GlaxoSmithKline plc (GSK - Free Report) , one of the largest health care companies, reshaped its business following Mar 2015 completion of the three-part, inter-conditional transaction with Novartis AG (NVS - Free Report) . Under the deal, Glaxo sold oncology assets to Novartis and acquired Novartis’ Vaccines business (excluding influenza vaccines).
This UK-based company now focuses on three core businesses – Pharmaceuticals (respiratory, HIV), Vaccines (pediatric, adolescent, adult, and travel vaccines) and Consumer Healthcare (wellness, oral health, nutrition and skin health products).
Glaxo is seeing a strong performance across all three business segments. Further, the company’s diversified base and presence in different geographical areas should support the top line.
Let’s find out if it will be a good investment in 2017. Here are six reasons to invest in the stock this year.
Good Rank and Solid VGM Score: Glaxo carries a Zacks Rank #2 (Buy) and a favorable VGM score of ‘B’. Back-tested results show that only stocks with a VGM Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
Strong Q4 Results: Glaxo beat earnings and sales estimates in the fourth quarter of 2016, results of which were announced last month. While core earnings were up 11% year over year at constant exchange rates (CER), sales were up 3% at CER driven by a strong performance at all of the business segments.
Rising Share Price and Estimates: Shares of Glaxo have risen 9.9% so far this year while the Zacks classified Large-Cap Pharma industry registered an increase of 7.0%.
Meanwhile, estimates for 2017 and 2018 have risen by 4.5% and 2.9%, respectively, in the past 60 days.
This pharma giant has been consistently beating earnings expectations. Its earnings surpassed expectations in three of the last four quarters, with an average positive surprise of 11.03%.
Expansion in Emerging Markets: Glaxo’s Expansion into markets like Japan and emerging markets should provide new opportunities for growth. The company has made significant progress in expanding presence in emerging markets by acquiring product portfolios from companies like Bristol-Myers Squibb Company (BMY - Free Report) and UCB SA (UCBJF - Free Report) . Glaxo has an agreement with Daiichi Sankyo to form the largest vaccine company in Japan.
New Products to Provide Top-Line Support: Many of Glaxo’s key drugs like Lovaza and Avodart are facing generic competition. Importantly, pricing dynamics and competitive pressure are hurting sales of its top-selling drug Advair. Meanwhile, Advair is anticipated to face generic competition in the U.S. in 2017, which will further hurt sales.
In such a scenario, performance of new products as well as of those acquired from Novartis has been encouraging. New products like Nucala (severe eosinophilic asthma), Tivicay (HIV) and Breo Ellipta (chronic obstructive pulmonary disorder/COPD and asthma) represent significant commercial opportunity. Tivicay and Triumeq (both HIV), Relvar/Breo, Anoro, Incruse, Nucala (all respiratory) and Menveo, Bexsero (meningitis vaccines) should perform well and boost revenues significantly. These new pharmaceutical products generated 22% of Glaxo’s Pharmaceuticals and Vaccine sales in 2016. Going ahead, Glaxo expects new pharmaceutical and vaccine products including contributions from the yet-to-be approved Shingrix vaccine to deliver sales of at least £6 billion per annum by 2018.
Deep Pipeline: We think Glaxo possesses one of the stronger late-stage pipelines in large-cap pharma. Glaxo has made significant progress with late-stage pipeline. The company is focused on Oncology, Immuno-Inflammation, Vaccines, HIV and Infectious diseases, Respiratory and Rare diseases. Promising candidates in late-stage development or under regulatory review include Shingrix (prevention of shingles), Benlysta (systemic lupus erythematosus/SLE), sirukumab (rheumatoid arthritis/RA), Closed Triple therapy (COPD) and cabotegravir (HIV). In 2017/2018, the company expects important data readouts for 20–30 assets in clinical development.
The successful development and commercialization of the pipeline candidates should boost the company’s top-line. Glaxo is also working on expanding the label of marketed products like Nucala. Meanwhile, we believe biopharmaceuticals will play an important role in driving growth going forward. Further, it is working on growing biopharmaceutical pipeline through in-house discovery, acquisitions and by in-licensing late-stage products.
Glaxo faces its share of challenges in the form of stiff competition, genericization and pricing pressure. However, strong sales of new products, label expansion of existing drugs, and a strong pipeline can keep it afloat. Meanwhile, investor focus should remain on the stock in 2017 as a number of regulatory and pipeline updates are expected this year.
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