GlaxoSmithKline Pharma: Supply woes, new drug policy cause for concern

Multinational drug company GlaxoSmithKline Pharma's performance in the first quarter ended March was poor. Its net sales grew marginally by 1.5% as the core pharma business remained flat.

The company's performance was also impacted by supply-chain constraints in parts of the company's Nashik facility as well as some contract manufacturer's sites. The fast-growing vaccines division was also impacted on account of supply constraints.

This under-performance is likely to continue in the quarter to June since the company expects the supply constraints to ease only by the end of the second quarter. But that may not mean the end of the company's under-performance in 2013.

The new drug policy, likely to be enforced this year, will also have an adverse effect on the company. Its management, in a recent analyst meeting, had said that while the new drug pricing policy will bring 35% of the portfolio under price control, a significant portion of its existing 25% drug portfolio under pricing control, namely Zantac and Betnovate, will come out of price control and the company will be able to effect price increases in these products.

While this will help offset the effect of the new drug pricing policy, most analysts are holding a neutral view on the company's stock till they can assess the full impact of the policy on the company.

In the medium term, the company has strong growth drivers, like its vaccines and its dermatology businesses. It is ramping up its chronic portfolio to reduce its dependence on acute therapies, which have been growing at a slower pace.