For  the  Shareholders  or  for  the  Patients?  

BESA  15.05.15  

Philipp  Martys      

Links:  http://www.theguardian.com/business/2015/may/06/glaxosmithkline-­‐scraps-­‐float-­‐plans-­‐hiv-­‐business  http://www.ft.com/intl/cms/s/3/76b72cb0-­‐f401-­‐11e4-­‐99de-­‐00144feab7de.html#axzz3ZXsBnjW3    

GlaxoSmithKline, a British multinational pharmaceutical company is said to be

“making the right calls, but growth prospects remain tenuous”. On the 6th of May,

GSK presented its first-quarter results (currently trading at 1,418.50 pounds) and

declared that the planned IPO of selling part of its HIV drug that potentially could

bring $10bn has been cancelled. The market for HIV drugs as well as research and

development is highly profitable, growing at a steady rate.

A contrasting move to the industry has been preformed. The industry and many of

GSK’s competitors are moving to expensive specialist drugs to fight cancer, while

GSK is trying to sell large volumes of vaccines, Sensodyne toothpaste and the

painkiller Panadol in emerging markets. As can be seen on the first quarter results,

the company does not need cash; it needs growth! On top of this antagonistic

movement, GSK performed an asset swap with the competitor Novartis. It shifted

“away from pharmaceuticals” and “towards vaccines and healthcare”. The chief

executive Andrew Witty believes that “governments in the US and Europe will

continue to push for lower drug prices amid slower economic growth, declining

healthcare budgets and ageing populations”. The approach of Mr. Witty is a

conservative one, which might pay off in the long run. The investment of that

company builds around its dividends. The expansion to the world market, not the US

and European one will make profits fall sharply this year, as the company digests the

recent transactions. This strategy is for patients and not for shareholders since there

will be no dividend growth until 2018.

In addition, the decision to keep the HIV segment was a wise one. It launched ViiV

with the US competitor Pfizer six years ago and it generated 446 million pounds this

year and helped at reducing in a more efficient way the HIV content in the

bloodstream, more than any existing therapy. This great news has been partly put on

hold since GSK’s bestselling asthma treatment Advair has declined due to pricing

pressure and cheap imitations from US competitors. If Mr. Witty’s plan works out

then 2018 will be the year of shareholders and patients.