I’ve been waiting for a good opportunity to buy into GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) for some time now. Luckily, recent declines have made Glaxo’s shares look attractive on a valuation basis but there are some issues surrounding the company which worry me.
So, could now be the time to buy?
Troubles in China
Glaxo’s recent declines seem to stem from the company’s troubles within China, where some employees may have bribed officials in order to sell more of the firm’s treatments. Although Chinese authorities continue to investigate the matter, Glaxo’s drug sales within the world’s second largest economy have slumped over the past few quarters, worrying investors.
What’s more, during the past week Glaxo has be subject to accusations that some of the firm’s staff may have bribed officials within Iraq for a similar purpose.
While Iraq is a tiny market for Glaxo, these accusations have raised the possibility that Glaxo could have used underhand marketing tactics in many more emerging markets, which could be a serious problem.
Nevertheless, management has not wasted any time allaying investor concerns about the company’s marketing practices and has already begun to overhaul the company’s marketing strategy.
Indeed, Glaxo has already changed the way sales representatives are paid within the US and the company has stopped paying doctors to speak on its behalf at events.
The product is important
Still, realistically speaking, Glaxo’s treatments are likely to remain in demand despite the firm’s shady business practices. Further, the company’s impressive pipeline of treatments under development means that Glaxo is only likely to gain more customers in the future.
All in all, I have confidence that whatever damage is done to Glaxo’s reputation with regards to marketing practices, as long as the company’s treatments do not attract negative attention, the company should continue to profit in the long-term.
This being said, Glaxo has recently been forced to withdraw a number of treatments from development following poor test results. These treatments include the company’s ovarian cancer treatment, Votrient, as well as chronic coronary heart disease treatment Darapladib and the MAGE-A3ii cancer immunotherapeutic.
Still, despite these failures, Glaxo has more than 40 new treatments under development the most promising of which is the company’s experimental HIV protection drug.
Actually, Glaxo’s treatment pipeline has been voted by City analysts as the most promising within the biotechnology industry and for this reason alone, I am really excited about the company’s future prospects.
Foolish Summary
Overall, Glaxo’s recent setbacks are worrying but the company’s core business, the business of designing and manufacturing treatments to cure and prevent illnesses remains unaffected. So, I think that after recent declines I might buy into Glaxo as the company’s long-term outlook is promising.
