GSK Investment

My GSK Investment Journey

I bought at £14 at 24 Jan 2013 and sold at £15.57 at 3 January 2017, realising absolute 31% return. I am putting all facts and have some tendency not to write other company names for a minor good reason. You can easily find it out over google.

About GlaxoSmithKline plc

It is one of the biggest pharmaceutical firms on the global level. It owns Panadol brand and successful sold many kind of Panadol products. It is well known for excellent R&D culture if you look at its ratio analysis.

Rationale of Investing in GSK

It is much simpler to own GSK shares than the shares of other pharmaceutical giants because of Panadol, which can be bought over the counter easily. Thus, I don’t have to worry too much about patent cliff, whereby the niche medicine can be protected by patent for 15 years before competitors can make generic medicines of same kind at lower cost. At that time, patent cliff was widely discussed on financial newspapers. That was why I was browsing pharmaceutical stocks in the view of beaten stock prices.

With good track R&D record, I can expect to collect growing dividend every year.

Happenings During Holding Periods

When I bought it, GSK was in the middle of cleaning up the scandal being blown up in US in 2012. Thereafter, the CEO, Andrew Witty, developed KPIs to prevent similar scandals.

All was well as its share price climbed up to GBX1,749 in early 2013. However, GSK faced another massive blow in its China business. As Xi Jinping set the mandate that his government would halt all kinds of bribery. Basically, it was common for most pharmaceutical firms to bribe doctors to use their medicines. 

As evidences were found, GSK’s China business’s revenue was scaled down significantly.

In late 2013, GSK sold two well-known consumer brands, Ribena and Locozade to Japanese firm. There was an intention to sell its major stake of JV firm that specialised in HIV treatment. However, there was U-turn decision, which benefit GSK greatly as that JV firm generate profits in unexpected way.

Circa 2014 onwards, the CEO has changed the business model focusing more on medicines with higher profit margin. Thus, R&D culture has changed overnight – GSK cannot invest R&D money on medicines with low profit margin. This brought huge criticism from UK-based major investing firm.

In 2015, the board of directors agree that GSK cannot keep on growing divided every year. Thus, the dividend growth was halt.

Within 2016, there were some progress to get their new medicines to be approved by US health authority as well as (in some cases) Japanese health authority. At the same time, Andrew Witty decided to retire. By late 2016, new successor was found – this time, it is a lady hire, coming from inside GSK.

Rationale of Selling GSK shares

Simply put, I found a better stock. It is better to use sales proceeds of GSK together with new cash investment into new stock. Thus, I set the selling price, which is not highest price. It is important to buy new stock as soon as possible in 2017.