| CATEGORY: NEWS AND ANNOUNCEMENTS SECTOR: PHARMACEUTICALS & BIOTECHNOLOGY |
Comment: Glaxo needs more than a shot in the arm |
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By Rory Gallivan
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Wed 28 Oct 2009
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LONDON (SHARECAST) - With pharmaceutical stocks, investors should be more concerned with long-term health than quick fixes.
GlaxoSmithKline's sales in the third quarter rose by 15% to £6.758bn from £5.882bn over the same period the previous year, due largely to a strong performance from emerging markets. The rise was just 3% at constant exchange rates, but luckily for Glaxo the anticipated benefit of strong demand for swine flu vaccines should offset the dwindling benefits of currency movements going into the fourth quarter.
But the benefit of swine flu vaccines may not last long and one concern arising from Glaxo’s numbers today is a fall in gross margins from 75.1% to 74.3%. The firm has been hit by higher operating expenses and generic competition, particularly in the US, for drugs such as its migraine treatment Imitrex, its epilepsy drug Lamictal and Wellbutrin, which is used to treat depression.
Looking ahead, Glaxo’s exclusivity over Valtrex, which is used to treat herpes and generated £349m in revenues over the quarter, expires in December, so more generic competition is likely to be on the horizon.
However, the broker Charles Stanley said that progress on cutting costs should help the company lift margins going forward and also points out that 30 products are now in late stage development which bodes well for the future. Only yesterday, Glaxo’s leukemia treatment Arzerra won approval from the US Food and Drug Administration.
Glaxo can also point to strong emerging market sales of pharmaceuticals, which climbed by 25% in emerging markets to total £765m (compared with £2.143m in the US and £1.732m in Europe) and a rise in margins in consumer health activities to 24.6% from 18% in the second quarter.
The company trades at a price/earnings ratio of about 10.5x based on expected 2010 earnings.
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