Today I am outlining the perks and the pitfalls of investing in pharma giant GlaxoSmithKline (LSE: GSK).

Patent problems

Of course the biggest problem facing GlaxoSmithKline is the crushing effect of patent expirations on its top line. The impact of generic competition saw global sales of its Avodart prostate drug, for example, slump 26% between January and March, falling to £132m, with sales in the US tanking by almost nine-tenths in the period.

The damage brought on by exclusivity losses caused sales across its Established Products division to sink 8% in the quarter, down to £610m, and further pain is anticipated in this year and beyond.

Pipeline pumping

However, GlaxoSmithKline is throwing huge sums at its R&D teams to create the next generation of earnings drivers. Indeed, the Brentford company spent £775m on drugs development during the first quarter alone. The fruits of these endeavours are expected to throw up 40 major products during the next decade, around four-fifths of which GlaxoSmithKline believes have the potential to be first-in-class.

And the drugs giant is concentrating on fast-growing therapy areas such as respiratory, immuno-inflammation and cardiovascular to drive sales in future years. Indeed, GlaxoSmithKline saw sales of its HIV-related products gallop 57% higher in January-March, to £729m.

China conundrum

Of course developing markets also provide ‘Big Pharma’ with exceptional growth opportunities as galloping economic growth powers healthcare investment.

But while its competitors are making big waves in these exciting new markets, the fallout of GlaxoSmithKline’s corruption scandal in China — for which the firm was fined $490m in September 2014 — continues to weigh on revenues growth. Indeed, consequent restructuring in the country saw sales of GlaxoSmithKline’s drugs topple 28% during January-March, causing total emerging region revenues to tip 4% lower in the period.

Still, the company remains optimistic over its long-term prospects in the country. While price cuts have also weighed on revenues more recently, GlaxoSmithKline has also cited the colossal impact of product and business disposals on the top line.

This prompted chief executive Andrew Witty to recently comment that

I fully expect China to come back to growth in the second half led by the respiratory business,” adding that “as we move through this year I think we’ll see the underlying improvements.”

Shares about to surge?

Of course signs of improvement in this red-hot marketplace could propel shares higher in the coming months, particularly when you look at GlaxoSmithKline’s current valuations.

The pharma play currently changes hands on P/E ratings of 16.2 times and 15.6 times for 2015 and 2016 respectively, underpinned by anticipated earnings rises of 16% and 4%. I reckon this represents terrific value given GlaxoSmithKline’s solid progress in rapidly-growing drug segments.

Meanwhile, GlaxoSmithKline’s planned dividend of 80p per share through to the close of next year yields a smashing 5.4%, comfortably taking out the FTSE 100’s forward average of 3.5%.

I believe these figures leave plenty of room for an upward share price revision.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.