The
emerging marketsare saving
GlaxoSmithKline (NYSE: GSK) -- at least on
the top of the profit-loss statement.
The company managed a 15% increase in revenue for the
third quarter, but that was mostly because of a weaker
British pound. Sales at constant currency were up just 3%.
Still, we shouldn't complain, considering the last time the
company reported revenue growth at constant currency was the
fourth quarter of 2007.
Sales in the U.S. were down 12% as generic competition
continues to hamper sales. The downturn in the U.S. was made
up for by the 25% growth in sales in the emerging markets,
which now make up 14% of sales. Unfortunately, as I've
pointed out, not all revenue should be treated equally.
Glaxo makes a 64.6% operating margin (excluding global
research and development) on sales in the U.S., compared with
a 38% operating margin in the emerging markets. A straight
transfer of revenue from the U.S. to the emerging markets is
a losing proposition.
Fortunately, the future for U.S. sales looks a little
brighter because year-over-year comparisons for the
off-patent drugs won't be quite as bad. The company also
received three new Food and Drug Administration approvals in
the past two weeks, including its long-awaited HPV vaccine,
Cervarix, which will
competewith
Merck 's (NYSE: MRK) Gardasil, and Votrient,
which should be able to compete well with
Pfizer 's (NYSE: PFE) Sutent and Bayer's and
Onyx Pharmaceuticals ' (Nasdaq: ONXX) Nexavar
in the kidney cancer market.
Glaxo is also expecting a nice windfall from sales of
swine flu vaccine in the fourth quarter as well as a boost
from its antiviral medication Relenza. The drug doesn't have
nearly the sales that Roche and
Gilead Sciences ' (Nasdaq: GILD) Tamiflu
does, but the windfall is nice, albeit we hope it's not
recurring.
A turnaround at the top was nice. Now Glaxo just needs to
get the U.S. tuned back around. If it does, we should see
substantial growth at the bottom.
Looking for a pure play on the emerging markets? Check
out where Tim Hanson thinks is the
next great place to invest.
This article was originally published as
Saved by Emerging Markets. Sort Of.on
Fool.com
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