GlaxoSmithKline (LSE:GSK) stock just received a major boost. After a week of dread following the news of the Omicron variant, we have some uplifting information. The antibody treatment developed by the drug manufacturer called sotrovimab (brand name Xevudy) has been approved by the Medicines and Healthcare products Regulatory Agency (MHRA) for use in the UK. The British regulatory body found that the drug “cut hospitalisation and death by 79%” in cases with mild-to-moderate Covid-19 symptoms. This comes after the pharma giant signed a deal, alongside Vir Biotechnology, with the US government for approximately $1bn in November.
The company’s share price has already jumped 1.6% in the last week while the FTSE 100 index has gone down 2.7% in the same period. One-year returns stand at a modest 10.4%. However, given this major update, is the GlaxoSmithKline stock a good buy for my portfolio now? How do the long-term prospects for the company look? Let’s find out.
In the extremely crowded pharma sector, GlaxoSmithKline is making huge strides in the R&D department. The company is focusing on areas like oncology, HIV, infectious diseases, immuno-inflammation and respiratory illnesses.
The third-quarter (Q3) report showed that HIV drug sales grew by 8%, mostly from new product sales. Its innovation products segment represents 29% of its vast drug portfolio, contributing nearly £1bn to sales so far in 2021.
Pharmaceutical sales in Q3 were £4.4bn with 10% growth in new and speciality medicines. Oncology drug sales grew 34% and vaccines sales were £2.2 billion, with new jab Shingrix (a vaccine for preventing shingles in adults) contributing £502m. Covid drugs sales stood at £209m.
Although the Covid drugs will bolster earnings in the short term, their contribution is small in comparison with other divisions. The pharma giant has a robust R&D framework to continue progress post-pandemic.
The company also hired vaccine executive Philip Dormitzer last week from Pfizer, banking on the future of mRNA technology. He played an important role in the development of Pfizer’s covid vaccine. Analysts see this as a strong move after a mini exodus of research talent from GlaxoSmithKline earlier this year.
Concerns and verdict
I think this move could push its vaccine research a long way. However, pharma shares do come with some pitfalls. Certain drug patents have a shelf life, which opens up the possibility of cheaper, non-brand alternatives. This could affect sales in global, developing markets, which is a concern for me when considering the GlaxoSmithKline stock.
Also, its dividend of 80p, which is unchanged since 2015, is set for a downgrade. Although the 5.5% yield looks meaty right now, the company is set to split off its consumer healthcare operations in 2022. The division valued at over £40bn could be primed for a takeover bid and this could subsequently dent GSK’s yield.
Despite this, I see tremendous value in the company. Given its vast R&D, it holds strong pricing power and market share. The positive news surrounding its new sotrovimab drug will also increase visibility among investors. The pharma industry has proved more crucial than ever over the last couple of years and I think the GlaxoSmithKline stock has a high ceiling. That’s why I’m tempted to invest in the company today.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Suraj Radhakrishnan 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.