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Image source: GlaxoSmithKline.

Among Big Pharma, no drugmaker in particular has been given a reprieve from the patent cliff. However, U.K.-based GlaxoSmithKline (NYSE:GSK) was just late to the party.

Whereas most of GlaxoSmithKline's peers dealt with immediate pain from the entrance of generics, GSK has been running on borrowed time with Advair, its blockbuster inhaled COPD and asthma medication. It took years for the Food and Drug Administration to lay out guidelines to generic drugmakers concerning a generic version of Advair, allowing GSK to rake in the cash in the meantime. Unfortunately, with a generic imminent within the next one-to-three years, pricing pressure is getting the best of Advair.

Sales of the drug, known overseas as Seretide, have dropped from a peak of more than $8 billion annually to a pace of less than $5 billion in 2015. There isn't an investor out there that's expecting a miracle rebound in Advair/Seretide sales in the fourth quarter. However, there are other components within GSK's product portfolio that are of incredible importance.

GSK's three most important numbers
GlaxoSmithKline is slated to report its Q4 results on Wednesday, Feb. 3. Based on current estimates out of London, the company is expected to report 19 pence per share, or $0.27. Over the past two years the company has delivered one big miss (Q4 2014), and one substantial beat (Q3 2015), so it's really anyone's guess which way the pendulum will swing in the coming days.

What I can say is there are three incredibly important numbers that shareholders should be closely eyeing when GSK reports its Q4 results.

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Image source: GlaxoSmithKline. 

Operating margin
One of the bigger questions on everyone's minds heading into the fourth quarter is what will operating margins look like.

As a quick refresher, GSK and Novartis (NYSE:NVS) completed a huge three-part deal in 2015 that saw GSK sell its oncology operations and small-molecule pipeline to Novartis for $16 billion, and witnessed GSK purchasing Novartis' vaccine business, minus influenza, for about $7 billion. The two pharma giants then formed a joint-venture that combined their two consumer health units. For Novartis, the deal solidified its position as one of a handful of oncology juggernauts, while for GSK it gave the company about $9 billion in net cash and a better diversified revenue stream that was less reliant on just pharmaceuticals.

But, there was a catch for GSK: adding to its vaccine portfolio also has the effect of weighing on margins. With vaccines now accounting for about 15% of total revenue, and its joint-venture consumer health products also accounting for 26%, the reduction in pharmaceutical reliance is weighing on GSK's margins. Vaccines are typically priced lower than branded medicines, and margins on consumer health products are often difficult to move higher. All told, margin contraction is expected. 

How much? That's the number we'll wait to see.

Anoro Ellipta

Image source: GlaxoSmithKline.

Anoro's sales
Secondly, you'll want to pay close attention to sales of next-generation COPD inhaled therapy Anoro Ellipta.

GSK and Theravance (NASDAQ:THRX) worked together to bring four novel, long-acting respiratory products to market over the past two-plus years: Breo Ellipta, Anoro Ellipta, Incruse Ellipta, and Arnuity Ellipta. Breo has definitely taken its fair share of bumps and bruises, with insurer coverage not up to par following its first couple of quarters on pharmacy shelves, and with the drug failing to meet its primary endpoint in SUMMIT, a long-term study designed to determine if Breo could help extend patients' lives. Ultimately, though, the failure of SUMMIT stung Theravance, which is almost entirely reliant on its pact with GSK, more than it hurt the diverse GSK.

Now that Breo is on the right track -- $98 million in Q3 sales -- the attention turns to Anoro's troubles. Anoro hasn't had much issue gaining insurer coverage so much as GSK has had issues getting physicians to realize that an all-in-one bronchodilator is now at their disposal. Infiltrating a market dominated by Spiriva and yes, Advair, is going to be tough for Anoro.

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Image source: GlaxoSmithKline.

If there is good news, we found out during the J.P. Morgan Healthcare Conference that new-to-brand market share for Anoro and Incruse has been soaring over the past two months. Usually NBRx data takes about 18 months to work its way into actual sales growth per GSK CEO Andrew Witty, but investors are hoping for more immediate improvement in Anoro's thus-far-substandard post-launch expansion.

HIV franchise sales
Lastly, everyone will be curious to see how well Tivicay and Triumeq, developed by ViiV Healthcare which is majority-owned by GSK, performed in the fourth quarter.

Triumeq

Image source: GlaxoSmithKline.

Tivicay and Triumeq are newly-formulated HIV drugs that have delivered generally high efficacy, good safety and tolerability, and have witnessed rapid sales growth approaching 100% year-over-year. During the J.P. Morgan Healthcare Conference presentation, Witty shared a slide showing that among therapies containing dolutegravir (DTG), its HIV franchise had shot from 0% market share in Q2 2013 to essentially leading market share at 29% by Nov. 2015.

HIV franchise sales are also important because it's GSK's fastest-growing segment with some of its juiciest margins. As noted above, GSK's margins are falling as its reliance in non-pharmaceutical businesses expands. However, if HIV sales continue to grow at a breakneck pace, the reduction in operating margins may be lessened.

A long road to recovery
As it stands now, I suspect GSK has a long road to recovery ahead, even if its management is projecting a return to EPS growth in 2016. I believe the point at which we can declare GSK over the hump is when its respiratory portfolio, arguably its most important pharmaceutical building block, is growing once more.

For now I'm keeping GlaxoSmithKline firmly on my watchlist, but would encourage interested investors to dig deeper. Just understand that buying into the GSK thesis means you'll likely need to hang on for a good three-to-five years to see its plan of action unfold, and for its share price to respond accordingly.

In the meantime, a big day awaits this coming Wednesday, so stay tuned.

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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