Glaxo Strengthens Indian Presence - Analyst Blog

Several large-cap pharma companies are looking to expand their presence in the lucrative emerging markets in an effort to exploit higher growth opportunities in those regions.

Earlier this week, GlaxoSmithKline GSK increased its holding in its pharmaceuticals subsidiary in India from 50.7% to 75% through a voluntary open offer. The transaction is valued at approximately £625 million. The final payment for the shares is expected to be made by Mar 20, 2014.

The Indian pharmaceuticals subsidiary commercializes pharmaceuticals and vaccines targeting several therapeutic areas including respiratory, cardiovascular, oncology, anti-infectives and dermatology.

We remind investors that in Feb 2013, Glaxo had announced that it had increased its stake in its consumer healthcare subsidiary in India from 43.2% to up to 72.5%. The offer was worth approximately £568 million.

Our Take

The deal is consistent with the company's plans to expand its Pharmaceuticals segment in emerging markets and looks good to us. We note that the Emerging Markets and Asia Pacific (EMAP) contributed more than 25% to Glaxo's revenues in 2013.

However, we remind investors that Glaxo is witnessing a slowdown in China. Pharmaceuticals and Vaccines sales generated in China were down 29% in the fourth quarter. Glaxo is facing investigations and charges of fraudulent behavior and ethical misconduct leveled by Chinese government authorities. We believe that any strict action enforced by the Chinese government will impact Glaxo's top line in the long term.

Glaxo carries a Zacks Rank #4 (Sell). Some better-ranked stocks include Alexion Pharmaceuticals, Inc. ALXN, Alkermes ALKS and Actelion Ltd. (ALIOF). While Alexion and Alkermes hold a Zacks Rank #1 (Strong Buy), Actelion carries a Zacks Rank #2.