GlaxoSmithKline (LSE: GSK) has teamed up with French pharmaceuticals company Sanofi to develop a vaccine for Covid-19. It’s good news for everyone, but will it be good news for the GlaxoSmithKline share price?
If there is one business activity that public opinion doesn’t like right now, it’s profiteering. Happily, this is not what GlaxoSmithKlin is doing.
I think GlaxoSmithKline shares look tempting. Not specifically because GSK may help us defeat the virus, but because of what this announcement tells us about the company.
CEO Emma Walmsley has said the company won’t profit from any resulting vaccine during the pandemic. Instead it would use the revenue to fund a ramp-up in manufacturing.
This tells us the company is well placed for the world that will emerge once this crisis is finally over.
The arrangement entails combining the Sanofi’s DNA technology, which it uses to manufacture flu vaccines, with GSK’s expertise in adjuvant technology. This technology leads to a much stronger immune system reaction, creating more antibodies.
The adjuvant technology means a much lower dosage is required for a vaccine to be effective. As a result, vaccine production can be increased more rapidly.
It is extremely unusual for pharmaceutical companies to collaborate in this way. Walmsley called it “unprecedented“. She also referred to the remarkable speed with which the two companies plan to mass produce a vaccine. They expect the vaccine to be available in the second half of next year. It normally takes many years, even as long as a decade, to be able to mass produce a new vaccine.
That’s modern technology for you. If the Covid-19 pandemic had occurred a few years ago, there would have been no hope of developing a vaccine so fast.
I believe that once this crisis is finally at an end, the world will seem like a different place with very different priorities.
There will also be much greater awareness of the dangers from disease. Covid-19 is the third major coronavirus this century. The pressures created by climate change and over-population is some regions means there will probably be more.
Furthermore, with antibiotics losing their effectiveness, I expect to see renewed efforts to develop new antibiotics. GlaxoSmithKline is proving that its outstanding expertise will be invaluable in this new era.
Foolish bottom line
Glaxo’s share price has fallen around 14% from this year’s peak price. In general, I think the markets are underestimating the long-term economic effects of this crisis. GlaxoSmithKline, however, is one of the few companies that I think is well poised for the post Covid-19 era. Recent falls in the share price push its forward price-to-earnings ratio down to around 13. At the current share price, forecast dividends are 5.3%. However, I don’t think the share price is reflective of this upside potential.
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Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK owns shares of and 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.