GlaxoSmithKline plc’s Short-Term Pain Could Be Investors’ Long-Term Gain

GlaxoSmithKline plc (LON: GSK) is well placed for long-term growth.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

GlaxoSmithKline’s (LSE: GSK) (NYSE: GSK.US) shares have taken a beating during the past year or so, as allegations of bribery have hit the company’s Chinese arm, where sales have slumped as a result.

What’s more, fresh allegations of bribery have arisen during the past two weeks with Glaxo now suspected of bribing officials within Jordan, Lebanon, Iraq and Poland in order to drive sales.gsk

Unsurprisingly, the market has not taken this news well and, up until today, investors were dumping Glaxo’s shares, sending them to a 52-week low.

However, for the long-term investor, this could be a great buying opportunity.

You see, while investors may be unimpressed with Glaxo’s actions now, it is likely that over the next few months the market will forgive the company. Indeed, as one of the world’s leading pharmaceutical companies, with an exclusive portfolio of treatments, Glaxo’s customers are unlikely to turn their back on the company for a sustained period of time.

As a result, although Glaxo’s sales may decline in some markets as a result of bribery claims in the near term, over the longer term the company’s sales should recover. 

Changing practices

Still, Glaxo’s management knows the company has made some mistakes. So, management is making drastic changes to the way Glaxo markets products to prospective customers.

For example, management has overhauled company marketing practices within the United States, changing the way sales representatives are paid and ending a plan whereby doctors were paid by the company to speak at industry events. 

Good news

On the other hand however, during the past week Glaxo has announced that two of its new treatments have been approved for sale. With these two new products hitting the market, Glaxo has brought a total of seven new drugs to market within the past 16 months.

And this is not taking into account today’s game-changing deal between Glaxo and Swiss drugs producer Novartis.

Specifically, the deal with Novartis will see the consumer divisions of Glaxo and Novartis merge, creating a ‘world-leading’ consumer healthcare business with £6.5bn in revenue in 2013. In addition, Glaxo is acquiring Novartis’ vaccines business for an initial cash consideration of $5.25bn and Novartis is acquiring Glaxo’s oncology portfolio for $14.5bn.

Foolish summary

So overall, bribery allegations made against Glaxo may dent the company’s sales in the short term. However, Glaxo’s dominance within the global pharmaceutical market implies that over the long term, sales will recover, making the company look like a great investment at current levels. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in GlaxoSmithKline. 

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »