MARKET COMMENT
A Share To Buy And Tuck Away

By David Kuo (TMFDragon)
December 3, 2003

GlaxoSmithKline (LSE: GSK)(NYSE: GSK) opened the door to its medicine cabinet this morning and revealed what it has been working on for the last three years. It has 147 new medicines, over two-thirds of which are in mid-stage development. GlaxoSmithKline is hoping these will provide it with top-line growth, as the company's older medicines fall prey to generic competition.

In February 2001, GlaxoSmithKline unveiled its current strategy for growth. The key was six Centre of Excellences for Drug Delivery or CEDDs. These pioneering R&D centres were designed to mimic the originality and inventiveness of biotech companies, while retaining a critical scale to facilitate drug discovery and development.

GlaxoSmithKline said today that it has been working on a batch of new therapeutic vaccines, some of which may prove to be safe and effective in thwarting cancer. Oncology is one area that GlaxoSmithKline has been relatively weak in, but the company said today that Cervarix, the first vaccine for cervical cancer, has been 100% effective against two types of human papillomavirus. Cervarix is expected to enter Phase III trials next year with a potential filing in 2008.

Aside from vaccines, GlaxoSmithKline has been working on drugs to treat diabetes, which is proving to be a growing problem in many countries. There are also medications in the pipeline to address depression. The unnamed "353162" should be replace its off-patent Paxil. Also in the pipeline is a vaccine to treat gastroenteritis in children and a new COX2 pain killer.

It is worth remembering that drugs in development, even those that are in late stage trials, are not always guaranteed to make it to market. In fact, it's reckoned only one in five drugs in Phase I trials ever make it to market. Those odds improve considerably as the drugs progress to later stage trials, with two out of three drugs in Phase III trials getting regulatory approval.

GlaxoSmithKline has a reasonable track record of getting drugs to market. This year saw the introduction of Levitra, a potential blockbuster for treating erectile dysfunction that was co-marketed with Germany's Bayer. Also Advair, the company's blockbuster respiratory treatment, which was only launched in 2000, is now the top selling asthma drug in America.

GlaxoSmithKline said today that it expects its current pipeline to provide up to 16 significant filings in 2004 and 2005. It is, of course, hard to assess how many of those new drugs will turn out to be blockbusters given that R&D can be such a hit-and-miss affair. However, GlaxoSmithKline reckons that 20 of its new products could turn out to be billion dollar drugs.

The shares, which stand at 1,338p, value GlaxoSmithKline at 15 times forecast earnings for 2003. That does not seem too expensive to me. The prospective dividend yield of 3.2% is not too bad either and should continue to provide a support for the shares. In my opinion, at this price GlaxoSmithKline is a share to buy and tuck away.

The writer has a beneficial interest in GlaxoSmithKline.