When Emma Walmsley took over as CEO of GlaxoSmithKline (LSE:GSK) she talked about “courage”.
GSK has often felt a little like a sleeping giant. The share price peaked in 1999, but over the last five years have increased by a mere 10%. The dividend remains attractive, and maybe that’s what we want from companies like GSK, whose shares are often the stalwart of a portfolio designed to bring in income — low risk, boring, safe.
The latest results revealed an 8% increase in sales and a 4% increase in earnings. The sales performance was on par with expectations, the earnings a little below. Shares fell modestly.
That’s GSK, not exactly exciting.
But GSK is being divided into a sexy and non-sexy business — not that the company uses those words.
There will be the consumer healthcare business, which will be part of a joint venture with Pfizer — that’s I would call the non-sexy part. And there will be the biopharma business, which is the part that requires courageous staff. This is the part that I think will be the real growth stock.
The biotech revolution
I reckon that the pharmaceuticals and biotech sector is on the verge of a revolution. Advances in computer power seen over the course of this century may lie behind it. Developments in genome sequencing, AI, nanotechnology, and the remarkable potential of gene editing via a technology known as CRISPR/cas 9 (perhaps the world’s single most important discovery in the century so far) are creating extraordinary opportunity.
It is certain that companies that stick with tried and tested formulae, timidity their stock-in-trade, will not be the ones to benefit from this opportunity.
That’s why when I heard Emma Walmsley talk about the need for courage among staff, it was music to my ears.
So, how’s it going? Is GSK really more daring these days, and if it dares, will it win?
The latest results contained morsels to whet my appetite. I am not saying “corr” about the company yet, but maybe I will soon.
In the transcript from the GSK earnings call yesterday, the word ‘data’ was mentioned 51 times. AI and ML (machine learning) was also referred to. I was especially pleased to see Hal Barron, GSK’s head of R&D talk about setting up a laboratory for genomics research to be headed by none other than Jennifer Doudna and Jonathan Weissman, the pioneers behind CRISPR.
I think that Emma Walmsley has been successfully editing the GSK corporate DNA, such that if GSK was a sleeping giant, it is now awake. The shares might not quite shoot up like Jack’s beanstalk, but I think the company is well placed to benefit from the biotech revolution.
I am expecting an exciting five years ahead for GSK shares. I think GSK, at least part of it, is becoming sexy again.
