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Why GlaxoSmithKline Plc Has The Most Promising Pipeline

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With the loss of exclusive manufacturing right for a number of the company’s bestselling treatments, investors are right to express concern about GlaxoSmithKline‘s (LSE: GSK) (NYSE: GSK.US) future. In particular, the company’s ability to come up with new products.

Indeed, Glaxo is finally losing all of its exclusive production rights for the company’s blockbuster ADVAIR treatment and ADVAIR DISKUS delivery device. Previously, the ADVAIR DISKUS delivery device, which regulates the amount of treatment administered to the user, had proven impossible for peers to replicate. Unfortunately, recently developments have made it easier for peers to replicate this device.

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City analysts predict that the loss of ADVAIR sales, which account for around 20% of Glaxo’s annual turnover, will wipe 5% off the company’s valuation. In addition, Glaxo’s recent divestment of the Ribena and Lucozade brands has troubled some investors, as the ownership of these two brands gave Glaxo some diversification outside of the pharmaceutical sector. 

Suffering setbacks

Still, Glaxo’s management has been proactive and had hoped to bring 14 new treatments to market during 2013 and 2014. The company is also trying to move away from the ‘blockbuster’ mentality of the business, where one treatment accounts for the majority of the company’s sales. Instead, Glaxo is focusing on numerous treatments, which will be better in the long-term for the company.

However, Glaxo has suffered several setbacks recently. Firstly, the company’s experimental Crohn’s disease treatment, Vercirnon failed meet target in its phase III study. And secondly, the company announced disappointing data from the phase III DERMA study on its MAGE-A3 cancer immunotherapeutic. Unfortunately, both of these treatments are unlikely to be continued. 

Remaining positive

Having said all of that, at the beginning of November, investment research firm, Morningstars’ top analysts ranked the major drug companies in order of their treatment pipelines.

They found that despite the company’s recent setbacks, Glaxo’s treatment pipeline appeared to be the most promising in the biotechnology sector.  Specifically, analysts liked Glaxo’s push into oncology and respiratory diseases and the company’s decision to create dedicated research teams more narrowly focused on key programmes.

In fact, Glaxo’s position at the top of the list is even more impressive when we take into account the fact that the company was being weighed up against biotechnology heavyweights, Sanofi, Johnson & Johnson and Pfizer, all of which were ranked below Glaxo.

Foolish summary

All in all, although Glaxo has not had much luck developing its treatment pipeline during the past few months, the company’s outlook appears promising. 

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>Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in GlaxoSmithKline.

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