3 Things to Loathe About GlaxoSmithKline plc (ADR) (GSK)

LONDON — There are things to love and loathe about most companies. Today, I’m going to tell you about three things to loathe about GlaxoSmithKline plc (ADR) (NYSE:GSK).

I’ll also be asking whether these negative factors make this FTSE 100 pharmaceuticals giant a poor investment today.

GlaxoSmithKline plc (ADR) (NYSE:GSK)

Long-term returns
GlaxoSmithKline plc (ADR) (NYSE:GSK)’s long-run total return for shareholders (capital appreciation and dividends over the past 10 years) has lagged behind that of the average FTSE 100 company. Furthermore, as the table below shows, GlaxoSmithKline plc (ADR) (NYSE:GSK) has been one of the poorer performers among its European big pharma peers.

Company Total return
over 10 years
(annualized)
Roche 9.4%
Novartis 8.6%
Sanofi 8.3%
GlaxoSmithKline 5.9%
AstraZeneca 5.3%

Margin pressures
GlaxoSmithKline plc (ADR) (NYSE:GSK), like all the established big pharma companies, faces what it calls ”intense competition” from generic products within all of its major markets. This is particularly true of the U.S., where GlaxoSmithKline plc (ADR) (NYSE:GSK) has its highest turnover and margins, both of which are now under pressure from generics.

The U.S. accounts for almost a third of group turnover, and in addition to the squeeze from generics, the country’s health care reforms are also putting pressure on GlaxoSmithKline plc (ADR) (NYSE:GSK)’s margins.

Finally, the company’s diversification into consumer health care has implications for group margins: the operating margin for pharmaceuticals and vaccines is running at over 36%, but the margin within the over-the-counter business is half that.

Concentration of risk
Another issue for GSK in the U.S. is that the sale of most of its products are made to a small number of wholesalers. In fact, more than 80% of the group’s U.S. pharmaceuticals and vaccines turnover comes from just three wholesalers.

Trade receivables due from these three (that’s the money they owe GSK) amounted to 815 million pounds — the equivalent of 17 pence a share — at the latest reckoning. This concentration of credit risk could potentially, as GSK says, ”materially and adversely affect the Group’s financial results.”

A poor investment?
Many of the issues GSK faces are felt across the whole sector. Whether the sum of factors that constitute GSK’s particular variation on the theme put the company in a better or worse position than its peers is a moot point.

Two of the world’s top investors aren’t prepared to argue it. Instead, they prefer to hedge their bets in a sector where the theoretical strength of the different companies’ drugs pipelines isn’t a reliable guide to which products will actually turn out to be the biggest winners.

Legendary U.S. investor Warren Buffett and renowned U.K. fund manager Neil Woodford both choose to invest across several big pharma companies.

The article 3 Things to Loathe About GlaxoSmithKline originally appeared on Fool.com.

G.A. Chester has no position in any stocks mentioned. The Motley Fool recommends GlaxoSmithKline.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!