Since 2007, revenues have declined nearly yearly, from $47 billion to $40 billion this year, as most pharmaceuticals have been enjoying increasing revenues every year. What a disappointment! But a bigger bummer, which casts aspersions on the effectiveness of management, is GSK’s stinky operating margins. CEO Emma Walmsley isn’t bothered that operating margins hopscotch over the income statement — from 35 percent in 2007 to 12 percent in 2010 to 39 percent in 2011 to 23 percent in 2012 and then 16 percent and 25 percent in the following years. As The Shadow said, who knows what the margins will be this year? GSK is a Mack Sennett comedy! And good golly, Miss Molly, just glimpse its net profit margins, which are considered the ultimate test of management skills. Regrettably, GSK’s mutable NPMs have been a disaster since 2007 — popping up and down like a Whac-A-Mole, from 23 percent in 2007 to 6 percent in 2010 and then 21 percent in 2013, 12 percent in 2014, 35 percent in 2015, 3.8 percent in 2016 and 9.2 percent last year. So it’s certainly not surprising that share earnings have been erratic, unstable and fitful. I’m astonished that those in GSK’s management, who arrive in chauffeured limousines with chemical toilets, aren’t up in arms. I’m offended that GSK’s directors, who frequently take tea together at high noon, indulge this feckless performance with equanimity. The $2 dividend, yielding 4.9 percent, is safe; however, many suggest that GSK, even with its superb drug portfolio, will underperform the stock market in the coming years unless it burns the dead wood at headquarters.
I watched Geron (GERN-$1.56) stock triple this year, from $2 to $6, as a result of enthusiasm for Imetelstat. Investors believed that Imetelstat would hit the bull’s-eye for the treatment of hematologic myeloid malignancies. Janssen, a division of Johnson & Johnson, was in collaboration with GERN, and that concord added promise plus legitimacy to GERN’s corporate persona. Well, Janssen canceled the partnership. And because this prestigious deep-pocket partner ended the partnership, GERN shares conked from $5.60 to $1.76 in one day. Many early-stage biopharmas and biotechs with less potential trade between the $50s and $80s, though their earnings or revenues may be light-years away. Still, these issues double, triple, quadruple and quintuple in short time frames because excited speculators — not investors — concoct visions of sweetmeats, cotton candy and sugarplums. Biotech/pharma IPOs attract hyper-excited speculators, who wet their pants, fearful of missing a Golconda. Then a few months later, they face the unpleasant reality about biotech/pharma investing — that multimillion-dollar profits can be wiped out in less than multi-minutes. And GERN’s one-day reversal certainly illustrated the point.
GERN’s management, which has $180 million in cash, announced it will continue research on its experimental anti-cancer drug without outside help. Janssen pulled out because the Imetelstat data were disappointing. I’d pull out, too.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.
