laxoSmithKline (LSE: GSK, NYSE: GSK) grew its first-quarter sales by 6.2 percent from year-ago levels and improved its profit margins in all three of its business lines—one of the management team’s primary focuses in recent years.
This uptick in profitability stemmed from restructuring efforts, supply-chain improvements and GBP400 million (US$576 million) in cost savings relative to the first quarter of 2015.
The vaccines business (14 percent of revenue) turned in a particularly strong performance, with strong sales growth in Europe and gains in North America and international markets. Meningitis vaccines were the big seller during the quarter.
In the pharmaceutical segment, robust sales of GlaxoSmithKline’s HIV treatments—up 57 percent from year-ago levels—helped to offset declining revenue from respiratory drugs Seretide, Advair and Avodart, all of which face intensifying competition from generic alternatives. New products accounted for 20 percent of the pharmaceutical division’s revenue.
Although the company will continue to face pressure from generic competition on its legacy respiratory treatments, previous price cuts to these products should help to limit the damage. In addition to the ongoing uptake of its HIV drugs, solid sales for newer respiratory treatments will pick up some of the slack.
GlaxoSmithKline’s sales in China remain under pressure from price reductions and asset disposals in the wake of the government crackdown on some sales practices. Management indicated that this market continues to decelerate rapidly toward a “no-growth” environment.
All signs point toward flat to slight declines in pharmaceutical sales this year. Meanwhile, the company continues to invest in its pipeline of new treatments, with 30 prospects entering Phase II trials and 20 entering Phase III over the next two years.
The consumer health care segment (28 percent of revenue) grew its first-quarter sales by 4 percent year over year, driven by new product launches in the Flonase and Sensodyne product universes.
Management called for the company to deliver GBP800 million in cost reductions this year and core earnings per share to grow by 10 percent to 12 percent.
GlaxoSmithKline’s turnaround story continues to move forward, with the pivot toward vaccines and consumer health care products providing highly reliable revenue and cash flow to help offset the boom-and-bust cycle that’s part and parcel with the pharmaceutical business.