GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is a stalwart of the FTSE 100, and a company that we at the Fool have long recommended. But the blue chip has recently taken a strategic bend in the highway, which has made me wonder what the future holds for the pharmaceutical group.
Focusing on healthcare
When Glaxo Wellcome merged with SmithKline Beecham a decade ago, the deal was widely praised because it brought together the research-intensive ‘premium’ pharmaceutical industry with over-the-counter medicines and fast-moving consumer goods.
People have often said that GSK is a great investment because its consumer business evens out the ups and downs of the patented pharma business. I suppose people saw it as a sort of semi-Unilever, with the correspondingly higher rating.
Yet just the other week we heard that GSK has sold its Ribena and Lucozade brands to Suntory Beverage & Food Ltd.
Whilst some GSK investors may have been concerned by this sale, I see the disposal as a signal of intent. The company is simply focusing on healthcare, which has always been what GSK is really about. It still retains consumer healthcare brands such as Nicorette and Sensodyne.
Maximising its chances of success
I think the sale is a sign of the growing confidence the company has in its pharmaceutical business. I really believe that GSK has cracked healthcare research in a way no other pharmaceutical firm has.
The group focuses on its areas of strength, but also is incredibly innovative and creative. There is a strong sense of competition that drives researchers to produce their best. And there is an awareness that the company can’t produce ideas by itself, but that it needs to partner and to collaborate.
It partners with universities. It partners with small companies. And it partners with other pharmaceutical giants. By harvesting ideas from as large a field as possible, the company maximises its chances of finding the next blockbuster.
Plus it is investing in the growth areas of healthcare research: areas such as biotechnology, stem cells, vaccines and oncology.
This successful approach to innovation has resulted in a product pipeline no other pharmaceutical company can match.
For all these reasons, and despite the recent controversy about bribery in China, I am an optimist about GlaxoSmithKline’s prospects.
