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Image source: GlaxoSmithKline.

When it comes to the patent cliff, no Big Pharmas have been immune. But from top to bottom few companies have been hit as hard recently as U.K.-based GlaxoSmithKline (NYSE:GSK).

GlaxoSmithKline's key product for more than a decade has been inhaled COPD and asthma drug Advair (known as Seretide in overseas markets). Having come off patent earlier this decade, pricing pressure has been the primary culprit weighing on Advair, pushing total revenue down at a precipitous pace. At some point before the decade is up we're also going to see a generic version of the drug hitting the market. Thus, Advair's once $8 billion-plus in peak annual sales could be reduced to as little as $2 billion by 2020.

But there is hope for GlaxoSmithKline shareholders, and that hope was showcased Tuesday in a 27-minute presentation by Sir Andrew Witty, CEO of the company, at the 34th annual J.P. Morgan Healthcare Conference in San Francisco. This conference is akin to the Super Bowl for healthcare companies, and it gave Witty a chance to show off not only how rapidly Glaxo has changed in 2015, but where the company is headed over the next roughly five years.

Long story short, even though GlaxoSmithKline has struggled recently, shareholders have five reasons to be very excited about the future.

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Image source: GlaxoSmithKline.

Visualizing GlaxoSmithKline's transformation
Last year GlaxoSmithKline and Novartis (NYSE:NVS) wound up closing a transformational three-part deal that was designed to strengthen both companies.

Under the terms of the deal, Novartis acquired Glaxo's small-molecule oncology franchise for about $16 billion, Glaxo gobbled up Novartis' vaccine franchise (sans influenza) for around $7 billion, and the two companies formed a joint-venture for their consumer healthcare segments. The oncology acquisition was expected to strengthen Novartis' already-commanding position in cancer treatments, and the vaccine purchase for Glaxo was expected to broaden its product portfolio and help boost vaccine margins over the long-term.

What we see above is our first visualization that really shows just how important this deal was for GlaxoSmithKline. For the first time ever its consumer health and vaccines business actually makes up a substantial chunk of revenue, and it has a fairly balanced revenue stream from the U.S., EU, and rest-of-world markets. Having this balance should help shield Glaxo from wild fluctuations caused by pharmaceutical patent expirations, and it'll also be a stabilizing force for its long-term margins.

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Image source: GlaxoSmithKline.

New product growth outpaces patent woes
The big concern investors have had with GlaxoSmithKline is that declining Advair sales would more than offset any gains seen from newly introduced products. But, as we can see from the above, Glaxo's relatively new product growth is consistently outpacing the reduction in Advair sales, as well as other patent losses, such as Lovaza.

It's worth noting that GlaxoSmithKline considers new product growth to be any product that it's introduced since the first quarter of 2012, so it's a generous timeframe. Nonetheless, new products growth is handily outpacing the sales decline in Advair and Lovaza, and that bodes well for GlaxoSmithKline to grow its EPS by a double-digit percentage in 2016 as forecast.

You'll also note that (using the same timeframe) GlaxoSmithKline compares well with its peers when it comes to new product growth as a percentage of total revenue. The recent focus may have been on the slow start for its respiratory products Breo, Anoro, and Incruse, but its HIV franchise with Tivicay and Triumeq are more than picking up the slack.

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Image source: GlaxoSmithKline.

Respiratory growth is on its way
Weakness in Glaxo's respiratory franchise was largely the reason why the company's stock underperformed in 2015, and near-term forecasts remain somewhat tempered. But, as investors can see in the above charts, the tide may finally be turning.

We learned in 2015 that Breo sales finally turned the corner with insurer coverage picking up and physician education improving. The worry has instead turned to Anoro and Incruse, which are attempting to infiltrate a space dominated by Spiriva and Advair prescriptions. Glaxo simply can't flip a switch and educate physicians about their available options. It takes time, and shareholders have demonstrated that they aren't always the most patient.

However, new-to-brand prescriptions (NBRx) for Anoro and Incruse as a share of the U.S. long-acting muscarinic antagonist (LAMA) market have essentially doubled between October 2015 and December 2015 after gaining share at only a very menial rate for the previous six-month period. Witty notes that there's about an 18-month lag between NBRx market share gains and total prescription share, meaning Anoro and Incruse should very well be on pace for marked sales improvements beginning in 2017.

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Image source: GlaxoSmithKline.

This is an impressive pipeline
GlaxoSmithKline's management team has regularly repeated the forecast that its 11 most recent product launches should generate sales of $9 billion by 2020. But what may be even more impressive is the vastness of its pipeline.

As Witty briefly glossed over during his presentation -- but as the above graphic clearly shows -- Glaxo has a cornucopia of potential new molecular entities (NMEs) and product line extensions (PLEs). The company could bring as many as 20 new assets to pharmacy shelves by 2020, with up to 15 label expansions possible through 2025 and up to 39 novel therapies.

There's an almost overwhelming amount of data worth monitoring here, but I would encourage shareholders and interested investors to pay close attention to the development of cabotegravir (which is being developed by ViiV Healthcare, a majority-owned entity of GSK's).

Cabotegravir is an experimental, long-acting injectable that, in combination with Johnson & Johnson's rilpivirine, met its primary endpoint in a 32-week trial for viral suppression of HIV. Initial results showed that dosing every eight weeks led to a viral suppression rate of 95%, and a 94% suppression rate for patients dosed every four weeks. Convenience is a key component to winning over HIV patients, and this could prove to be a key combo toward improving Glaxo's market share within the indication.

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Image source: GlaxoSmithKline.

Don't forget about oncology
A common misconception with GlaxoSmithKline is that it's given up on oncology. Just because it sold its approved oncology products and small-molecule oncology pipeline to Novartis doesn't mean Glaxo in any way stopped its early stage research into potential cancer products.

As pointed out by Witty during his presentation, GlaxoSmithKline has a strong portfolio of developing immuno-oncology candidates and epigenetic treatments that could start turning heads with data beginning later this year and into 2017.

Immunotherapies are a new class cancer fighting drugs that are designed to boost your immune system's ability to identify and destroy cancer cells. Cancer has an uncanny knack for avoiding immune detection, so immuno-oncology products are designed to suppress cancer's ability to hide. With approved checkpoint inhibitors Keytruda and Opdivo we've already observed remarkably high response rates in select advanced cancer patients, so there's obviously a lot of promise for what Glaxo's immunotherapies could bring to the table.

Glaxo's developing epigenetic treatments, which have the ability to turn specific genes on and off, could also prove exciting, with work in this area still very new across the industry.

GlaxoSmithKline isn't exactly out of the woods considering its declining Advair sales and challenged new product launches in respiratory. Nonetheless, Witty's presentation suggests that long-term investors could have plenty to look forward to by the end of the decade.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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