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Source: GlaxoSmithKline.

It's been quite a while since investors in GlaxoSmithKline (NYSE:GSK) had something to cheer about come earnings season, but as something of a shock to Wall Street GlaxoSmithKline surpassed profit expectations in the second-quarter this past week.

GlaxoSmithKline's Q2 by the numbers
For the quarter, GlaxoSmithKline delivered £5.89 billion in sales, a 7% improvement over the year-ago period using constant currency exchange rates, while its core operating profit rose by 3% to £1.35 billion. The company's core earnings per share were flat at 17.3 pence when adjusted for currency fluctuations.

In comparison, Wall Street had been expecting GlaxoSmithKline to earn just 16.7 pence for the quarter on sales of roughly £5.9 billion. Although Glaxo's sales essentially met expectations, the company's profit per share slid past expectations and excited investors.

Furthermore, GlaxoSmithKline's management team stood by its prior full-year forecasting, which calls for a core EPS decline in the mid-teen percentage rate based on constant exchange rates and a return to core EPS growth in 2016. All told, GlaxoSmithKline rallied better than 4% in the days following its earnings release. That's a pretty substantial move for a company with volatility that tends to be more or less in-line with the broader market.

Three reasons investors can breathe easier
GlaxoSmithKline's quarterly report also gave Wall Street and investors three big reasons to breathe a bit easier and stop worrying so much about the company's near-term prospects. However, if you didn't read much past the headline figures you might have missed these catalysts.

Breo Ellipta Gsk
Source: GlaxoSmithKline.

1. Next-generation respiratory sales (finally!) show signs of life
There may not be a Big Pharma company out there that isn't dealing with patent expirations or the dreaded patent cliff in one form or another. GlaxoSmithKline has thus far largely escaped the effects of losing exclusivity on its products, but its luck is about to run out.

GlaxoSmithKline's top-selling product is Advair (known as Seretide in overseas markets), a long-term maintenance therapy for COPD and asthma. Advair/Seretide is a key reason why GlaxoSmithKline is one of the top respiratory drug developers in the world. But Advair lost its patent protection years ago. Thankfully for GlaxoSmithKline, no generic competitors emerged since the Food and Drug Administration didn't lay out guidelines on what it'd be looking for in order to approve a generic until late 2013. Most likely, new generic formulations of Advair will hit the market by 2017, and Advair/Seretide, which had once been an $8 billion per year drug, could see sales plunge.

In the latest quarter, Advair/Seretide sales dipped 13% on a constant exchange rate basis to £960 million (about $1.5 billion), including a 17% tumble in the U.S., where 15% of the 17% was due to price weakness.

Now, here's the good news: Glaxo's next-generation COPD/asthma therapies finally showed up after a number of subpar quarters where they struggled to gain insurer coverage and the attention of physicians.

Breo Ellipta (known as Relvar overseas), which has been on the market for a tad more than two years, had struggled to gain coverage from insurers in prior quarters, but that would appear to be a thing of the past. Sales in Q2 totaled £53 million (about $83 million), up from £41 million in the sequential first quarter. Anoro Ellipta also delivered steady growth to £15 million, up from £12 million in the sequential quarter. Although respiratory sales as a whole still declined because of Advair, they declined a lot less than expected -- and that's great news.

In fact, with Glaxo's HIV drugs Tivicay and Triumeq racking up sales, the company noted that growth from its new therapies is more than outpacing the lost revenue from Advair.

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Source: GlaxoSmithKline.

2. Count 'em: 40 new midstage and late-stage therapies in the pipeline
How do Big Pharma companies pull themselves out of a patent funk? They do what made them great in the first place: develop new therapies.

According to GlaxoSmithKline's report and management team, there are about 40 combined midstage and late-stage new molecular entities in development that should help the respiratory and vaccine giant grow for years to come.

One therapy worth keeping a close eye on is Shingrix, a vaccine now in phase 3 studies designed to protect against herpes zoster, better known as the shingles. Shingles is nothing more than a reactivation of the chicken pox within the body, which leads to very painful rashes and blistering. It's also very contagious.

In the first of seven phase 3 trials involving Shingrix it provided protection against herpes zoster in 97.2% of all patients. There was a higher incidence of grade 3 symptoms in 17% of Shingrix patients compared to just 3.2% of the placebo, but in terms of serious adverse events the profile of Shingrix and the placebo were similar. If approved, Shingrix could have blockbuster potential.

Glaxo's respiratory syncytial virus, or RSV, vaccine also generated promising results in phase 1 studies and is worth keeping a close eye on.

Long story short, Glaxo has plenty of catalysts in the offing to keep investors on their toes.

Images
Source: Flickr user Pictures of Money.

3. Glaxo's dividend remains steady
Lastly, GlaxoSmithKline (once again!) kept income investors happy by reiterating its guidance for approximately 80 pence in annual dividends between 2015 and 2017, along with a recently-declared 19 pence quarterly dividend.

GlaxoSmithKline's dividend is a very important reason why investors give the company some leeway and time to turn itself around. At a current yield of 5.7%, Glaxo's yield is nearly triple what the average S&P 500 company yields, and it's a savior of retirees and pre-retirees in the current low interest rate environment. Knowing that Glaxo's dividend should remain undisturbed through 2017, according to management, has to be a huge relief for investors.

Is it time to buy GlaxoSmithKline?
Now for the big question: following its better than expected earnings report, can you safely buy GlaxoSmithKline once again?

Despite the markedly better results from Breo Ellipta, its strong HIV growth, and its robust pipeline, I'm not convinced yet that the worst is over.

In my opinion, the respiratory space is getting highly competitive, and no one has any concrete idea as to when a generic Advair competitor will emerge. When one does, though, Glaxo could lose $2 billion-$3 billion in sales within 12 months. Though lost revenue from a generic introduction of Advair has been long expected, when it does come about it's going to be quite the shock to investors and the company's bottom-line.

It also makes me question whether Glaxo's current payout is truly sustainable. Remember, a cut to the company's dividend could be painful for investors since Glaxo's dividend is very much a reason why its stock price hasn't fallen further despite previous quarters of earnings weakness.

GlaxoSmithKline has transformed into a stock where I'll need to see its growth expectations become a reality before I'll believe them. As such, I'd suggest patiently waiting out the company's bumps in the road on the sidelines.

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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