Are GSK shares a buy after the Haleon demerger?

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GlaxoSmithKline (LSE:GSK) shares have been up and down over the past week, but this doesn’t reflect market sentiment. It’s because of a huge demerger with its consumer healthcare business, Haleon.

The pharma and biotech giant is now free of its consumer healthcare division, which some experts see as a good thing. After all, GSK had underperformed for years.

So is it time for a GSK renaissance, and is this stock right for my portfolio?

Will the demerger benefit GSK?

GSK and its consumer healthcare business, now Haleon, are two very different companies. One is a pharma/biotech firm that invests billions in long-lasting drug and vaccine development programmes. On many occasions, the drug or vaccine doesn’t even make it to market. So this is a capital-intensive business that won’t necessarily have a steady stream of revenue.

Meanwhile, Haleon is a fast-moving consumer goods business. It doesn’t spend billions on product development and puts a lot more emphasis on marketing its products. After all, its selling to high street customers and not governments or healthcare trusts.

So clearly the demerger should allow GSK to focus on its long-term investment projects, prioritising the development of innovative vaccines and speciality medicines.

Prospects

In recent years, GSK’s pharma and biotech business has lagged its peers in certain areas. HIV drugs and vaccines have done well, but it has underperformed in sectors like oncology, an area in which it is trying to speed up right now, partially through acquisitions.

Earlier this year, GSK bought Sierra Oncology — a late-stage biopharmaceutical company based in San Mateo, California. The firm has a candidate drug for bone marrow cancer. It is projected that peak demand could see this treatment bring in around £1.3bn a year.

GSK also received a £7bn payout from the Haleon demerger. The capital will be likely to used to fund drug development and acquisitions. And this is particularly important as GSK needs to fill a void as patents on certain drugs run out. For example, its patent exclusivity on dolutegravir — an HIV drug, worth about £3bn a year — will end in 2027.

More broadly, long-term trends suggest that demand for drugs, vaccines and other medical treatments will increase as the global population, especially in wealthier Western nations, grows older.

But it’s also the case that people in Western nations are increasingly inactive and many are clueless that their diets will likely lead to long-term health problems. Therefore, I’m particularly bullish on pharma and biotech in the long run.

Risks

GSK has been an underperformer for a while, and there is no guarantee its performance will improve without Haleon. So only time will tell on this one although, personally, I see the demerger as a beneficial move for both companies.

Would I buy GSK stock?

Is GSK stock right for my portfolio? Owing to the points made above, I think this stock is a good match and I’d buy it today. I’m positive on its new structure and its development objectives within the context of increasing demand for drugs, vaccines and other treatments.

The post Are GSK shares a buy after the Haleon demerger? appeared first on The Motley Fool UK.

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James Fox has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.