GSK share price down after profit warning due to R&D spending

GlaxoSmithKline has seen its share price fall more than 6% since warning investors in its full-year results last week that profits will suffer in 2020 as the drugmaker steps up research and development (R&D) spending.

‘In 2020, our first priority remains innovation, to progress our pipeline and support new product launches,’ GSK chief executive officer (CEO) Emma Walmsley said. ‘Recent data readouts underpin our decision to further increase investment in R&D and these new products.’

GSK will also see earnings hit by its a two-year programme that will see the company split in two, with one unit focusing on pharmaceuticals and vaccines and the other on consumer health.

The decision to divide the company in two came at the end of 2018 after GSK announced a £9.8 billion consumer health joint venture with US rival Pfizer.

To help finance its R&D spending and the break-up of the company, GSK said that it has launched a strategic review, with its management open to further asset sales to generate the cash required to implement its growth strategy.

‘All of this aims to support future growth, deliver significant value creation, and set up two new leading companies in biopharma and consumer healthcare, each with the opportunity to improve the health of hundreds of millions of people,’ Walmsley added.

GSK is trading at £16.96 as of 15:55 (GMT) on Wednesday.

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GSK: technical analysis

The latest set of results knocked GSK’s share price back towards the 200-day simple moving average (SMA) of £16.62, but once again buyers have stepped in around £16.70, according to chief market analyst at IG, Chris Beauchamp.

The elegant trend of the past year and more is testament to the strength of the bullishness on GSK and to its business strategy. The February peak was the highest level this century, and further gains target the 1999 high at £19.64. Crucially the recent weakness has hit trendline support from the 2018 lows, providing another strong signal.

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In addition, the daily stochastic reading is now firmly in oversold territory, and bullish crossovers in this and the daily moving average convergence/divergence (MACD) would be the kind of trigger investors might look for in order to go long.

At present the near-term sequence of higher highs and higher lows is firmly in place, with no sign of a reversal just yet. A renewed push higher heads towards £18.50 and the January peak, while a drop below £16 would begin to suggest that the share price is entering a bigger period of weakness.