The pharmaceutical industry has been outperforming the overall economy for quite some time now. But that is not to say every pharmaceutical company is a winner. Fortunately, for the holders of GlaxoSmithKline (GSK) stock, this one is. Further, it has positioned itself for growth no matter the outcome of the Affordable Health Care Act.
Its good week began with authorization by European authorities to market a new meningococcal vaccine. This vaccine is approved for infants 12 months and up. This is important as meningococcal is most deadly to infants under 4 years of age. Additionally, it is highly contagious. With approval, this drug, Nimenrix, is the first vaccine on the market approved for infants this young. This provides GlaxoSmithKline with a monopoly, which is not uncommon in the pharmaceutical industry. You can expect that it will cash in to recoup research and development costs and make it worth its while.
The next bit of good news came a day later when GlaxoSmithKline and Yale University announced a research collaboration. The goal of this collaboration is to develop a new class of drugs that will degenerate the proteins that causes diseases. Collaborating with Yale is very significant, as it signals a different approach to pharmaceuticals. By tackling the source of the diseases, the proteins, this collaboration could be a huge breakthrough for disease and drug treatment.
Success in this case is good for everyone. Patients would get better treatment with medicines that would be more effective and treat the true source of the problem, not merely the symptoms. GlaxoSmithKline wins because, under the terms of the agreement, it is given the right to use the new technology for many disease-causing proteins. It has the right to use this technology across many different therapies. Yale wins by getting royalty of any drug created out of this partnership and by the notoriety and prestige awarded from such a discovery. It does not come often that every party's interests are aligned so well.
Another boon for GlaxoSmithKline is its use of genome-wide association studies (GWAS) data. Reports state that it is using the data on these studies to find new uses for already existing therapies. By doing so, it would significantly cut its overall research and development budget, as it could treat other disorders without investing much money at all. This is an example of the practical use of big data.
It has been predicted that big data will help the pharmaceutical industry more than most, and by embracing this trend early, GlaxoSmithKline is tapping into a new stream of revenue before its competition. This is significant as the GWAS database is public, so any company could just as easily come up with the same results. Similar to the collaboration with Yale, this development will benefit patients greatly, as they might not have to wait as a therapy goes through the rigorous trial process again.
Not all of GlaxoSmithKline's news has been scientific. In the past week it has been a big mover in corporate finance. First, it announced that it will not be buying smaller competitor AstraZeneca (AZN). This is not too surprising, as many saw little reason for this acquisition. One, purchasing AstraZeneca would have cost far more than it is worth, especially since it just bid $2.6 million for Human Genome Sciences (HGSI). Investors should be relieved. An acquisition of AstraZeneca would have bogged down the trajectory GlaxoSmithKline is on. It is poised for long-term sustainable growth if the GWAS database provides good insights and the collaboration with Yale works well.
Second, GlaxoSmithKline just sold $4.85 billion in corporate bonds. Investors see it as a good investment, as its spread with U.S. Treasury bonds dropped, signaling a low-risk investment. Current investors should be pleased to know that the market still views GlaxoSmithKline as a good, safe investment.
As stated earlier, the pharmaceutical industry has been a winner in general lately. However, among the industry, there are definite winners and losers. Two of GlaxoSmithKline's rivals demonstrate this perfectly.
First, Pfizer (PFE) has been a loser recently. Its first-quarter profit dropped 19% due to generic offering of its cholesterol drug Lipitor. This drug was a complete cash-cow for Pfizer, and I believe it will be extremely difficult to develop a drug with similar profitability. Also, a drug in development to treat nerve damage caused by diabetes failed to meet its goal of lowering pain in patients. Pfizer better find a way to turn this drug around or risk eating the development costs of the drug. Being that it was in Phase 3 trial, Pfizer has assuredly doled out large amounts of money to make this work.
On the other end of the spectrum is Abbott Laboratories (ABT). Abbott has been working at a breakneck pace to lower its reliance on its drug Humira before the patents expire. It has made one big step in the right direction with its purchase of AP214 hormone. This hormone may prevent acute kidney injury during cardiac surgery. This addition is a boost to a growing portfolio of kidney treatments linked to Abbott.
Further diversifying, Abbott partnered with India's Biocon Limited to develop nutrition products in India. Take a quick look at Abbott's April announcements and you will get a better idea of the growth and return on investment Abbott and its shareholders are about to experience. It is clearly the at the opposite end of Pfizer.
Luckily for shareholders, GlaxoSmithKline is more like Abbott than Pfizer. With the entrance into new ventures designed to provide low cost alternatives to the development of new drugs and treatments, GlaxoSmithKline could be on to something great. It is not often that a pharmaceutical company partners with an academic institution, so I expect great things. Yale would doubtfully stamp its name on a failing venture. Looking ahead, there are many indications that GlaxoSmithKline will continue its output and continue to reward its shareholders.