3 Slides That Tell You Everything You Need to Know About GlaxoSmithKline PLC

By Markets Fool.com


Source: GlaxoSmithKline via Flickr.

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The Super Bowl is still a little over two weeks away, but the "Super Bowl" for the healthcare sector is already under way in San Francisco.

The JP Morgan Healthcare Conference is a gathering of some 450 of the industry's leading and upcoming healthcare innovators, from biopharmaceuticals to medical devices and diagnostics specialists. In years past it has also been a breeding ground for data releases and a great way for companies to quickly summarize upcoming catalysts to investors.

One presenting company earlier this week was GlaxoSmithKline , which was represented by Chief Strategy Officer David Redfern. GlaxoSmithKline didn't have a particularly good year in 2014, a marked contrast tothe fact that the SPDR S&P Biotech ETF quadrupled the performance of the S&P 500.In this context, shareholders were looking for a spark from the company at the JPMorgan Healthcare Conference. Quite frankly, I don't think they got it.

What investors received instead was a relatively defensive 22-minute presentation that can be boiled down to three slides.

Summarizing GlaxoSmithKline in a single slide

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Source: GlaxoSmithKline.

This slide pretty much tells you 80% of what you need to know about GlaxoSmithKline.

As you can see, emerging-market growth has been one of the U.K.-based pharma's lone bright spots. From 2008 to 2013, Glaxo grew its non-U.S. and non-EU revenue from 26% of total sales to 39% of total sales. Emerging markets generally offer higher growth potential than developed markets, although margins can be trickier since developed markets are more accepting of higher prescription prices.

But the challenges column above shows some glaring problems facing GlaxoSmithKline. Topping the list is the declining sales of asthma and COPD drug Advair (known as Seretide outside the U.S. and Canada). Advair lost patent exclusivity in the U.S. years ago, but has thrived long past that point because the Food and Drug Administration only in 2013 outlined guidelines for what it would expect in a generic formulation of this drug. With generics expected to hit pharmacy shelves by 2016 or 2017, it's possible that Advair, currently the fourth-best-selling drug in the world at $8.25 billion per year, could shrink to less than $4 billion in annual sales within 18-24 months.

On top of triglyceride-lowering therapy Lovaza also facing generic competition, GlaxoSmithKline has to deal with the slow insurance acceptance of long-term COPD maintenance therapy Breo Ellipta. While the drug has secured 64% commercial insurance coverage and 76% Medicare Part D coverage as of this month, translating that coverage into actual prescriptions has been difficult. Based on the company's latest quarter, Breo is only pacing a disappointing $100 million in annual sales after being approved in May 2013.

Looking ahead, it's not surprising that Glaxo is focused on trimming its expenses, perhaps spinning off a minority stake in ViiV Healthcare in 2016 after building the business up in 2015, and growing its respiratory business.

It's not all bad


Source: GlaxoSmithKline.

I believe the slide above brings some revenue clarity to the table that investors don't often receive from large pharmaceutical companies.

As you can see, 61% of GlaxoSmithKline's business is dependent on pharmaceuticals. Running the numbers in a different way, you can see that the HIV snippet of its pharmaceutical business, its consumer health business, and its vaccine business combined account for nearly half of Glaxo's revenue. This half is relatively predictable and often has strong pricing power, so it's not as if GlaxoSmithKline is a complete train wreck simply because its respiratory business is struggling with the loss of Advair and the slow buildup of Breo.

Furthermore, the 2014asset swap that sentGlaxo's oncology business toNovartis for up to $16 billion, and gave Glaxo Novartis' vaccine business for up to $7 billion,should further strengthen Glaxo's revenue profile. The two companies have also established ajoint venture in the consumer health segment to enhance cost savings and boost pricing power.

All told, this slide is a perfect rundown for investors looking to discover how and where GlaxoSmithKline generates its revenue.

GlaxoSmithKline's pipeline



Source: GlaxoSmithKline.

Lastly, the company prepared this handy slide for thosecurious about what is expected to drive Glaxo's pipeline growth in the coming years.

This will clearly be a big year for Breo Ellipta, beyond just its need to translate insurance coverage into sales. GlaxoSmithKline and development partner Theravance expect a ruling from the FDA in April on whether Breo's label will be expanded to include asthma .

In addition, the anticipated midyear release of the company's SUMMIT study, which examines Breo's impact on the cause of mortality among patients with moderate COPD who have cardiovascular disease or are at risk of getting cardiovascular disease, could be huge. This 16,000-patient study has the potential to demonstrate Breo as a safe and effective COPD treatment. Physicians might be holding back on prescribing the drug until they see the results from this study.

In his presentation, Redfern also highlighted cabotegravir, a once-monthly injectable drug to treat HIV. The drug could be usedto slow the progression of the disease, but also possibly for disease prevention in higher-risk people, he noted. It's also a potential step forward in convenience over taking a regular regimen of HIV medicines.

GlaxoSmithKline's 2015 prospects
This seemed to be a very defensive presentation designed to inform shareholders that Glaxo is in transition and it will take time before we see a return to strong growth. The good news is dividends will remain in focus, so income-seeking long-term investors should reap decent benefits.

However, it's difficult to see how GlaxoSmithKline will quickly fill the void soon to be left by Advair's probable sales plunge, especially with Breo's launch not going according to plan. For the time being I'd suggest looking elsewhere for stronger growth opportunities.

For more Foolish coverage of the JP Morgan Healthcare Conference,click here.

The article 3 Slides That Tell You Everything You Need to Know About GlaxoSmithKline PLC originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.