Is this the best healthcare stock money can buy after today's update?
International aesthetics company Sinclair Pharma(LSE: SPH) has released details of a comprehensive staff restructuring programme. It provides clues as to the future direction of the company, as well as whether it's a better buy than two of its major sector peers.
Sinclair Pharma's restructuring means that it will incur a one-off restructuring charge of around £2.8m which will be fully recognised in the current financial year. The company expects the restructuring to lead to an annual cost saving of at least £2m, highly beneficial to its bottom line.
Most of the one-off cost will be used to pay compensation to Sinclair Pharma's chief 0perating officer, Christophe Foucher. He has stepped down from the board with immediate effect and his departure is down to Sinclair Pharma becoming a simpler and more streamlined business. It's now focused on fast-growing spaces and on high margins. Its sale of multiple products to Alliance Pharma quickened the pace of its transition and a new management structure therefore seems to be appropriate.
Looking ahead, Sinclair Pharma is expected to remain lossmaking in each of the next two financial years. However, its loss is due to narrow between 2016 and 2017, with pre-tax losses set to fall from £9m this year to £3m next year. This shows that the company is moving in the right direction and with its multiple growth opportunities and strong portfolio of leading aesthetics products, it has a bright long-term future.
What's the alternative?
This is at least partly because of the synergies expected to arise from its combination with Baxalta. While such synergies are welcome and the merger could prove to be a success, it also provides additional risk to Shire's shareholders. For example, the integration process may not be as smooth as predicted and the fit of the two companies may be less optimal than has been anticipated.
For this reason, buying GlaxoSmithKline at the present time could be a better move. It offers strong growth potential due in part to its pipeline of potential treatments. Notably, GlaxoSmithKline's ViiV Healthcare division offers multiple new treatments for HIV and could prove to be a major catalyst on the company's share price. And with it forecast to increase its bottom line by 27% this year, it remains a strong growth play.
Alongside this, GlaxoSmithKline offers less risk than both Shire and Sinclair Pharma. It has vaccine and consumer goods divisions, which provide greater stability than its two sector peers. For example, if its pipeline disappoints, GlaxoSmithKline can potentially offset this to a degree with upbeat performance from its other divisions. And with it having a sound balance sheet and a high degree of diversity, GlaxoSmithKline offers the most compelling risk/reward ratio of the three healthcare stocks for now.
Peter Stephens owns shares of Alliance Pharma and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.