According to IMS Health, worldwide pharmaceutical sales are only expected to grow between 5% and 6% next year, following an already slow 2006 for pharmaceutical sales. This drag in drug sales has already been affecting most large-cap pharmaceutical companies, and GlaxoSmithKline's
Revenues for the British pharmaceutical company came in at $10.6 billion, up only 7% (in constant exchange rates) over last year. Earnings expanded by 19% to $2.7 billion over the third quarter last year, though that was due largely to a $314 million reduction in legal costs following a settlement with the IRS over a U.S. tax dispute. Earnings per share were $0.46 a share for the quarter, and $1.38 thus far in 2006.
GSK also announced that it was raising its expected earnings-per-share growth to the mid-teens percentages for 2006. It's hard to get overly excited about this increase in guidance, though; a good portion of that growth will be achieved via a new share buyback program involving more than $11 billion over the next three years, with nearly $4 billion to be purchased over the next 12 months. There's nothing wrong with increasing EPS through share buybacks, but I'd prefer to see EPS growth come from underlying strength in the business.
While slow revenue growth is a concern in the short run, long-term holders of GSK won't have to worry for long, since the company has several blockbuster drugs on the horizon to drive intermediate-term growth. GSK plans on filing for U.S. approval of its human papillomavirus vaccine, Cervarix, in April of next year, and it's awaiting a regulatory response on cancer treatment Tykerb in the U.S. and E.U. Also, just last week the FDA approved an improved version of GSK's beta blocker, hypertension treatment Coreg, which earns more than $1 billion a year. That should now alleviate any fears over the loss of patent protection on this drug.
This quarter, GSK also announced its plans to acquireMotley Fool Hidden Gems pick CNS
Trading at roughly 32 times its trailing-12-month earnings, and with a solid 2.9% dividend yield, GSK is a fine investment for shareholders patient enough to wait until 2008 for a return to solid revenue growth.