3 Reasons for GlaxoSmithKline to Cheer

GlaxoSmithKline’s (NYSE: GSK) drug pipeline is showing strength, while Pfizer (NYSE: PFE) and AbbVie (NYSE: ABBV) look well-placed, too.

Feb 2, 2014 at 2:30PM

Investors in GlaxoSmithKline (NYSE:GSK) have had reason to cheer recently, as the U.K.-based pharmaceutical giant has had three positive pieces of news flow surrounding its drug pipeline:

1. The company announced that a phase 3 study of the combination of Tafinlar and Mekinist in metastatic melanoma met its primary endpoint of progression-free survival. The study compared those results with the single agent therapy of Tafinlar, and furthermore, the company expects to receive additional positive results when the combination of the two drugs is compared to Vemurafenib later in the year.

2. GlaxoSmithKline received positive opinion from the CHMP, or Committee for Medicinal Products for Human Use, in Europe for once-weekly Eperzan for the treatment of type 2 diabetes. As with the FDA approval process, a positive opinion is one of the final steps before the European Commission grants marketing authorization, with the final decision being expected before the end of March.

3. ViiV -- a joint venture among GlaxoSmithKline, Pfizer (NYSE:PFE), and Shionogi -- announced the approval of an HIV medicine called Tivicay in Europe. It will be used in combination with other anti-retroviral medicinal products for the treatment of HIV-infected adults and adolescents older than 12.

These three pieces of encouraging news flow highlight the depth of the company's drug pipeline, as well as its diversity. Indeed, GlaxoSmithKline appears to be well placed to benefit from further upbeat news flow in the future, with the company continuing to invest heavily in its research-and-development program. The capital raised from the sale of brands such as Ribena and Lucozade looks set to be poured back into the drug pipeline, so future years could hold further progress for the company as it seeks to spend more to make more.

Despite the upbeat news flow, shares haven't made the most encouraging of starts to the year, being down 3.5% and in line with a weaker S&P 500 index over the past month. However, GlaxoSmithKline appears to offer decent value at current levels, with its yield providing evidence that shares may not be so highly priced. Indeed, shares currently yield 5%, which is considerably higher than the S&P yield of around 2%.

It also compares favorably with other health-care majors such as Pfizer and AbbVie (NYSE:ABBV). They both yield 3.2%, and although both figures are more than 50% higher than that of the S&P 500, GlaxoSmithKline offers a considerably higher income, which could prove to be highly beneficial during a period of low interest rates.

Of course, Pfizer and AbbVie continue to offer more than just a higher yield than the S&P 500. Both companies (like GlaxoSmithKline) possess strong drug pipelines, and although recent quarterly updates contained disappointing headline figures, there were clear reasons for this. Restructuring costs affected Pfizer, while generic competition hurt AbbVie's results, although both companies seem to have sound strategies with which to overcome their present challenges.

So with 2014 having gotten off to a positive start for GlaxoSmithKline, it could be a stock to watch. Management seem to be doing the right things in terms of selling off consumer brands to further strengthen the drug pipeline, which could lead to further positive news flow in future. In the meantime, investors looking for an income may find a 5% yield too good to miss out on.

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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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