There is great variety in the recent news stories related to the pharmaceutical company GlaxoSmithKline (GSK). The effects of these recent events are both positive and negative, and as a result, they are a bit dizzying to consider. When considering them all, I think the stock will be facing only minor losses. The company is still strong though, so the stock should remain relatively stable over time.
Positive thoughts are surrounding the upcoming decision from the FDA about using Horizant to treat postherpetic neuralgia. The FDA approved Horizant for PHN late on June 6 and GSK announced it on June 7. The problems with Horizant have already been addressed in order to get it approved for treating restless leg syndrome.
A competitor is starting to get an upper hand in the industry, which may lead to bad results for investors in GlaxoSmithKline. All hope is not lost, but this certainly undoes some of the positive effects related to the upcoming ruling.
The Swiss company Roche has used ImmunoGen (IMGN) technology to create a new breast-cancer drug. Early results have shown that it delays the cancer's progression for about 9.6 months, which is significantly longer than the 6.4 month delay with GlaxoSmithKline's Tykerb and chemotherapy. This drug is supposedly less toxic as well, making it an even more attractive treatment. Roche is hoping to get the drug approved for marketing in the United States and Europe by the end of the year. This will come as great news to breast cancer patients, and it should also be exciting for investors in ImmunoGen. Investors in GlaxoSmithKline, on the other hand, should watch closely to see if the company can keep up with this progress.
It is quite possible that GlaxoSmithKline will be able to respond to this competition. The FDA is allowing drug companies to test new medications on women with breast cancer in an earlier stage than before. Thus far, this decision has been well-received due to the need for better treatments. Celgene (CELG), Onyx Pharmaceuticals (ONXX), Eli Lilly (LLY), GlaxoSmithKline, Roche, Eisai, Boehringer Ingelheim, Puma Biotechnology, and Bayer are all companies that will likely be testing new treatments for breast cancer. While Roche's early results are significant, therefore, many competitors will probably be close behind it.
With this in mind, I believe Roche's success will only have a slightly negative impact on GlaxoSmithKline for now. Hopefully, as Roche's drug nears its approval, GlaxoSmithKline will also have positive results to report with the treatments it is testing. This FDA decision is a great opportunity to test treatments, but if GlaxoSmithKline falls behind its competitors, this may begin having significantly negative effects on the stock. Investors should certainly keep an eye on these treatments as results continue to come in.
GlaxoSmithKline is also considering the acquisition of other companies. It is amongst the companies interested in purchasing Amylin Pharmaceuticals (AMLN). More specific to the company, however, is its interest in acquiring Human Genome Sciences (HGSI). Analysts believe that the odds are increasing, however, that GlaxoSmithKline will rescind its offer. These companies have collaborated together for a long time, so the acquisition would be relatively safe. After the odds of this acquisition decreased, analysts decreased their ratings for Human Genome Sciences stock. As a result of the uncertainty, therefore, Human Genome Sciences stock will likely be falling.
GlaxoSmithKline's move, however, is receiving a good reception. Its offer to Human Genome Sciences is considered a "hostile bid," as GlaxoSmithKline made the offer "without the support of the target's board." While this may sound like a negative thing, hostile bids are becoming quite common and continuing to be recommended. It allows for quick results, and since GlaxoSmithKline holds great power over the situation-as evidenced by the expected drop in Human Genome Sciences stock-I believe this is a good decision that will lead to increases in GlaxoSmithKline stock.
While progress and expansion are important, there are several other issues the company is currently dealing with as well.
In India, patients are beginning to use cheaper treatments. GlaxoSmithKline cannot offer as low of prices as its competitors in the country. Since it is a multinational company, it works with a different tax structure and does not benefit from the same duty exemptions. This means that its high price is not the result of higher quality, and patients are beginning to recognize this. As a result, GlaxoSmithKline may lose a significant portion of its business in India, and this will have a consistently negative effect on the stock.
In Saudi Arabia, the surging pharmaceutical market, especially for generic drugs, will have a much more positive impact on the stock. GlaxoSmithKline, Pfizer (PFE), and Novartis (NVS) continue to be major players in the Saudi Arabian market, so this increase in business will translate positively to these stocks. This appears to be a very good market that will continue to have positive effects for investors as time moves forward.
Despite this positive news, there is still a major issue facing the company related to a lawsuit in Louisiana surrounding its drug Avandia. Recent developments in this case, however, may even benefit the company. While Louisiana Attorney General Buddy Caldwell is suing for "more than $10 billion in civil penalties," things are starting to turn back against Caldwell. GlaxoSmithKline has filed a suit against Caldwell because the private attorneys he hired have "personal financial interest" in the outcome of the case. Regardless of the outcome of this new lawsuit, it will help restore GlaxoSmithKline's image by presenting it as a company that has been wronged. In turn, I believe this will have a slightly positive effect on the stock.
After all of this has been considered, it is difficult to determine the net effect of this news. Business is better in Saudi Arabia but worse in India. The company is testing new drugs, but another company has already tested with success. The company is suing, but it is also being sued at the same time. GlaxoSmithKline has been trading around the $45 level, and I think it will be slightly decreasing, but only as a result of the extent of the potential fine from the lawsuit in Louisiana.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.