Analysis of GSK and the Pharma Industry - Coursework Example

Question One: Glaxo Smith Kline is a pharmaceutical company that produces vaccines and drugs for major diseases such as cancer, asthma, diabetes, mental health conditions, etc. As of the year July 2012, GSK was charged with a criminal offense that involved promoting the use of Wellbutrin and Paxil for uses that were not approved by medical regulation institutions. The company was required to pay $ 3billion as settlement charges. $ 2 billion of this amount was required to settle civil cases, while $ 1 billion dollars was aimed at settling the criminal charges. Despite these scandals, the company’s stock price was able to perform well at the stock market. This is for the period of the last two years. For example, the share prices of GSK as of July 2014 were 1,568 pounds, and this was an increase of 4 pounds from the previous share prices of 1564 pounds in June (GSK.L Historical Prices, 2014). It is important to explain that its stock price between the periods of September 2013 to May 2014 was fluctuating in nature. For example, in September 2013, the closing share price of the company was 1,557 pounds, while in December 2013 the closing share prices were 1,611 (GSK.L Historical Prices, 2014). It is important to denote that during this period, the share prices of the company were on a steady increase. However, during the months of January and February 2014, there was a significant drop in the share prices of GSK, with the closing share of the company in January standing at 1, 564, and in February the stock price increased to 1671. These fluctuating share prices were experienced during the periods of March to July 2014 (GSK.L Historical Prices, 2014). It is important to denote that the share prices of GSK between July 2013 to July 2014 was a significant increase from the previous share prices of GSK between July 2012 to July 2013. For example, the closing share price of the company in the month of July 2012 was 1,468 pounds; on the other hand, the closing share price of the company in July 2013 was 1,684 (GSK.L Historical Prices, 2014). This is a significant increase of about 216 pounds. It is important to denote that during this period of July 2013 to July 2013, the share prices of the company traded at very low prices, with the lowest closing price being 1,334 pounds. This was the closing share price of November 2012(GSK.L Historical Prices, 2014). This was partly because of the medical scandals that affected the company. Despite these scandals, the share prices of the company increased steadily during these two years of trading. This steady increase of share prices is also seen in the stock performances of Johnson and Johnson. It is important to understand that Johnson and Johnson is one of the major competitors of GSK. As of July 2012, the stock price was 69.0 pounds, and in July 2014, the closing share price increased to 105.86 pounds (JNJ Historical Prices, 2014). This was an increase of 36.8 pounds. This trend of an increase in the share prices was also seen in another competitor of GSK, namely Novartis. In July 2012, it’s stock price was 58.62, and in July 2014, the company stock price was 91.49. This presented an increase of 32.8 pounds (NVS Historical Prices, 2014). The best theoretical framework to explain this market performance is the market efficient theory. According to this theoretical framework, the performance of a stock is a reflection of the available information concerning the company under consideration. On this basis, it is impossible to overvalue or undervalue the stock prices of a company. For instance, in 2012, GSK had a criminal charge, and it was forced to pay 3 billion dollars. This affected the values of the company’s stock in 2012, making it fall to 1,334 pounds. However, the prices of the company’s stock were corrected after the controversy was over. Question Two: The statement that sums up the approach and policies of GSK is the notion that politicians have a responsibility of determining what is legal or not, but it is the responsibility of managers to push the boundaries for purposes of ensuring that they are able to maximize the value of the shareholders (Otieno, 2014). The recent actions by GSK support this notion. For example, in 2013, GSK was accused of conducting cervical cancer vaccine trials on Indian girls that was not authorized. Furthermore, GSK has been accused of exaggerating the impact of its drugs, especially Avandia, and concealing the cardiovascular risks associated with the drug. Other activity includes bribing doctors to prescribe its drugs, bribing suppliers to delay the release of drugs produced by rival companies (Otieno, 2014). The main intention of these activities by GSK was to ensure that it was able to increase its profits, hence satisfy its shareholders. According to the stakeholder’s analysis, a business organization will undertake to carry out a policy that will satisfy all the stakeholders of the organization (Otieno, 2014). Under this theoretical framework, the company will analyze which stakeholders are important for the organization and hence develop a policy that would please these stakeholders. In this case, the policies of GSK are mostly aimed at pleasing shareholders, as opposed to the government. This is because through its activities, the company was breaking laws, with the intention of making more profits. It is important to understand that another important stakeholder for the company is the consumer (Otieno, 2014). Question Three: Glaxo Smith Kline is a stable company that regularly pays out dividends to its shareholders. Glaxo Smith Kline has a policy of paying dividends quarterly, and this has an impact of increasing the share prices of the company. The dividend yield of the company is 5.67%, and this makes it one of the best dividends paying company. For instance, in the first quarter of the year 2014, the ex-dividend amount of the shares was 19 pounds (GSK.L Historical Prices, 2014). The ex-dividend date was 14th of May 2014. The closing share price of this stock was 1,623 pounds. This was a decrease from the previous trading price of 1637. In the fourth quarter of the year 2013, the ex dividend date was 19th of February 2014. The dividend payment was 23 pounds. During this period of time, the closing share price of GSK was 1681.50 pounds. This was a decrease in the share prices of the company, from the previous trading amount of 1690.50 pounds. In the third quarter of the year 2013, the ex dividend date was 13th of November 2013. The closing share price of this day was 1608.50. This was a reduction from the previous day’s closing share price of 1637.50 (GSK.L Historical Prices, 2014). The dividend paid during this period was 19 pounds. In the second quarter of 2013, the ex-dividend was declared on 7th of August 2013. The closing share price was 1670, and this was a decrease from the previous day’s closing price of 1694. The amount of dividend paid was 18 pounds. From this analysis, it is prudent to denote that when an ex-dividend is declared, the share prices would decline (GSK.L Historical Prices, 2014). This is mainly because of the expected decrease in dividend payouts after the ex-dividend has been declared. GSK is using the most effective method of distributing surplus cash to its shareholders. This is reflected in its share prices which are stable, and always on an increase within a longer period of time. Question Four: Pfizer made 55 pounds per share bid, for purposes of taking over AstraZeneca. This valued the company to 69 billion pounds (Farrell and Mason, 2014). The decision by the board of directors to refuse this bid by Pfizer is based on the different business strategies that the two organizations employ when conducting their business. One such strategy is on science and technology. AstraZeneca has invested heavily on science and technology, a factor that Pfizer takes little consideration on. On this basis, AstraZeneca felt that agreeing a takeover by Pfizer would compromise their scientific research policies. Furthermore, this takeover by Pfizer would limit the operations of the company in bring important drugs into the market. This is mainly because the company would be under the control of Pfizer, and hence it won’t be operating independently (Farrell and Mason, 2014). AstraZeneca was also aiming at protecting the jobs of the British citizens, mostly because takeovers are always characterized by downsizings. It is important to denote that the press was supporting this deal, and it did not play an role in making it fail. In fact, the directors of AstraZeneca refused to issue a joint statement that they were negotiating before a good offer was placed. The refusal of this offer was good for the society, mostly because it safeguarded the jobs of the British people, and the science and technological sector of the British (Farrell and Mason, 2014). Bibliography: Farrell, S., & Mason, R. (2014, May 19). AstraZeneca rejects Pfizers final £69bn takeover bid. theguardian.com. Retrieved July 3, 2014, from http://www.theguardian.com/business/2014/may/19/astrazeneca-board-reject-pfizer- takeover-bid GSK.L Historical Prices | GLAXOSMITHKLINE Stock - Yahoo! UK & Ireland Finance. (n.d.). GSK.L Historical Prices | GLAXOSMITHKLINE Stock - Yahoo! UK & Ireland Finance. Retrieved July 3, 2014, from https://uk.finance.yahoo.com/q/hp?s=GSK.L&b=1&a=06&c=1988&e=3&d=06&f=2014 &g=m JNJ Historical Prices | Johnson & Johnson Common Stock Stock - Yahoo! Finance. (n.d.). JNJ Historical Prices | Johnson & Johnson Common Stock Stock - Yahoo! Finance. Retrieved July 3, 2014, from http://finance.yahoo.com/q/hp?s=JNJ&a=00&b=2&c=1970&d=06&e=3&f=2014&g=m NVS Historical Prices | Novartis AG Common Stock Stock - Yahoo! Finance. (n.d.). NVS Historical Prices | Novartis AG Common Stock Stock - Yahoo! Finance. Retrieved July 3, 2014, from http://finance.yahoo.com/q/hp?s=NVS&a=10&b=7&c=1996&d=06&e=3&f=2014&g=m Otieno, F. (2014). External and internal analysis of glaxo smithkline. S.l.: Grin Verlag Gmbh. Appendix: The Following is a last four month graphical analysis of the share prices of Glaxo Smith Kline, Norvatis, and Johnson and Johnson. Glaxo Smith Kline (GSK.L Historical Prices, 2014): Month Price July 1582 June 1564 May 1601 April 1632 Norvatis (NVS Historical Prices, 2014): Month Price July 91.49 June 90.53 May 90.06 April 86.94 Johnson and Johnson (JNJ Historical Prices, 2014) Month Price July 105.86 June 104.62 May 101.46 April 101.29 Read More