Barclays Capital said that despite "GSK's presentation as a well diversified healthcare company", Advair generated some 20 per cent of group gross profits, rendering the stock vulnerable to developments in the market for inhaled treatments for asthma and COPD, or Chronic obstructive pulmonary disease. And while upcoming patent expiries, legal challenges and the threat of both generic and branded competition "all portend significant change in this market", the pace of change is unlikely to be unsettling. Indeed, it "may come only slowly", Barclays explained, particularly in the United States, which generates more than half of Advair sales.
Generic companies face a number of hurdles, not least the fact that proof of bioequivalence (ie proof of the impact of the generic option compared to that of the branded drug) is "much more challenging for inhaled drugs than for pills". Moreover, US regulators have adopted a very conservative approach to inhaled generics, while capacity constraints mean that "any impact to Advair sales is likely to be limited initially". Regulatory requirements are also holding back new branded competitors. GSK, in the meanwhile, is "deploying its full expertise" to develop Advair's successor.
"The slow pace of change in this market can only preserve the status quo, to Advair's benefit – and what's good for Advair is good for GlaxoSmithKline," the broker said, initiating coverage on the stock, which closed at 1259p, up 13p, with an "equal weight" rating and a 1305p target price. Barclays also issued an "equal weight" rating on AstraZeneca, which was broadly unchanged at 2747.5p, up 0.5p.
Overall, the FTSE 100 supplemented its gains, rising by 9.75 points to 5276.5, while the FTSE 250 gained 69.34 points to 9295.92. British Airways was the strongest of the blue chips, climbing to 215p, up 7.5p per cent or 15p, following reports that the board of the Spanish airline Iberia had approved plans to merge with BA.
Elsewhere, Royal Bank of Scotland continued to lag behind, falling to 37.21p, down 3 per cent or 1.16p, with some in the market attributing the pressure to investors switching into Lloyds Banking Group, which was 0.75p ahead at 90p at the end of play. Barclays, up 1.1p at 324.1p, was supported by ING, which upped its target for the stock to 360p from 300p, and by Morgan Stanley, which reiterated its "overweight" stance.
"Delivery of the [Barclays Capital] franchise is now key to the investment case. BarCap missed our revenue expectations in the third quarter ... but we think it can outperform in 2010," Morgan Stanley said, raising its target to 435p from 420p.
Also on the upside, United Utilities, up 9.8p at 471.9p, was in focus amid speculation suggesting that it may be working on a sale of its regulated water business. A second set of rumours – played down by traders – mooted the possibility of deal activity between United and Severn Trent, up 18p at 992p.
Parts of the mining sector were held back, as investors banked profits from Wednesday's gains, with the likes of Randgold Resources, down 74p at 4784p, and Fresnillo, down 15.5p at 876.5p, pausing for breath. Kazakhmys, down 20p at 1270p, and the Eurasian Natural Resources Corporation, down 16p at 906.5p after issuing an interim management statement and a production report, were also weak.
Elsewhere, Deutsche Bank boosted sentiment around 888 Holdings, the online gaming group which closed at 99.9p, up 2.15p, after the broker adopted a "buy" stance on the stock, saying it liked the company's increasing focus on faster growing online gaming products such as bingo, and the expanding business-to-business offering.
"The cash flow generation of the group makes the stock look highly attractive in our view," Deutsche said, setting a 129p target price on 888. PartyGaming, which was upped to "buy" from "hold" in the same sector review, gained 5.2p to 253.3p.
Kesa Electricals, the retail group behind the Comet chain, gained 4.3p to 149.1p, thanks to some words of support from Singer Capital Markets, which raised its target for the stock to 180p from 132p. "From very depressed levels we see [a] geared earnings recovery kicking in at Kesa over the next 12 months," the broker said, upgrading its current year earnings estimates, which are already ahead of consensus, by 10 per cent to 8.6p per share.
Great Portland Estates was 1.2p firmer at 283.7p as analysts weighed into its results, with Société Générale revising its target price for the stock to 240p from 200p, and Goldman Sachs reiterating its "buy" stance. "Great Portland has now spent (or committed to spend) £140m on property acquisitions and developments since its £166m rights issue was completed June, with a further £48m (three assets) currently under offer" Goldman said. "We expect [its] investment programme to remain the major driver of earnings growth in the near term, given the substantial spread of property yields versus its low marginal cost of debt."
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