Image source: Getty Images.

Big pharma GlaxoSmithKline (GSK -0.09%) is doubling down on cheaper meds.

Unlike its pharma peers -- many of which appear blind to the growing public outrage over sky-high-priced meds -- Glaxo is blazing a different trail. The U.K-based pharma's extraordinary new growth strategy is to rely on drug volume, instead of price, to build its revenue. CEO Andrew Witty said he believes this will help the company take advantage of "enormous volume opportunities," especially in emerging markets.

"We think we're really aligned with where the river is flowing," he said. "The river is flowing for more volume. We're going to focus on that, get that volume out there at a fair price, get a good return on our R&D investment, but not be fixated on defending ever and ever higher prices in the developed world."

Here's what's afoot and how the company's new strategy is paying off big-time. Considering Glaxo's meaty 5% dividend payout, the London-based drugmaker is not a stock to ignore. In fact, while it's not out of the woods yet, Glaxo is increasingly looking like a great long-term bet.

More volume at a fair price

As Witty explained it, Glaxo's extraordinary new growth strategy was the reason behind the company's $20 billion asset swap with Novartis AG (ADR) (NVS -0.90%).

In the deal, Glaxo shipped off its pricey cancer meds in exchange for Novartis' vaccines, as well as its consumer-products portfolio. While skeptics abound, the new strategy is delivering the goods. Last quarter, core earnings grow 16% year over year at a constant exchange rate.

Witty said Glaxo sees its consumer-products portfolio -- a.k.a. its over-the-counter business -- growing by mid-single digits annually for at least three years. The company sees vaccines growing at mid- to high-single-digit rates and pharmaceuticals at low single digits. Meanwhile, Glaxo has already been providing plenty of evidence that its distinctive strategy is working.

Knocking it out of the park with earnings

Breaking last quarter's revenue down, vaccines leaped 11%, consumer healthcare rose 7%, and pharmaceuticals edged up 2%. Core operating profit rose 36%. In addition, Glaxo lifted its outlook for 2016. The core earnings growth rate is now expected to be in the range of 11% to 12%.  

Anti-HIV drug sales were another bright spot: It accounted for 22% of total pharma sales and expanded by an amazing 44%, making it the fastest-growing pharma category. Newer drugs Tivicay and Triumeq are the superstars in that category. Both meds have strong clinical data behind them, which should lead to continued lightning-fast market-share penetration.

A packed pipeline

Witty has announced a string of shockingly good news about Glaxo since the beginning of the year. The biggest shocker of all is that after 30 years in development, the company is on track for a launch this year of the world's first malaria vaccine. It's a well-earned triumph, as malaria is one of the world's deadliest diseases.

In addition, Glaxo's stem-cell gene therapy, Strimvelis, received EU approval in May. Strimvelis will be the first gene therapy on the market for a rare immunodeficiency disorder. The company also has four near-term catalysts coming in regulatory submissions for drugs that could move the sales needle. Drugs expected to file in 2016 include the Shingrix vaccine for shingles, Benlysta for lupus, a combination therapy for chronic obstructive pulmonary disease, and sirukumab for rheumatoid arthritis. Behind them comes a long list of potential revenue-drivers -- Glaxo has more than 40 new drugs and vaccines  in its development pipeline. 

Respiratory segment out of the penalty box

Glaxo has taken two black eyes in recent years, and up until now, it's been slow to bounce back. The first shiner came from China, after Glaxo was rocked by scandals involving  bribery of government officials. The company was fined nearly $500 million, and another suit, addressing illegal promotion of its drugs, resulted in a settlement in 2012 of $3 billion. In the aftermath, Witty announced major changes in Glaxo's sales practices, which included no longer tying sales reps' compensation to the number of prescriptions written, but instead to the quality of service and technical knowledge.

The other black eye was the result of continually declining revenue for Glaxo's former superstar respiratory drug, Advair. The asthma med's sales have declined steadily and are expected to continue to fall by the middle to high single digits each quarter moving forward.

But Glaxo slapped a cold steak on that injury recently, and it's starting to look a lot less bruised. Sales of Breo, Glaxo's impressive new respiratory med, have been growing rapidly -- enough that total growth in Glaxo's new respiratory meds offset the decline in Advair sales this quarter.

That's critically important, because Glaxo's respiratory division is a pillar of the business, representing around 40% of pharmaceutical sales.

What about that juicy dividend? Is it safe?

There has been ongoing concern among shareholders about the risk of an eventual cut to Glaxo's dividend. In light of that concern, management has pledged to pay its annual ordinary dividend through the close of 2017.

In addition, the company has said that half of the $1.5 billion in synergies from the Novartis deal are now expected this year instead of next. Glaxo expects the integration to be complete by the end of 2017, rather than the previous target of 2019.

Beyond that, the good news is that this company looks ready to move beyond the patent cliff, assuming new respiratory drug sales keep expanding. In addition, aside from Advair, the company faces no major patent losses for several years. If the company keeps building on the momentum it showed this quarter and last, the dividend will look increasingly safe. That's particularly true when you consider Glaxo's pipeline and its potential to generate explosive profit growth in the years ahead.

So what's the verdict? Thumbs-up, with the caveat that another quarter or two of earnings momentum would make this stock a much safer bet. While Glaxo's extraordinary new growth strategy is radically out of step with those of its Big Pharma peers, it's totally in sync with the realities of our highly price-sensitive world. And while that doesn't necessarily make Glaxo a must-buy, it makes it, at the very least, an interesting stock to watch.