Don't Take Your Eyes Off This Company
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While GlaxoSmithKline (NYSE: GSK) is currently making headlines with bad legal news, it may not be in that bad of a position after all. GlaxoSmithKline and its partner Theravance (NASDAQ: THRX) recently presented positive clinical results that have helped give positive publicity to both companies. AstraZeneca (NYSE: AZN) is also working on some new treatments through collaborative efforts, and Johnson & Johnson (NYSE: JNJ) is seeking approval for a new drug. Sanofi (NYSE: SNY) has also been working to bring new drugs to the market, but it has produced rather mixed results. All five companies have some positive news with upcoming drugs and treatments. In this article, I will focus on how new drug developments are impacting GlaxoSmithKline, and what this means for potential investors.
The current situation may look dreadful for GlaxoSmithKline, as it has recently agreed to settle its healthcare fraud case for $3 billion. The company targeted the antidepressant Paxil to patients under the age of 18, although it had not been approved for these patients. It also promoted its drug Wellbutrin for unapproved uses, and it failed to give the Food and Drug Administration safety information about its diabetes drug Avandia.
Some may be quite surprised that the stock is doing so well, therefore, but a variety of details can help explain this. GlaxoSmithKline already disclosed the settlement to investors, so the negative effects have already taken place. Aside from this, the settlement was $150 million less than anticipated, so the $3 billion settlement was better than investors expected. GlaxoSmithKline and Theravance also announced positive results about a follow-up to Advair, another one of the drugs in the settlement. Lastly, other European drug stocks are up, so this has also helped drive GlaxoSmithKline's stock higher.
All three reasons likely had some effect on GlaxoSmithKline stock, but I think the most important development helping the stock is its announcement with Theravance. As a result of its positive clinical trial findings, it now plans to begin global regulatory submissions for its UMEC/VI by the end of 2012, which is ahead of its anticipated schedule. It also plans to announce the full set of results and other findings at future scientific meetings. If this is any indication of what is to come, this will likely continue to benefit the company.
GlaxoSmithKline and Theravance are also putting great faith in Relovair, which would also be a successor to Advair. This demonstrates how much the companies are working to develop new treatments to replace their "lung drug" Advair. More good news will likely be in their future, so GlaxoSmithKline and Theravance both appear to be solid investments when it comes to upcoming treatments.
New drugs are the way that pharmaceutical companies stay at the top and maintain strong sales. These developments may be enough to offset the bad news for GlaxoSmithKline, and they are certainly having a positive impact on Theravance stock. With the settlement still holding GlaxoSmithKline back, however, it is not surprising that Theravance stock did much better than GlaxoSmithKline stock following the announcement.
Still, GlaxoSmithKline is trading near $45 which is near the best its been all year and close to the high marks it was trading at in 2008. The company boasts a dividend yield of over 5%, a healthy number indeed. And though its revenue is down, it did not have to surrender the $3 billion which is great and it's looking to make some big acquisitions which could help with its bottom line.
Theravance has had a killer 2012, up over 28% and sitting right near its 52 week high. It's a much smaller company (market cap of only $2.5 billion) though it's certainly starting to make a name for itself.
Much like GlaxoSmithKline and Theravance, AstraZeneca and Cellworks are attempting to create innovative new products through collaboration. They have announced that they will work together, as this should allow them to hasten the development of combination therapies for drug-sensitive and resistant tuberculosis. They hope to find a combination with "better efficacy and lower toxicity" than the existing treatments. This should bring good things to both companies in the future, as this may generate better sales if they are successful.
AstraZeneca and Cellworks are not the only companies looking to treat tuberculosis, as Johnson & Johnson is looking for approval of its experimental tuberculosis drug, bedaquiline. This would be the first new type of tuberculosis medicine in over forty years, so this would certainly be a major victory for the company. Johnson & Johnson, AstraZeneca, and Cellworks, therefore, are in positions to reinvigorate a focus on tuberculosis treatments. They will likely become the companies at the top of the industry when it comes to this kind of treatment, and this will help them increase sales and gain market share.
AstraZeneca has fallen off a bit in 2012, but it definitely is showing some promise. Aside from its moves, its 6.18% dividend yield certainly is not turning anyone away just yet. Look for AstraZeneca to stay positive moving forward.
In terms of upcoming treatments, the news has been very positive for GlaxoSmithKline, Theravance, AstraZeneca, Cellworks, and Johnson & Johnson. One company that has had a little more trouble in this regard is Sanofi.
Things may initially seem quite positive, as the European Medicines Agency has given a positive opinion about Hexaxim, Sanofi's hexavalent vaccine for babies and toddlers. This should help the drug gain approval in later stages before it actually hits the market. However, after this development, Sanofi received a worse piece of news regarding an upcoming treatment. A U.S. Food and Drug Administration panel voted 14-1 that Sanofi's blood-clot drug semuloparin does not have enough benefits to outweigh the risks. Analyst Eric Le Berrigaud estimated that the drug could yield annual peak sales of 550 million euros (or $698 million) by 2018. Sanofi investors should definitely be concerned about the news. Unfortunately, this comes right as Sanofi is recovering from a big dip that came at the end of May of this year. The company's stock price has stabilized back to the middle of its 52 week range, trading for about $37.
Sanofi is still a strong company when it comes to its new treatments, even though it has seen both good news and bad news. With that said, GlaxoSmithKline, Theravance, AstraZeneca, and Johnson & Johnson all seem to be in better positions when it comes to new treatments. AstraZeneca and Johnson & Johnson are specifically in a good position to break new ground in the treatment of tuberculosis. I'd suggest buying into either of them, especially if the treatment can get off the ground fast. GlaxoSmithKline and Theravance are doing well in preparing a new drug to succeed its lung drug Advair. This could be an excellent way for the companies to earn profits in the coming quarters, so now may be the best time to buy.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca plc (ADR), GlaxoSmithKline, and Johnson & Johnson. Motley Fool newsletter services recommend GlaxoSmithKline and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.