Funny thing about the securities market -- stay in the game long enough and it will make you look foolish (small "f"). Look no further than the last time I wrote on GlaxoSmithKline (NYSE: GSK ) and pronounced it a "relatively clean company."
Well, about a month later, the Food and Drug Administration forced it to pull both Paxil CR and Avandamet because of serious problems in the manufacture of both drugs. Both drugs are important to the company, and the annoying bit is that the manufacturing problem should have been entirely avoidable.
Anyway, moving on to the first-quarter results released on Thursday, Glaxo reported 5% revenue growth on a constant-currency basis and total sales of about $9.6 billion.
Sales were led by a 6% increase in total pharmaceutical sales, though sales growth in the U.S., which represents nearly half of the total, was somewhat weaker at 4%. Generic competition for Wellbutrin and the absence of Paxil CR sales alike hurt U.S. results for the first quarter.
Overall, though, I think you can say that business was pretty good in the first quarter. Advair sales climbed 22% to over $1.3 billion, and Avandia/Avandamet, Lamictal, Valtrex, and Coreg all posted better than 20% revenue growth.
Glaxo also did well from an operational standpoint, as the operating margin grew from 30.8% to 34.7%. Free cash flow growth was also strong for the quarter, climbing more than 20% over the year-ago level.
Management offered good news to investors regarding the Paxil CR/Avandamet problems. The company has reached agreement with the FDA on a consent decree for its manufacturing facilities in Puerto Rico. Assuming that the FDA agrees that the problems have been solved satisfactorily, production of Paxil CR and Avandamet could resume around midyear.
Glaxo also continues to have a very deep and interesting clinical pipeline. In addition to potentially major products like Cervarix and Allermist, the company has a host of other promising drugs, including compounds for cancer, migraines, and pain.
At the risk of inviting another smack from karma, I still believe that GlaxoSmithKline is a top-tier pharmaceutical company. The dividend yield is attractive, the company's return on assets is stellar, and the pipeline is robust. While I'm sure something will go wrong again sooner or later, I think investors looking at the pharmaceutical space would do well to at least consider Glaxo.
For more Foolish pharmaceutical follies:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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