The GlaxoSmithKline (LSE: GSK) share price has struggled for the past 18 months or so. This has heaped pressure on management and attracted the attention of activist investors. Last month it was reported that one such, Elliott, had taken a stake.
This investment follows a string of disappointments at the company and its subsequent share price decline. Over the last 12 months, the shares have fallen 17%. By comparison, rival AstraZeneca’s share price is down by only 9%, despite its high-profile clashes with the EU over Covid vaccines. I’d think that would mean its share price performance should be worse, indicating just how out of favour GlaxoSmithKline shares are.
What’s gone wrong at GlaxoSmithKline?
My perception is that GlaxoSmithKline is playing catch-up with other leading pharma groups to replenish its pipeline of blockbuster drugs. The journey to new drugs is far from plain sailing. In January, cancer hopeful bintrafusp alfa failed a key late-stage trial. Another drug in the company’s oncology pipeline, dostarlimab, suffered an inspection delay.
Overall, the company is paying the price for being much slower to invest in its research than competitors. In turn, this means there’s a perception it’s overpaying to acquire growth, for example through the £4bn acquisition of Tesaro.
Developing new drugs takes a long time. It seems investors are losing patience with GlaxoSmithKline, as competitors continue to pull ahead.
The fact that GSK is a major vaccine developer, but has struggled so far to create an effective Covid-19 vaccine, won’t have helped its image.
Can Elliott boost the GlaxoSmithKline share price?
It’s not clear yet what Elliott intends to do so it’s hard to say whether it can boost the GSK share price. Elliott has a mixed record of agitating for change at other pharmaceutical groups. At GlaxoSmithKline, its job may be made easier by the fact that other major investors seem to be losing faith in management and will want to see the share price performance improve.
Part of Elliott’s ability to force through change at GSK will depend upon how other investors react to its proposals – once they’re known.
It’s far from guaranteed that the activist investors’ involvement will benefit private investors, or that the change they want to see will happen. For example, Barclays managed to see off Sherborne Investors, which had been agitating for the firm to get rid of its investment bank.
Would I add it to my portfolio?
It could be argued that GlaxoSmithKline is a cheap recovery share that provides quite a generous level of income. The dividend yield is 5.8%. The fact that expectations are low means GSK could outperform. A run of positive drug trial updates has the potential to really boost the GlaxoSmithKline share price. That’s the positive view. But I’m not tempted to add it to my portfolio. The planned spin-out of its consumer business will make it even more reliant on its new drug pipeline and scientists. Both of these seem to be underperforming. I’d therefore be quite worried about the dividend in the future and about whether the share price will improve.
I’ll avoid it for my portfolio. I think there’s a very real risk that the GlaxoSmithKline share price could keep heading down over the coming years.
