GlaxoSmithKline:
Revenues Up,
Forecasts Strong 2001
by Charles Allmon, editor
Growth Stock Outlook
GlaxoSmithKline
(NYSE GSK $55.50) is one of the world's largest pharmaceutical
firms, and is a market leader in four of five top therapeutic
areas.
Here's what management
had to stay about progress in 2000: "Our big event during
the Millennium year was the announcement on 17th January 2000
of our intention to merge Glaxo Wellcome and SmithKline Beecham
to create one of the world's leading research-based healthcare
companies.
"Following regulatory
and shareholder approval, the two companies became one on 27th
December 2000. Throughout the year, our employees worked hard
to achieve two objectives: maintain the momentum of both existing
businesses and plan the merger of two strong companies, each
with a rich heritage of pharmaceutical discovery and development
and a proven record of success in the marketplace. They have
succeeded in doing both."
"The business
climate in Europe remains demanding but our growth there of six
per cent in 2000 was broadly in line with the market. In the
rest of the world, sales grew by eight per cent reflecting double-digit
growth in Asia Pacific, the Middle East and Africa and Canada.
Zeffix and Paxil were launched in Japan in late
2000 and both products are off to a strong start.
"Our Consumer
Healthcare business performance was affected by competition in
the smoking cessation area. We are confident that the business
performance will improve in 2001 and we will also be realizing
the benefits from our acquisition of Block Drug, completed in
January 2001. Block Drug, with sales in more than 100 countries,
adds approximately £600 million to GlaxoSmithKline's Consumer
Healthcare business and some well-known brands such as Sensodyne.
"Our vaccines
business continues to do well with double-digit growth (11 per
cent) resulting from new products such as our combination vaccine,
Infanrix, which grew by 47 per cent. Continued strength
in the near term is expected to be driven by our new vaccines,
including the launch in 2001 of five new vaccines.
"Pharmaceutical
sales growth is a key driver of GlaxoSmithKline's current strong
business performance. The company will also benefit from the
delivery of at least £1.6 billion in cost savings by 2003
as a result of both the merger and the manufacturing restructuring
plans already in place."
"In 2002, the
company expects earnings per share growth to accelerate to the
mid teens, reflecting strong business performance boosted by
cost savings.
"We have started
life as a new company at a rapid place, implementing many of
the plans we worked on last year."
"Bringing two
companies together is complex and full of challenge. We must
complete the integration quickly to realize the full benefits
of the merger, with proper respect for our employees. That will
be done. Beyond integration, our priorities are to improve R&D
productivity, achieve excellence in product commercialization,
be the partner of choice for in-licensing and work in partnership
with governments, agencies and charities to expand access to
our medicines.
"As a current market leader in four of the five top therapeutic areas central nervous system (CNS), respiratory, metabolic/gastro-intestinal (GI) and anti-infectives we are in a strong position to achieve that goal.
"CNS is our largest product sales category, led by Seroxat/Paxil which became number one in the U.S. selective serotonin reuptake inhibitor market for new retail prescriptions in 2000. We expect to expand its value in 2001 from approvals to market the product to treat general anxiety disorder and post traumatic stress disorder.
"In respiratory, Flixotide/Flovent remains the world's leading asthma medicine. Seretide has enjoyed strong launches in Europe and will be launched in the USA as Advair in April 2001 where we have high hopes for its success.
"We are also the industry leaders in medicines that treat HIV/AIDS with Combivir and Ziagen both growing well. In December 2000, we launched the first triple combination medicine to fight HIV/AIDS Trizivir in the USA and will be launching it across Europe in 2001.
"Our metabolic/GI business suffered a blow in 2000 with the withdrawal of our recently launched medicine, Lotronex the first effective treatment for irritable bowel syndrome as a result of the U.S. Food and Drug Administration concerns over side effects."
"GlaxoSmithKline has moved quickly to build on the leadership exhibited by our two previous companies, which included in May 2000 a groundbreaking pledge to supply three HIV/AIDS medicines to developing country governments at price reductions of around 90 percent. In February 2001 we extended our commitment by offering to supply these same deep discounts to non-governmental organizations, UN agencies and also to employers in Africa that have direct access to patients through their own clinics and hospitals." On 12/31/00 total assets were $32,170,000,000, current assets $16,790,000,000, current liabilities $13,536,000,000, cash and liquid investments $5,098,000,000, long-term debt $2,822,000,000, provisions for liabilities and other charges $2,469,000,000, shares outstanding 6,222,463,000 (each ADR represents two ordinary shares), shareholder equity $11,489,000,000 ($3.69 per ADR), return on shareholder equity 55.0%, positive cash flow. Sterling amounts are converted to dollars using the exchange rate as of 12/31/00. [Company address: One Franklin Plaza, P.O. Box 7929, Philadelphia, Pennsylvania. (215) 751-7003.]"
Allmon's Comment: Revenues in 2001 could top $30 billion, which includes the huge SmithKline merger. Assuming that management's forecast is reasonably close, this would imply earnings of $2.30 - $2.46 per share. Of course, exchange rate problems could erode these numbers. Furthermore, Britain's pound hit a 15-year low, which has impacted the share price. U.S. and Europe economies have slowed drastically.
Pharmaceuticals are one area that can expand at a fast clip with introduction of a single blockbuster drug. Glaxo has a pipeline full of new products, one or more of which could impact profits in a big way. If you own Glaxo shares, I suggest that you hang on to them.
Editor's Note: Charles Allmon is editor of Growth Stock Outlook, P.O. Box 15381, Chevy Chase, MD 20825, 1 year, 24 issues, $235.
