Can GlaxoSmithKline PLC Rule The World?

Does GlaxoSmithKline PLC (LON:GSK) have the fundamentals to rule the world?

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The world needs vaccines: these products are as vital to the human race as food, water and shelter, so it must follow then that the companies developing and producing medicines and vaccines must command significant global influence. Without vaccines, the human race might face extinction.

GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) was established in 2000 by the merger of GlaxoWellcome and Smith Kline Beecham. It is a UK-based pharmaceutical company, and using market capitalisation, it is the world’s fourth-largest pharmaceutical company after Novartis, Pfizer and Merck.

Glaxo employs almost 100,000 people in over 100 countries — more than 13 thousand of these employees work in research — and development and by their own admission Glaxo claims to be one of the world’s leading research-based pharmaceutical and healthcare companies”.

  Market Capitalisation (US$ Billion)
Novartis                                                                 207.33
Pfizer                                                                     196.98
Merck & Co                                                            168.35
GlaxoSmithKline                                                    127.25

Operating in several sectors, Glaxo make prescription medicines, vaccines, over-the-counter medicines, oral care and nutritional healthcare products. However, following a worldwide review of business, Glaxo has made the decision to sell its oncology portfolio and strengthen its vaccines business as an asset swap with consideration to Swiss drugs producer Novartis. Glaxo said it wanted to narrow its focus on the “key areas of vaccines, respiratory, consumer and HIV medicines, and this deal could be followed by the disposal of its portfolio of older drugs.”

gskChief executive Andrew Witty said that these core areas made up 70 percent of the business and it was accelerating a review of its product portfolio that made up about half of the remainder. In addition, Glaxo and Novartis are set to create a ‘world-leading’ consumer healthcare business, in which Glaxo will assume majority control with a 63.5% equity interest. This is expected to have a revenue stream of over US$ 6bn annually.

As Novartis confirmed this deal, it also announced Eli Lilly will buy its animal health division for about $5.4bn.  If this is the first wave of realignment of assets throughout the pharmaceutical industry, it is difficult to forecast how the major league tables will change over the years ahead. Its seems the days of traditional large-scale M&A deals, where previously pharmaceutical companies amalgamated, are gone and instead the major industry players are taking position in niche areas in which they can be the leading player and command market dominance.

Can GlaxoSmithKline rule the world? Well, it certainly has its sights set on being the market leader in vaccines… this is an important sector, and if any one drug manufacturer can take monopolistic control over the world’s vaccine production, then yes, it can rule the world.

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.

Lisa does not own any share in GlaxoSmithKline. The Motley Fool has recommended shares in GlaxoSmithKline.

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