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GSK share price: why I think the world still needs GlaxoSmithKline for Covid-19

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The GlaxoSmithKline (LSE:GSK) share price hasn’t done much over the past year. As of the middle of February, the GSK share price has declined 3% in the last 12 months.

One reason for the GSK share performance could be that the company isn’t among the current leaders in Covid-19 vaccines. GSK’s Covid-19 vaccine candidate, which it worked on in conjunction with Sanofi, didn’t produce the initial results that it expected in the over-60 population. As a result, GSK might not have a vaccine ready until late this year or later.

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While the result isn’t ideal, I nevertheless think GSK could have an opportunity to contribute to the fight. Here’s more and how I reckon the GSK share price could be affected as a result.

Why the world still needs GlaxoSmithKline

Although there are multiple vaccines for Covid-19 on the market already, I reckon the world will still need GlaxoSmithKline. I think this could affect the GSK share price as well.

First, demand for Covid-19 vaccines is so great that there will likely still be a need for Covid-19 vaccines against the initial strain in a year. If GlaxoSmithKline and Sanofi’s Covid-19 vaccine candidate is approved by regulators at that time, it could still be in demand.

Second, I don’t think it’s possible to fully end the coronavirus in a short amount of time given the limitations of current technology. Some think Covid-19 variants could be with us forever, which might make it necessary to have new vaccines every so often.

GlaxoSmithKline is the largest vaccine company by revenue, with leading research and development facilities, and immense manufacturing resources. If GSK’s leading R&D (either by itself or through collaboration) succeeds in developing a successful vaccine against a future variant quickly, the company could once again be among the leaders in the fight and realise more sales.

Given the company’s manufacturing capacity, GlaxoSmithKline could also be fighting against Covid-19 given its collaboration with German mRNA vaccine company CureVac (assuming that CureVac’s vaccine candidate gets approval).

Vaccines and the GSK share price

I reckon the GSK share price depends in part on how well its vaccines succeed, because vaccines are a huge business for GSK. In pre-pandemic 2019, GSK’s vaccine business generated £7.2bn in sales and accounted for around 21% of the company’s total sales of £33.8bn. GSK’s vaccine division was also growing quickly before the pandemic. In 2018, the division grew 16% year over year at constant exchange rates. In 2019, the vaccine division grew an even faster 19% year over year at constant exchange rates. Athough GlaxoSmithKline’s vaccine division sales were slightly lower due to the pandemic, I think it has a promising future given that much of the demand comes from emerging markets that will very likely grow in terms of income.

GSK’s vaccine division, along with the company’s potential to benefit from tech advances are two reasons I’d buy and hold GSK shares.

With this said, I’m mindful that the share performance could be disappointing if management doesn’t deliver the results that markets expect. Meaningful research and development is difficult and expensive, and doesn’t always produce results. Also, competition from generic products can hurt GSK’s profit margins.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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