FTSE 100 pharmaceuticals company GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has been a favourite of mine for a while. The sector has been a reliable source of income for investors because it tends to perform well regardless of the economic cycle. Unfortunately, there are always going to be sick people in need of treatment, creating a reliable revenue stream for the big pharma companies.
However, I wouldn’t buy a share just because it happens to operate in a desirable sector. GSK has excelled on many counts. Since 2009, it has achieved more Food and Drug Administration approvals of new molecular entities, or new drugs to me or you, than any other company, a fairly impressive achievement.
It only has one “blockbuster” drug, Advair, that accounts for over £1bn of sales. Unfortunately its patent has already expired, and its £5bn sales are being put under pressure from generics. Management are confident, however, that the seven respiratory treatments in late-stage development should maintain the company’s leading position in respiratory treatment over the long term.
With 40 NMEs in late-stage development and a great R&D record, Glaxo has a pipeline that should carry it comfortably into the future. While we wait for some of these to develop, the company pays a 5.4% dividend well covered by cash flow, even if earnings cover is a bit low at 0.9x.
