Glaxo Stock Down So Far This Year: Is a Reversal in Store?

GlaxoSmithKline plc’s GSK shares have declined 7.9% this year so far, underperforming the 16.2% increase witnessed by the industry.

The British pharma and consumer giant’s stock was on a rising trajectory till the announcement of third-quarter results on Oct 25. On the call, Glaxo expressed its interest to purchase Pfizer’s PFE consumer healthcare business, which the latter plans to put up for sale. However, Glaxo’s interest in buying Pfizer’s unit raised investor concerns about the acquirer possibly sacrificing a portion of its dividend payment due to the potential buyout. Shares declined sharply thereafter. Since the earnings release, shares of Glaxo have declined 12.4%. Earnings estimates for 2018 also witnessed a decline of 4% in the past 90 days.

Meanwhile, persistent challenges like stiff competition, genericization, pricing pressure and slowing growth in emerging markets have been hurting sales. Pricing pressure and competitive dynamics are hurting sales in Glaxo’s respiratory franchise, particularly the older products. Meanwhile, its top-selling product, Advair is also expected to face generic competition in the United States next year, which will further hurt sales. Mylan MYL and Hikma Pharmaceuticals are looking to bring generic versions of Advair in the United Stares

Sales of Advair are already being adversely impacted by pricing and competitive pressure in the United States and generic competition in Europe.

The slowdown in sales of the Consumer Healthcare segment this year due to a slowdown in global growth of its key consumer categories is also a concern.

However, not everything is going wrong at Glaxo. Its newer respiratory/HIV drugs and vaccines are all doing well and will continue to boost revenues. These new products generated 29% of Glaxo’s Pharmaceuticals and Vaccine sales in the first nine months of 2017. Going ahead, Glaxo expects new pharmaceutical and vaccine products including contributions from Shingrix to deliver sales of £6 billion per annum by 2018.

Meanwhile, Glaxo has made significant progress with its late-stage pipeline. We think Glaxo possesses one of the stronger late-stage pipelines in large-cap pharma. The company is focused on oncology, immuno-inflammation, HIV and respiratory therapeutic areas. By 2020, the company plans to terminate, partner or divest about 30 pre-clinical and clinical programs and instead allocate 80% of capital to priority programs in two current areas — Respiratory and HIV/infectious — and two potential areas - Oncology and Immuno-inflammation.

Recent back-to-back approvals of three new products — Trelegy Ellipta (only once-daily single inhaler triple therapy for COPD), Shingrix vaccine (prevention of shingles) and Juluca  (first dual treatment for HIV) —  have strengthened Glaxo’s competitive position.

We would like to see if Glaxo’s strong pipeline, consistent outperformance of new HIV drugs and vaccines, three new products, and cost cuts can bring it back on track next year.

Glaxo has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another large-cap pharma stock that has declined this year is Merck & Co., Inc. MRK due to several notable pipeline setbacks this year.

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