At the end of October, ViiV Healthcare, the joint venture between GlaxoSmithKline (LSE: GSK) and Pfizer, announced the results of a trail for a landmark treatment designed to help improve the lives of people living with HIV.
The phase III First Long-Acting Injectable Regimen trail, or FLAIR for short, was designed to establish if adults infected with type-1 HIV would see a similar improvement in health by taking a once-a-month injectable drug regime, rather than a daily oral medication (Triumeq). The study found that the injections had a similar effect to Triumeq over a 48-week period, in effect, reducing the number of days a person receives treatment from 365, to just 12.
HIV breakthrough
The positive results from the FLAIR trial are, without doubt, a massive deal for Glaxo and ViiV. If approved for sale by regulators, the new once-a-month injection could help the company grab market share from rivals in the $20bn-a-year global HIV market. At present, ViiV has around a fifth of the market, but with its new treatment ready to go, this could climb rapidly in the years ahead.
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ViiV’s growth could be a huge bottom line boost for Glaxo. The group owns around three-quarters of the business, with the rest split between Pfizer and Japanese pharmaceutical group Japanese Shionogi. Both partners have put options that allow them to sell their shares to Glaxo for around £2bn in total. Glaxo has said in the past that it would welcome such a deal.
And even if no deal emerges, analysts have speculated that income from ViiV could account for around 50% of group operating profit by 2020 — this estimate doesn’t take into account any boost to sales from the new game-changing, once-a-month HIV treatment, and the market share gains it could achieve. With ViiV making $0.75 in profit for every $1 of sales, any improvement in sales will be a huge boon for Glaxo and its investors.
The cheapest on the market
There’s far more to Glaxo than ViiV. This is just one part of the overall group but is an extremely profitable one. It’s also growing much faster than other divisions.
Still, other divisions, such as the group’s vaccines business, are also putting in a strong showing. Vaccines turnover jumped 17% year-on-year at constant exchange rates in the third quarter, thanks to rising sales of Glaxo’s shingles medication.
With the group firing on all cylinders, I believe that shares in Glaxo could now be a ‘screaming buy’ after the result of ViiV’s landmark trial. However, despite the ownership of this world-leading partnership, shares in Glaxo are the cheapest of the Big Pharma group. The stock is trading at just 13 times forward earnings, compared to Pfizer’s 14, Johnson & Johnson’s 16.6, and Merck’s 15.8. On top of the discount valuation, shares in Glaxo also yield 5.3%.
So overall, considering the company’s future growth potential, its valuation, discount the rest of the global pharmaceutical sector, and market-beating dividend yield, I’m a buyer of Glaxo today.
