has a huge product range, a small number of items provide a disproportionate share of revenue. HIV is the largest area at £7,687m of 2025 sales. Shingrix, the shingles anchor vaccine, brought in £3,558m, and Trelegy, a General Medicines inhaler, £2,986m. The five biggest franchises below account for 55% of group turnover between them.

2025 turnover by product / franchise

Within the HIV portfolio, Dovato is the largest single product at £2,678m (8.2% of group turnover), followed by Cabenuva at £1,402m and Tivicay at £1,323m.

The United States is the real turnover driver of the company. Europe is growing quite nicely, albeit from a much lower base.

2025 turnover by region

Specialty Medicines — where the growth is

Specialty Medicines is where the growth is, and the company expects that to continue — its 2026 planning assumption is for low double-digit percentage growth in the division.

• Respiratory, immunology and inflammation: sales rose 18% at constant currency to £3.8bn, led by Nucala and Benlysta.
• Oncology: rose 43% to £2.0bn, led by Jemperli (+89%) and Ojjaara (+60%), both still early in their launches.
• HIV: rose 11%, with the growth coming from the newer products — the long-acting injectables Cabenuva (+42%) and Apretude (+62%) now account for 30% of HIV sales in the United States.

The main thing to be aware of in this division is the loss of exclusivity on dolutegravir, the molecule inside most of the HIV portfolio, which starts to bite from late this decade. The company frames its medium-term margin expectations "through dolutegravir loss of exclusivity", so management is planning around it, but it's a large patent cliff sitting under the biggest franchise in the group.

Pipeline risk is also there: the belrestotug cancer programme was terminated in 2025 and brought a £471m impairment charge.

Vaccines — strong abroad, weak at home

Vaccines is performing well outside the United States. Shingrix sales in Europe rose 42% following the French launch, Japan accelerated after expanded reimbursement, and markets outside the United States now represent 66% of global Shingrix sales, up from 56% in 2024. The company puts the average immunisation rate across the ten biggest of those markets at around 10%. Meningitis vaccines rose 12% and the newly approved Penmenvy has started selling. The pipeline includes a pneumococcal programme and an mRNA seasonal flu programme.

The United States is the weak side. Shingrix sales there fell −17% as the pace of penetration into harder-to-activate unvaccinated consumers slowed, Arexvy fell in the American market, and influenza vaccine sales dropped −24%. The company's 2026 assumption is for the division overall to be stable to slightly down.

General Medicines — the cash engine

General Medicines is the mature part of the business. Trelegy grew 13% to £2,986m and continues to take share, while the older respiratory brands (Seretide, Flixotide, Ventolin) and established antibiotics decline gently. The division as a whole fell −4% at actual rates in 2025 and the company assumes stable to slightly down for 2026. It throws off cash and requires little investment.

Research and development

Research and development expenditure

Research and development spend has continued to go up, reaching £7.5bn in 2025 — 23% of turnover, a step up from the roughly 20% level of the previous four years. I'm potentially okay with that because the company really does have to do a huge amount of research to ensure it comes up with new products for the future. Part of the 2025 increase was the £471m belrestotug impairment rather than live spending; core research investment was £6.6bn.

Where the money is going, so far as the company breaks it down:

• Oncology: accelerated work on antibody-drug conjugates — treatments that bolt a cancer-killing drug onto an antibody so it is delivered to the tumour — specifically the B7-H3 and B7-H4 programmes, plus IDRX-42, a treatment for gastrointestinal stromal tumours acquired in early 2025.
• Specialty Medicines: efimosfermin (a liver disease asset acquired from Boston Pharmaceuticals in 2025), bepirovirsen for hepatitis B, and the long-acting HIV treatment and prevention programmes.
• Vaccines: the pneumococcal and mRNA seasonal flu clinical programmes.

The new chief executive

The company is transitioning to a new chief executive and has selected Luke Miels, who took over from Dame Emma Walmsley on 1 January 2026. Walmsley left the board at the end of 2025 and remains employed until September 2026 to support the handover.

Miels is Australian, 50 at the time of the appointment, with a biology degree from Flinders University and a Master of Business Administration from Macquarie University. The career started as a sales representative at AstraZeneca in 1995, then 2000 to 2006 at Sanofi-Aventis in strategy, country management (managing director of Aventis Thailand) and United States sales roles, then eight years at Roche — first running global marketing for metabolism and anaemia from Switzerland, then as regional head for Asia-Pacific, based in Shanghai and Singapore. A return to AstraZeneca followed in 2014 as executive vice president for Europe and global product strategy, before joining GSK in September 2017 as chief commercial officer under Walmsley, running the global medicines and vaccines portfolio.

The financial statements

Turning to the financial statements within the annual accounts: cost of sales has been kept under control, which helped boost gross profit. Turnover rose a little while cost of sales was flat — £9,017m in 2025 against £9,048m in 2024 — actually slightly down.

Selling, general and administrative costs came down to £9,088m from £11,015m in 2024. Most of that fall is the 2024 significant legal charges (chiefly Zantac-related) dropping out rather than underlying cost cutting — on the company's core basis, selling costs were flat at £9.0bn — but either way the cost base outside research is not growing.

Adjustments between reported and adjusted results

The company adjusts its reported figures heavily. At the profit before tax level — profit before tax, or PBT, being what the business earned before the tax bill:

Reported to adjusted profit before tax (£m)

The 2024 dip in reported profitability came from two places: £1.6bn of significant legal charges, largely the Zantac litigation settlements, and a £1.9bn transaction-related charge, mostly the remeasurement of the contingent consideration GSK owes Shionogi on the ViiV Healthcare joint venture. Both were much smaller in 2025, and 2025 also benefited from £367m of settlement income from CureVac on the mRNA patent dispute.

The recurring adjustments — around £0.8bn to £1.0bn a year of amortisation on acquired intangibles plus the ViiV contingent consideration unwind — are a permanent feature of the adjusted numbers and worth keeping in mind when using the 172.0p figure.

Finance costs and debt

Finance costs aren't negligible — they came in at £701m gross (£532m net of finance income) — but they don't seem particularly high for the size of the balance sheet, and there wasn't a huge amount to highlight from the finance expense note.

Long-term borrowings have remained pretty stable over the last year and currently sit at £14,708m (2024: £14,637m). Looking at the long-term debt bonds, the notes are at low coupon costs on the whole — the coupon being the fixed annual interest rate the bond pays. The exceptions are the longer-dated instruments:

• A 6.375% sterling medium-term note maturing 2039 (£627m).
• A 6.375% United States dollar medium-term note maturing 2038, which at £2.0bn of carrying value is a bit on the high side on its own.

Elsewhere coupons run from 1.625% to around 5.375%, presumably because much of the book was taken out a while ago in a cheaper rate environment.

There is a danger here into the longer term. As the cheaper notes start rolling over into a higher interest rate environment, the company might see a slight rise in its long-term debt costs.

In an overall sense I'm quite happy with the company and what it's been doing. Profitability came in very high last year at 172.0p of adjusted earnings per share, but I don't think we can assume earnings will continue at such a high growth rate, because I don't see a particular marker here to suggest sales can increase that dramatically. There's always a hope factor with pharmaceuticals that another miracle-type drug might explode revenue further, but I'm not sure GSK is on the cusp of this — maybe I'm wrong about that.

Bearing this in mind, I think it's only sensible to use a growth rate of about 6%, and that's what I'm using. I think GSK is quite a safe company and reasonably well protected in difficult markets, so I'm giving it an uplift of 5% on the valuation.

I've changed the valuation metric, and instead of the company's adjusted 172.0p I'm using a new earnings per share figure, taking reported profit before tax and adding back only the adjustments I assume will be ongoing:

Assumed ongoing adjustments

Adding £1,339m back to the reported £7,401m gives approximately £8,740.0m of pre-tax profit, £6,555.0m post-tax at a 25% tax rate and earnings per share of 163.7p, which is the figure I'm using instead. That sits between the reported 138.8p and the company's adjusted 172.0p, which is where I think the truth lies.

VALUATION SNAPSHOT

Given the new earnings figure of 163.7p per share, the value opportunity at the current share price comes out at +11.9%. Ultimately I don't think there's a huge amount of risk with GSK — the company seems very stable, and I imagine it'll continue with slow increases in its profitability — but I still don't like how much adjusting is happening to the income statement, and sales aren't progressing quickly.

• The dolutegravir patent cliff: loss of exclusivity on the molecule inside most of a £7,687m HIV portfolio starts to bite from late this decade. Management is planning around it — it frames medium-term margin expectations "through dolutegravir loss of exclusivity" — but it's a large cliff sitting under the biggest franchise in the group.
• Pipeline failure: the belrestotug cancer programme was terminated in 2025 and brought a £471m impairment charge. That is the nature of a business spending £7.5bn a year on research.
• The American vaccine market: Shingrix sales in the United States fell −17%, Arexvy fell, and influenza vaccine sales dropped −24%. The company's own 2026 assumption for the division is stable to slightly down.
• Sales that barely beat inflation: 3.4%, 3.5% and 4.1% over the last three years. The company is already very large and struggling to increase sales anywhere near fast enough to meaningfully outperform inflation.
• The quality of the earnings: I still don't like how much adjusting is happening to the income statement. Around £0.8bn to £1.0bn a year of amortisation plus the ViiV contingent consideration unwind is a permanent feature of the adjusted numbers.
• Refinancing into higher rates: long-term borrowings of £14,708m carry coupons mostly between 1.625% and 5.375%, taken out in a cheaper rate environment. As those cheaper notes start rolling over, the company might see a slight rise in its long-term debt costs.
• The handover: Luke Miels took over as chief executive on 1 January 2026, with Emma Walmsley employed until September 2026 to support the transition.

• A genuine breakout product: there's always a hope factor with pharmaceuticals that another miracle-type drug might explode revenue further. I'm not sure GSK is on the cusp of this — maybe I'm wrong about that. Evidence that I am would justify a growth rate well above the 6% I'm using.
• Sales growth stepping up: if group turnover growth moved decisively above the 3–4% band, the case that the company can't outperform inflation falls away.
• Specialty Medicines delivering: the company's 2026 planning assumption is low double-digit percentage growth in the division. Delivering that, with oncology and the long-acting HIV injectables continuing at 2025's pace, would support a higher figure than the one I'm using.
• Fewer adjustments: if the gap between reported 138.8p and adjusted 172.0p narrowed materially, my own 163.65p basis would move up and the valuation with it.
• Price: at 1,817.50p the value opportunity is 11.9%. A materially lower price widens that gap; a move up to my 2,034.44p valuation closes it.