GlaxoSmithKline ranks among the largest companies in terms of turnover. The company dominates in several therapeutic classes, including respiratory, cancer and antiviral treatments, as well as vaccines and consumer health products. Glaxo uses joint ventures to gain scale in certain markets such as HIV and consumer products.
The British laboratory has used its vast resources to create the next generation of health treatments. The company’s new line of innovative products and long list of patent-protected medicines create, in our view, a wide competitive bulwark.
The breadth of Glaxo’s reach is evidenced by a product portfolio that spans multiple therapeutic classes as well as vaccines and over-the-counter drugs.
The diverse platform insulates the company from single product issues. Additionally, the company has developed next-generation respiratory and HIV medicines that should help mitigate competition from other brands and generics.
We expect Glaxo to be a major contender in respiratory disease, HIV and vaccines over the next decade.
On the pipeline front, Glaxo has shifted from its historic strategy of targeting small improvements to true innovation.
Also, it is focusing more on oncology and the immune system, with genetic data to help develop the next generation of drugs. The benefits of these strategies are evident in Glaxo’s early-stage drugs.
We expect this focus to improve approval rates and corporate pricing power.
Unlike respiratory drugs, treatments for cancer indications have very strong pricing power with healthcare systems.
Geographically, Glaxo is strategically diversifying from developed to emerging markets.
Its consumer and vaccine segments position the company well in these price-sensitive markets.
While this strategy is likely to create challenges, such as the potential breaches of the law that occurred in early 2013 in China, we believe that fast-growing emerging markets will help support long-term growth and diversify cash flows beyond. beyond developed markets.
Glaxo’s decision to divest its consumer business will likely unlock value.
Glaxo plans to divest its consumer group in mid-2022.
Given the strong valuations of consumer healthcare companies, we expect this business to produce a stronger valuation than Glaxo’s current structure implies.
We have slightly increased our fair value estimate for GlaxoSmithKline to 2,050 pence from 1,950 think based on strong better than expected results in early 2022.
In particular, the shingles vaccine Shingrix appears well positioned for growth as we emerge from the pandemic.
Overall, we expect average annual sales growth of 7% over the next five years (including acquisitions and joint ventures), as new products such as Shingrix offset generic competition due to patent losses.
In addition, continued growth in vaccines and consumer health products should reduce the volatility of prescription drug patent losses.
We expect nearly 200 basis points of margin expansion over the next five years as high-margin specialty drugs account for an increasing share of total sales.
The increased scale of vaccines and consumer products should further improve these margins.
For the discount rate, we estimate Glaxo’s weighted average cost of capital at 7%, in line with the group of listed comparables.
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