What happened
Shares of pharmaceutical company GlaxoSmithKline (GSK 1.60%) rose 25% on Thursday. The stock, which closed at $41.25 on Wednesday, opened at $41.22 on Thursday before rising to a high of $41.60. The company has a 52-week low of $37.80 and a high of $46.97. Overall this year, its shares are down more than 5%.
So what
Investors who reacted icily earlier in the week when GSK announced that it had completed the spin-off of its consumer health business reversed course a bit. The company, on Monday, said that its former consumer healthcare division, under the name Haleon, listed on the London Stock Exchange. As part of the trade, investors receive a share of Haleon for each GSK share they owned. GSK stock only rose a bit, but the 25% jump includes the added value of the new shares of Haleon as well.
The spin-off allows GSK to focus on the areas of its company which are seeing the most profit and growth. In the first quarter (the company's last with its consumer healthcare division), sales from its specialty medicines division rose 97% year over year, and sales from its vaccines division climbed 36% over the same period in 2021, while sales from consumer healthcare were up 40%.
Over the past several years, GSK has increased its pipeline in oncology, infectious diseases, and immunology. It now has a lot more money to dedicate to developing that pipeline, as Haleon paid GSK a special dividend of around $8.37 billion to help reduce GSK's debt load.
The company is expected to announce Q2 results on July 27. In its pre-quarter guidance, it said GSK expects yearly operating profits to increase between 12% to 14%, at constant exchange rates, compared to 2021. It also said it expects revenue growth to be between 5% and 7%, led by improved sales of ovarian cancer drug Zejula, meningitis vaccine Bexsero, and shingles vaccine Shingrix.
GSK also announced last month positive news regarding its respiratory syncytial virus (RSV) vaccine candidate for adults, making it the first pharmaceutical to have phase 3 positive results toward an RSV vaccine, though other companies have one in the works.
The company also said it plans to ship more than 50 million doses of flu vaccine in preparation for the 2022 to 2023 season after receiving approval from the Food and Drug Administration (FDA).
Now what
GSK's shares have been sluggish this year, but the pharmaceutical company remains a consistent earner, and the spin-off should increase its profit margin. With a price-to-earnings (P/E) ratio of 15.07, a strong portfolio, and a big pipeline, it appears a safe stock at its current price.
