GlaxoSmithKline Pharmaceuticals Ltd (GSK) has benefited from its parent’s focus on emerging markets. GlaxoSmithKline Plc’s 2009 results showed emerging market revenues rising by 20%, much higher than the overall sales growth of just 3%. GSK’s revenue for the December quarter was above estimates, rising 21% to Rs444 crore, while revenue for the whole year rose 12.7% to Rs1,871 crore. Growth was higher in the fourth quarter partially because of a low base effect.
New products have been a key growth driver; products launched since 2007 account for around 5% of overall sales, but contributed to nearly one-third of incremental revenue. The firm expects the share of new products to increase further. GSK had launched five new drugs and three vaccines in 2008-09. Its strategy of launching a number of patented products from its global portfolio and in-licensing drugs for the domestic market makes it an exception among multinational pharma firms.
Graphic: Yogesh Kumar / Mint
Since the new products are largely patented drugs, GSK has been able to invest in its new products without taking a hit on margins.
The company hired around 200 people for field and related operations in 2009 and expects to add a similar number in the current year. Wage costs, as a result, rose 21% for the full year. Other operating expenses rose 19%, mainly due to promotional costs for new products.
Yet, operating profit margin was marginally up for the full year.
This is mainly due to an improved product mix, which led to material cost as a percentage of sales declining for both the quarter and full year.
GSK’s target, according to the company, is to reach domestic market growth rates and then to exceed them.
In 2009, GSK’s 12.7% sales growth was higher than the 10% growth it achieved in 2008, but lower than the market growth of 17%.
While the December quarter’s numbers cannot be extrapolated to 2010, the company’s prospects look good based on its strategy of adding to its field force and launching new products. It plans to launch five more products in 2010. What’s more, the company says that it plans to maintain earnings before interest and taxes at around 35% of sales.
But GSK’s share price already reflects the upside, as it trades at a price to earnings multiple of about 26 times.
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