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In the search for a top pharmaceutical stock to buy, GlaxoSmithKline Plc. (NYSE: GSK) might seem an unlikely candidate at first glance.
The GSK price slid from a high of more than $56 in 2014 to about $35 at the end of 2017, and it has only partially recovered to about $40 since. In fact, shares of this UK-based drug giant have underperformed the global pharma and biotech sector by 60% over the past decade.
In recent years, the company's strategy has seemed confused.
For instance, GlaxoSmithKline sold its oncology drug portfolio to Novartis AG (NYSE: NVS) for $16 billion back in 2014. Just two years later, the company started rebuilding its oncology drug pipeline, both internally with research and development (R&D) spending and through acquisitions such as the December 2018 purchase of Tesaro Oncology for $5.1 billion.
CEO Emma Walmsley, who took over in April 2017, has replaced more than 100 of her top 125 managers and killed one-third of the experimental drugs the company had in development.
It's no wonder investors have been unimpressed. But it's time to take a closer look.
All the apparent chaos is in fact a transition into a leaner, more focused company – a company with plenty of upside potential.
Here's why this pharma company is on track for a major rebound…
How GlaxoSmithKline Became a Top Stock to Buy
The management overhaul is part of Walmsley's plan to re-energize GSK's corporate culture with fresh blood. About one-third of the new hires have come from outside the company.
The renewed concentration on oncology drugs has yielded three promising candidates. Two were acquired via the Tesaro deal and are designed to treat ovarian cancer and endometrial cancer. Another, which treats multiple myeloma, a type of bone marrow cancer, was developed in-house.
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In addition to oncology, GSK has had recent success with new vaccines as well as drugs that treat HIV.
Such successes reflect Glaxo's larger shift in its drug development process. Instead of "consensus" decision-making, now just one person decides which drugs get developed – and which get jettisoned.
The company has plans to narrow down to just four therapeutic areas: oncology, immuno-inflammation, respiratory diseases, and infectious diseases. It plans to divest its rare disease unit and trim its consumer group by more than 130 brands.
We're already seeing signs that Walmsley's turnaround plan is working. In its most recent earnings report, Glaxo beat expectations on earnings per share with a bottom line of $0.78 versus the forecast for $0.64. Sales were $9.76 billion, besting expectations for $9.55 billion.
Two of the areas of focus showed particularly strong results. Vaccine sales were up 23% year over year and respiratory sales increased 12%.
But what's most exciting here are two major strategic moves that promise long-term payoffs…