Glaxo: Scandal behind, pipeline ahead

by Vivian Lewis, editor Global Investing

UK-based GlaxoSmithKline (GSK) lost its ethical way and reputation due to promotions for tranquilizers aimed at teenagers -- although never approved for their use.

The firm has had to pay $3 billion. The settlement is the largest fraud case any firm in the US healthcare industry ever paid. Now you know the bad news.

The former overpaid managers who ran this racket until 2010 have been replaced. And the company's numbers are looking better.

But the pipeline is my main reason for tipping the shares. It is close to launch early next year of a GLP agonist, albiglutide, a once weekly pill against diabetes.

It has been studied in over 5000 patients in the Harmony 8 trials and data are being tallied for this regulator of blood sugar levels. It appears to have fewer renal and heart side effects that Merck's Januvia and to be well tolerated. The glucogen-like peptide was licensed to Glaxo by Human Genome Sciences.

Another exciting GSK drug is being developed by a joint venture with Pfizer, ViiV, to block the HIV virus in patients who have not been treated before.

At 48 weeks it suppressed the AIDS virus in 88% of those given it vs only 81% in the rival drug, Atripla, mainly because the dropout rate (and the side effects) were lower for Shionigi, which only 2% of patients stopped taking. It is an integrase inhibitor, formally dolutegravir.

Another pipeline of coming drugs is based on Kinemed biomarkers to handle wasting diseases, metabolic diseases, and fibrosis.

In addiition, another pipeline star is an anthax jab based on biologic monoclonal antibodies which target the anthrax toxin. This also was acquired from Human Genome Sciences, called Raxibucumab. Vaccines are a good growth area thanks to GSK's full range of shots for children, adults, and people at risk.

Icidentally, Glaxo has just announced it is acquiring Human Genome for $14.25 per share, or $3 billionn. GSK will no longer have to pay royalties to HGSI for their lupus drug, Benlysta, and for two other major finds, aliblutide against diabetes, approvals to be applied for next year; and darapladib against heart disease.

Overall, GSK is a huge drug operator with revenues of $43 billion last year, and a market cap of $112 billion. It earned $8.6 billion last year or $3.15 per share and while not well-behaved, it does pay out most of its earnings to shareholders in dividends.

Its debt is a relatively modest 37% of cap and Human Genome won't add to it. Glaxo has a 35% EBITDA margin and net profit just under 20% of revenues but if stops taking shrinks to Hawaii maybe they will fall a bit.

Analysts tend to vote neutral on GSK because of the scandal and it is under-owned by institutions, at only 10%. The consensus estimate is that GSK will earn 93 cents per share.

In addition to its pipeline, GSK is that rare bird, a growth pharma company with a 5% plus yield. I want to buy before its Q2 earnings come out July 25 and before Human Genome shareholders decide on the offer.

Learn more about this financial newsletter at Vivian Lewis' Global Investing.

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