GSK Betting on Robust R&D Pipeline

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GlaxoSmithKline (LSE:GSK) may be the perfect example of how investors should look at pharmaceutical companies differently than others.  The company share price has remained relatively unchanged in the 1450.0 areas  since 29 January, despite reporting “flat” sales for the full year ending 31 December 2012 on 06 February.  Shares have dropped modestly today by 0.90% and 13.0 to 1436.00, which puts it just above the median price of 1415 for the year.

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Admittedly, calling sales “flat” when they were down by 1.0% overall might be just a tad misleading.  Pharmaceuticals were off by 2.0%, US sales were down 2.0%, the Japanese trade suffered by 6.0% and European sales slid by 7.0%.  These loses were offset in part by a 10% growth in EMAP.  The Consumer Healthcare division was also up by 5.0%

The company attributed the drop in US sales to the discontinuation of “certain products.”  Whilst the discontinuation of products can rarely boost sales, for a company the size of GSK, it may be offer the opportunity to free production and associated elements of the company, such as quality control, to focus on products that generate more turnover and higher profit margins.  Ongoing austerity measures were cited as the reason for the decline in European sales.

The real key for GSK’s ability to retain shareholder confidence, particularly at this moment, is its R&D pipeline.  In fact, the pipeline may be the most important factor for investors to consider with regard to pharmaceuticals.  Of course, it’s all things in balance, but when a company is somewhat fallow, a full pipeline is a promise of better things to come.  Actually the secret to the success for pharmaceuticals is not only have the pipeline full, but keeping it full.  And that is where GSK shines.

GSK has six new drugs awaiting approval.  If all six are approved in 2013, it should be a blockbuster year for GSK.  If only three were approved, the year would still be stellar.  The items include two drugs for COPD, one for type 2 diabetes, one for melanoma, and another for HIV.

Just behind those six, GSK is in late-stage studies of 14 more new items, nine of which are drugs and vaccines.  The strategic plan is to launch as many as 15 new products within the next three years.  Now that’s what a pipeline is all about.  When investors say “Show me the money,” the answer is
It’s in the pipeline, and it’s nearing the release valve.”

Savvy shareholders who understand holding shares for the long-term should be excited more about the tomorrow’s pipeline events than today’s minor fluctuations.  Apparently GSK investors see it that way too.

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