Archive for the ‘Economy’ Category

Tough times ahead for GlaxoSmithKline?

July 19, 2007

If you have stock in GSK, you might want to keep a closer eye on it. As reported in Reuters yesterday, a group of researchers in Germany did not give Glaxo’s second-biggest product, Avandia, very high marks on, well, doing anything. (Actually I’m wrong on that, turns out that its rather effective at relieving people from the burden of excess cash.) Since the beginning, Glaxo has made the controversial claimed that Avandia improves both the quality and length of the lives of diabetics. This most recent study analyzed pooled data from eight thousand patients across eighteen clinical trials. The results were that the claims by Glaxo were questionable at best and that Avandia could actually make the complications associated with diabetes WORSE. Good job Glaxo! Let’s all give them a big round of applause.

Now, if Glaxo stays true to form, over the next few days they will employ the same strategies all Pharma companies use. 1) They will claim that their studies (involving all of three people no doubt) clearly show Avandia’s worth. 2) They will say that they are conducting new studies that will prove Avandia’s worth. 3) They will say that there are flaws in the German’s analysis. 4) They will role out doctors/scientists of their own saying that the drug is safe and effective. These people will of course be on Glaxo’s pay role, but will give the appearance of being independent. 5) Ultimately not care what the report says because they have already influenced those at the top at the FDA and bought off key politicians so they can continue selling their placebo. And, of course, everyone in the government will act shocked when people start dropping like flies. Yesterday, GSK’s stock price was $52.29, down 1.56%.

So what is a grasshopper to do? Well, if you already own stock and are willing to ride out this, whatever it turns out to be, you may want to consider buying a roughly equal amount of shares in put stock options just in case the stock tanks. July options expire this Friday so looks towards August. “But,”, you say anxiously, “how can I take advantage if I don’t currently own stock?” If you were so inclined, do the same thing. If you think the price might drop significantly before the end of August’s expiration date, buy put options at say the $55 or $52.50 level. What is the street saying? Well, seeing as how the new just came out, who knows.