COMPANY DESCRIPTION
GlaxoSmithKline is a research-based pharmaceutical and healthcare company based in the United Kingdom. Co. is engaged in the development, manufacture and marketing of pharmaceutical and consumer health-related products. Co.'s principal pharmaceutical products include medicines in the following therapeutic areas: respiratory, central nervous system, anti-virals, anti-bacterials, metabolic, vaccines, cardiovascular and urogenital, oncology and emesis. Co. operates principally in three industry segments: Pharmaceuticals (prescription pharmaceuticals); Vaccines (vaccines for infectious diseases); and Consumer Healthcare (over-the-counter medicines, oral healthcare and nutritional healthcare).
ECONOMIC MOAT
Glaxo’s moat is dug on the basis of patents, a powerful distribution network, economies of scale, and diverse operations. Similar to other pharmaceutical companies, Glaxo's branded drugs hold patent protection that keeps competitors at bay for several years, while the company can charge prices that enable returns on invested capital above its cost.
OUTLOOK
GlaxoSmithKline completed its deal with Novartis in early March. The deal saw an asset swap where Glaxo's oncology business went to Novartis for $16 billion, and Novartis' vaccine unit went to Glaxo for $7 billion. At the same time, the two companies agreed to form a joint venture in consumer health. In the drug pipeline current estimates suggest that Advair could lose 20% of its U.S. sales this year as cheaper generics continue to flood the market. Generic pressures and a slow-developing pipeline will continue to be significant drags on analyst’s outlook for Glaxo. We believe there is decent upside over the 2018-2020 period. The equity holds some appeal for investors seeking a lower-risk dividend play.
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STRENGTHS
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Leadership position in global respiratory and vaccines markets
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Internal R&D capabilities driving portfolio and pipeline expansion
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Strong sales and marketing infrastructure across the globe
WEAKNESSES
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Health care fraud settlement and bribery charges against GSK may dent its brand image
THREATS
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Healthcare cost containment pressures leading to drug pricing controls
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Generic competition could put pressure on profit margins
OPPORTUNITIES
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Agreement with Novartis likely to help GSK drive its growth and rebalance its business mix
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Product launches likely to strengthen the company’s business in metabolic and respiratory therapeutics area
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Continued cost savings from internal restructuring initiatives
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Further expansion in emerging markets
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Business consolidation initiatives likely to help GSK further increase its focus on its core products and markets
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The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.
