GlaxoSmithKline PLC (LON: GSK) continues to clock up interesting news yet the share price has wibbled about between 1500p and 1600p this past month. The truth being that it’s just a very large company and therefore it takes significant news to move it against the run of the general market. It is still possible for there to be outperformance, it’s just that if there is it will be something that happens over time, not some immediate jump.
Being a large company, as Glaxo is, is not a problem. After all, the method of becoming a large company is to get lots of things right over many years. Investing in organisations that get lots of things right over periods of time sounds like a very sensible place for our money.
The problem is simply that what is material to a large company has to be something large. Small events just don’t move the dials, only large events do. This is where we are with Glaxo and it’s share price.
There is interesting news around. The consumer healthcare division is to be spun off into a new company. That’s already largely in the current share price of course. There’s speculation that the monoclonal antibody treatment through the Vir arrangement, sotrovimab, might be the only such treatment that actually works with the omicron variant. That’s a very preliminary finding but still, it is out there. The value of that depends jupon how long this omicron wave lasts, how many need significant treatment as a result of it and so on. But it’s also true that even if omicron is as devastating as some fear it’s still only an add on to the general Glaxo business. It’s not a game changer for the corporation, even as it might be for those receiving the treatment.
The same holds true for today’s announcement, about the ViiV receipt of FDA approval for the long-lasting anti-HIV infection injection, Apretude. FDA approval is the necessary licence before marketing can begin. Being able to replace the daily PrEP pill taking with a bimonthly injection has great promise. That FDA approval has been secured means there’s a decent enough market there available for the taking. Or at least there could be.
The problem here for us as traders is that this is just another thing being got right by a large company. There being very few things done by large companies that are actually material. Things large enough, by themselves, to change the view of the valuation of that large company.
These varied stories are positive for the Glaxo valuation. But none of them are large enough to significantly change the valuation of the whole of Glaxo, there’s just too much of it there for that. This is true of most large corporations as well. We tend not to see large and swift price movements going against the grain of the market in general. Simply because they are so large and no one act or action has much effect on the total price.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.