) recently announced it has hiked its stake in
Response Genetics Inc.
), a company focused on the development and sale of molecular
diagnostic testing services for cancer, to 15.2%. Glaxo made an
investment of $5.5 million and purchased 5 million newly issued
shares of Response Genetics at $1.10 per share.
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Response Genetics and Glaxo have a long standing relationship
focused on Glaxo's immunotherapy and oncology candidates, wherein
Response Genetics conducts companion diagnostic tests and other
related activities for Glaxo's candidates.
We currently have an Underperform recommendation on Glaxo. The
stock carries a Zacks #3 Rank (Hold rating) in the short run.
Several products in Glaxo's portfolio including Valtrex, Arixtra,
Evoclin, Lamictal, Imitrex, Requip, Combivir and Epivir are facing
declining sales due to intense generic competition. We expect the
company's top line and gross margins to remain under pressure in
the coming quarters. The EU pricing pressure will continue to
Glaxo's second quarter 2012 earnings of 79 cents per American
Depository Share (ADS) was well below the Zacks Consensus Estimate
of 84 cents. Earnings fell 2.5% year over year. Revenues also
decreased 7.3% year over year to $10.2 billion and came in below
the Zacks Consensus Estimate of $10.4 billion. The company lowered
its revenue guidance and expects revenues to remain flat year over
year (at CER). We note that earlier Glaxo was expecting revenues to
grow from 2011 levels.
Glaxo is looking towards deals and acquisitions to drive growth.
The company is focusing on increasing the rights on its partnered
products and promising pipeline candidates, so that it stands to
benefit more from their success.
Glaxo's acquisition of Cellzome and Human Genome Sciences and
increasing investment in
) indicate its efforts to expand the pipeline.
Apart from this, Glaxo continues to make progress with its
cost-cutting initiative, which should help reduce the impact of
increasing generic competition over the next few years and help