“A drug stock to buy now is GlaxoSmithKline plc (GSK, NYSE) which is going to become a yield play for British pension plans which have sold BP. GSK is heavily investing in developing countries, and has done deals in South Africa and Argentina to build up its business. India, some say, is next. GSK is a so-called ethical drug company, meaning that it does not do generics except in certain markets in poor countries where people cannot afford the patent version.
“GSK controls distribution to keep down flowback, which would take the cheaper drugs into major high-margin markets like Britain (its homeland) or the USA. It also has figured out a way to get drug and biotech startups to do its R&D to replace drugs going off patent, paying by results with milestone payments. This is much cheaper than hiring expensive scientific talent and letting them loose in a lab because they may not think hard about which drugs will sell. The startups think of nothing else. Thanks to these tactics Glaxo has developed a drug with Human Genone Science which shows promise against lupus, a nasty autoimmune disease. It has a new potential blockbuster against benign prostatic hyperplasia. This is a growing problem with men as they get older, and the older they get the higher the incidence. GSK has gone nowhere since I recommended it. But it will go somewhere now. A buy opportunity exists because GSK has suffered contamination from company specific bad news at its European rival Sanofi, over its lantus diabetes drug increasing cancer risk.
Vivian Lewis, Global Investing
