A Balanced Attack for Glaxo

As a nice change of pace, let's talk about a drug company that doesn't really have any major pressing problems. Britain's GlaxoSmithKline (NYSE:GSK), the second-largest pure pharmaceuticals company, is not only relatively free of the various legal entanglements that some pharmaceutical players face, but it is also free of the growth funk that has sucked in a few other players.

Third-quarter revenue at Glaxo grew at a 9% clip in constant currency terms -- not blockbuster growth, perhaps, but above-market growth all the same. Sales were fueled by the pharmaceutical business, with growth of 10% more than offsetting modest low-single-digit growth in the consumer health-care business. Continuing a recent trend, operating and net income growth exceeded revenue growth, coming in at 14% and 16%, respectively, for this quarter.

Very broad-based growth continues to be a theme with Glaxo's performance. Unlike many pharmaceutical companies, such as Pfizer (NYSE:PFE) or Eli Lilly (NYSE:LLY), Glaxo is not heavily dependent upon one drug -- though the strong relative performance of Advair is making that drug an increasingly important contributor to results. For now, though, Advair is less than 20% of sales, and the company has 18 total compounds with at least $200 million in sales for this quarter.

Pipelines are, of course, very important in the pharmaceutical business, and I'd categorize Glaxo's as at least average. In addition to new drugs for the treatment of cancer, migraines, and depression, the company has the Cervarix vaccine candidate for the prevention of cervical cancer. That drug would likely compete with Merck's (NYSE:MRK) Gardasil. Glaxo also has a respectable diabetes franchise, and while it's always tricky making comparisons with early-stage data, Glaxo might have a better DPP-IV inhibitor drug in the treatment of diabetes than either Novartis (NYSE:NVS) or Merck.

So, here we have a large, solid pharmaceutical company with a good pipeline, a huge sales force, and a long history of earning good returns on capital. The only real trouble with Glaxo is that the stock's price already reflects the reality that this is a high-quality player. Nevertheless, if you already own it, I can't see any pressing reason to sell now.

For more on the ethical drug trade:

• Pfizer Fizzles
• More Good News From Novartis
• Glaxo Keeps It Going

Merck and GlaxoSmithKline are Motley Fool Income Investor recommendations. Pfizer is a Motley Fool Inside Value pick.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).