GlaxoSmithKline plc’s Short-Term Pain Could Be Investors’ Long-Term Gain

GlaxoSmithKline’s (LSE: GSK) (NYSE: GSK.US) shares have taken a beating during the past year or so, as allegations of bribery have hit the company’s Chinese arm, where sales have slumped as a result.

What’s more, fresh allegations of bribery have arisen during the past two weeks with Glaxo now suspected of bribing officials within Jordan, Lebanon, Iraq and Poland in order to drive sales.gsk

Unsurprisingly, the market has not taken this news well and, up until today, investors were dumping Glaxo’s shares, sending them to a 52-week low.

However, for the long-term investor, this could be a great buying opportunity.

You see, while investors may be unimpressed with Glaxo’s actions now, it is likely that over the next few months the market will forgive the company. Indeed, as one of the world’s leading pharmaceutical companies, with an exclusive portfolio of treatments, Glaxo’s customers are unlikely to turn their back on the company for a sustained period of time.

As a result, although Glaxo’s sales may decline in some markets as a result of bribery claims in the near term, over the longer term the company’s sales should recover. 

Changing practices

Still, Glaxo’s management knows the company has made some mistakes. So, management is making drastic changes to the way Glaxo markets products to prospective customers.

For example, management has overhauled company marketing practices within the United States, changing the way sales representatives are paid and ending a plan whereby doctors were paid by the company to speak at industry events. 

Good news

On the other hand however, during the past week Glaxo has announced that two of its new treatments have been approved for sale. With these two new products hitting the market, Glaxo has brought a total of seven new drugs to market within the past 16 months.

And this is not taking into account today’s game-changing deal between Glaxo and Swiss drugs producer Novartis.

Specifically, the deal with Novartis will see the consumer divisions of Glaxo and Novartis merge, creating a ‘world-leading’ consumer healthcare business with £6.5bn in revenue in 2013. In addition, Glaxo is acquiring Novartis’ vaccines business for an initial cash consideration of $5.25bn and Novartis is acquiring Glaxo’s oncology portfolio for $14.5bn.

Foolish summary

So overall, bribery allegations made against Glaxo may dent the company’s sales in the short term. However, Glaxo’s dominance within the global pharmaceutical market implies that over the long term, sales will recover, making the company look like a great investment at current levels. 

Glaxo's defensive nature, robust cash flows and impressive dividend yield makes the company the perfect long-term buy and forget share.

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