Bottom Line: Chinese burn scars a clean bill of health

Julian Harris
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THE PHARMA industry has not enjoyed particularly good health, of late. Fading into a distant memory are the days when a stream of blockbuster drugs could be relied upon to boost shares. Instead, increasingly-dry pipelines are squeezed by stringent regulators and the tightened purse-strings of European and American governments’ health departments.

Except that Glaxo, led since 2008 by Sir Andrew Witty, thinks it can buck the trend. The UK-based firm has been busy selling off non-core products such as Lucozade and Ribena while it – lo and behold – actually invents new drugs.

Witty boasts that four of the six developments highlighted at the start of 2013 are now approved, and promises that more will follow. Attributing Lucozade and Ribena’s strong recent sales to this year’s “amazing, fantastic” British summer weather, he insists that divesting the iconic brands was nonetheless “the right thing to do”.

The strategy seems to be working, too. Cost cuts are coming to the aid of profits, while pharma and vaccine sales are up even in Europe and the US. So what’s the problem?

China, of course, is the problem. “The Chinese authorities may want to make an example of GSK,” warns Ketan Patel of Ecclesiastical Investment Management. China only accounts for four per cent of sales but has enormous potential for growth, and heavy sanctions could severely dent Glaxo’s prospects. Yet if it can ride this wave (and bring new drugs successfully to market) there is plenty of scope for its share price to climb. There’s value in GSK, for sure – but you’ll need a steady nerve.