GlaxoSmithKline, GSK, shares drop 1% on Daprodustat – Really?

GlaxoSmithKline (LON: GSK) shares are down 1% or so in London this morning. Yet Glaxo has announced that Daprodustat’s application has been accepted for review by the FDA. As this is an essential precondition for approval that’s good news – so why the fall in the share price? The answer being that Daprodustat, or indeed any other specific drug, approval or patent, simply isn’t large enough to register on a company of GSK’s size. It’s not, in the jargon, “material”.

The news for Daprodustat is indeed good. The FDA has agreed the regulatory submission acceptance, to follow that of the European Medicines Agency and the approval of Duvroq in Japan. This is, as the company says, an essential stage in the move of the treatment from research to actual use.

It’s even true that there’s a substantial market for this or similar treatments worldwide. Some 10% of all of us – globally – suffer at some point from the underlying chronic kidney disease (CKD). Some one in seven of those suffer the associated anaemia which Daprodusat is then a treatment for. So, totting up those numbers, there’s a potential patient bank of some 100 million out there. That’s a substantial market.

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There are limitations to this of course. It’s that portion in the rich world desiring the treatment which makes a difference to drug company revenues. It’s also true that the testing process here – we’re by no means finished with it – leaves only around a decade to profit before patent expiry leads to generic versions.

But still tens of millions – possibly, of course – is still a substantial market and something worthwhile pursuing. So, why the near 1% slide in the GSK share price on this announcement?

The answer being that any change in the share price is imply nothing to do with this particular drug or announcement. Glaxo’s market capitalisation is £90 billion and change. A drug that might, in a few years, be used to treat some millions just isn’t enough to change the valuation of a company that large. So, the Glaxo share price movement isn’t anything to do with this announcement.

The other way of looking at this is that GlaxoSmithKline is so large that it’s moved by the more usual macroeconomic factors. Things like worries over inflation or recession, perhaps. Or interest rates rising and so changing the relative attractions of dividend yields (at about 4.5%, quite attractive).

Yes, it’s possible that there could be another blockbuster drug in there. Something to be taken by the hundreds of millions of people for many years of life – that’s possible as it has happened to Big Pharma before. So the general administrative efficiency of the company can make a difference, widening margins and so on. But the reason that Glaxo’s share price isn’t being moved by a perfectly respectable announcement about a CKD anaemia drug is that it’s just not important to a company of GDK’s size