3 Reasons GlaxoSmithKline PLC Could Soar in 2015

For many investors, it's been a great year as the S&P 500 has rallied 12% year-to-date. For GlaxoSmithKline shareholders, it's been a year to forget with shares dipping by 10% inclusive of its substantial dividend payment.

GlaxoSmithKline has been primarily plagued by fears about the upcoming loss of revenue from long-term asthma maintenance therapy Advair (known as Seretide overseas). Currently Advair/Seretide is about a $7 billion per year drug for GlaxoSmithKline. However, its patent exclusivity expired years ago. In the meantime, generic drug producers have simply been waiting patiently for the Food and Drug Administration to provide guidance on what testing would need to be done to get a biosimilar to Advair/Seretide approved. With that groundwork finally laid out, it's just a matter of two or three years before a biosimilar makes its presence known.

In spite of these concerns, there are a slew of catalysts on the horizon which could send GlaxoSmithKline markedly higher in 2015. Here are the three most likely to send Glaxo shares soaring.

No. 1: Vaccines + Ebola = Success?Speaking personally, one of the more memorable moments in health care in 2014 was the $20 billion-plus asset swap between GlaxoSmithKline and Novartis that witnessed Glaxo selling its oncology business to Novartis for $16 billion and Glaxo, in turn, agreeing to buy Novartis' vaccine business for what could amount to $7 billion.

Investors seemed to like Glaxo's more centralized approach to its product pipeline, and they certainly look forward to the profit windfall from the transaction which should fuel a dividend payout in the 5% range for at least the next couple of years.

Source: European Commission DG ECHO via Flickr.

What excites me most, though, is the potential for Glaxo's vaccine products to drive sales higher. The thing with most vaccines is they treat common conditions (e.g., influenza), meaning they're needed year in and year out with some predictability. Sure, there can be some seasonal ups and downs as it relates to infectious disease flare-ups, but the need for vaccinations isn't going to slow anytime soon. In addition, combining Novartis' vaccine business with its own will give it a larger product portfolio with potentially better pricing power and higher margins.

Best of all, Glaxo may not need a huge bump higher in its sales to send it shares soaring in 2015. Instead, it would need good results from its Ebola vaccine study where emotions are clearly high. Glaxo very well could be the first biotech/pharmaceutical company to finish Ebola clinical testing, which is important sinceit's one of the few with the manufacturing capacity to make the vaccine quickly, and on a large scale. In other words, Glaxo's in great shape to potentially deliver a critical cure to a deadly disease next year.

No. 2: Merger-maniaThe holidays may be on most people's minds, but for pharmaceuticals investors the multiple mid-year attempts by Pfizer to court AstraZenecaare still fresh in mind. With the six-month no-offer period in the U.K. now expired the question has once again been proposed as to whether Pfizer might seek a buyout opportunity in AstraZeneca.

Since Pfizer initially proposed to buy AstraZeneca earlier this year Congress has made tax inversion deals -- buying an overseas company and relocating to the new lower corporate income tax environment -- less attractive. But, that doesn't mean they're off the table completely, either. What does this mean for GlaxoSmithKline? Pfizer needs a growth partner, and Glaxo might be a perfect consolation prize.

Source: GlaxoSmithKline via Flickr.

If you recall, Pfizer was willing to bid as much as $118 billion for AstraZeneca after initially starting at a bid below $100 billion. With Glaxo's current valuation at $110 billion and the company coming off overseas bribery scandals, it could be the perfect buy-low candidate for Pfizer. Not only would buying Glaxo offer the same tax benefits as buying AstraZeneca, but it would create a vaccine powerhouse, which as we noted above generates somewhat predictable revenue and cash flow each year.

There's nothing concrete that says such a deal will be proposed, but the lure is definitely out there for investors.

No. 3: A COPD sales ramp-upIt's not often I've been able to say this with Glaxo's world-class marketing team, but the launch of long-term chronic obstructive pulmonary disease (COPD) drugs Breo Ellipta and Breo Anoro, which were co-developed with Theravance, has been disappointing. Through the first nine months of Glaxo's fiscal year, Breo Ellipta has generated just $29 million in revenue, while Anoro Ellipta brought in a mere $6 million.

Source: Official U.S. Navy Page via Flickr.

I suspect part of the slow start relates to educating physicians about the alternative COPD therapy, gaining insurance coverage for Breo and Anoro, and lastly with convincing physicians to prescribe Breo or Anoro in place of Advair. I'd go out on a limb and suggest that better insurance coverage in the U.S., especially for Breo Ellipta, and improved marketing for Anoro Ellipta could cause sales of both drugs to soar in 2015. These are important therapies for Glaxo in order for it to retain its respiratory dominance, and I fully expect them both to demonstrate significant sales improvement next year.

Clearly GlaxoSmithKline has some challenges to overcome, including the pending loss of a good chunk of its Advair/Seretide revenue a few years from now. Yet, these aforementioned catalysts would suggest that Glaxo's stock has a good shot at soaring in 2015.

The article 3 Reasons GlaxoSmithKline PLC Could Soar in 2015 originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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