It may be too late to short Glaxosmithkline (GSK) but so what. The fourth biggest company in “Big Pharma” just pled guilty and will pay a fine of $3 Billion in the largest health care fraud case in United States history. When the settlement was announced the stock fell from $1481 a share to $1487 a share, too late to short Glaxosmithkline. But how is it that a $3 settlement did so little to the price of the stock? It has to do with size and with the market having discounted the bad news. GSK is a British pharmaceutical company, the result of merging British Glaxo Pharmaceuticals with American Smith Kline & French. The company makes vaccines, biological, consumer health care products, and prescription drugs for the treatment of infectious diseases, asthma, diabetes, mental illnesses, digestive problems, and cancer. The company has a market capitalization of around $100 Billion and is the fifth largest company listed on the London Stock Exchange. It has a secondary listing on the NYSE. Although it is too late to short Glaxosmithkline regarding the company’s culpability in unlawful promotion of a number of prescription drugs it is not too late to a little investment research in the company going forward.
Unlawful Promotion of Prescription Drugs
When a prescription drug is OK’d by the FDA or regulatory agencies in other countries it is for a specific purpose such as treatment of diabetes, a type of infection, or a kind of cancer. However, physicians may discover that the drug works well for other purposes. This sort of off label use is common and is legal in the hands of licensed physicians. Such off label is commonly reported in medical journals. However, it is illegal for the drug company to promote these off label uses unless it does the correct studies and passes the new use before the FDA for its approval. The company pled guilty to misrepresenting the drugs Paxil and Wellbutrin, years ago, and not reporting problems with a diabetes drug, Avandia. Apparently the company promoted Paxil, an antidepressant for adults, for use in children under age 18 and essentially bribed physicians to use certain drugs with trips, dinners, and other inducements. When picking new winners and investing in other companies in similar straits investors are well advised to consider the consequences of various company actions and not end up in a situation such as this where it is too late to short Glaxosmithkline.
In the Meantime
While it is too late to short Glaxosmithkline there is still time to invest. While the legal suit was going forward Glaxosmithkline has continued to operate as one of the world’s largest pharmaceutical companies. Like all such companies it does its own research and development in order to find new medications. It also buys out and acquires small startups with interesting products and potential competitors. GSK has made an offer to buy Human Genome Sciences. The board has turned them down. GSK is going forward with a hostile takeover by attempting to buy enough stock to simply put in its own board of directors. Our discussion about GSK and its travails with the FDA is meant to provide insight for investors. Before buying or selling the stock, investors will do well to carry out their own fundamental analysis.