A forecast increase in earnings per share (EPS) of 0% for 2014 might not be the stuff that growth dreams are made of, especially after a mere 1% rise in 2013, but for GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) those two years could mark the turning point in the company’s return to steady EPS growth.
What cliff?
The ‘patent cliff’, with protection on some key drugs expiring and opening up the way to competition, has not had as bad an effect on GlaxoSmithKline as some had feared, and there’s an 8% rise in EPS forecast for the year to December 2015.
So what are the longer-term growth prospects for the pharmaceutical giant looking like?
Full-year results for 2013, released on 5 February, showed flat turnover, but the fourth quarter was actually picking up with a 5% rise at constant exchange rates — and the company told us that ‘core’ EPS, at 112.2p, was up 4%.
The dividend for the year was lifted 5% to 78p, representing a yield of 4.6% on the current share price of 1,682p — and added to share repurchases of £1.5bn, GlaxoSmithKline returned £5.2bn in cash to shareholders during the course of 2013.
R&D is the key
But the crucial thing for those seeking long-term growth is the company’s drugs development, and in a period described as an “exceptional year for R&D delivery“, we saw six major new products approved, with a further five further regulatory filings being made.
The new products cover pretty lucrative areas too, including respiratory conditions, vaccines, oncology and HIV treatments — and the firm’s range of respiratory products looks set for long-term growth, with two major approvals in the period and seven possibilities in late-stage development.
Pipeline
Overall, chief executive Sir Andrew Witty described 2013 as “the most productive period of R&D output in the Company’s history“, telling us of another “40 NMEs in Phase II/III clinical development” — and the firm has “Phase III data for 6 potential new drugs and vaccines and around 10 NME Phase III starts across 2014 and 2015“.
What all this tells me more than anything is that, in the pharmaceuticals world, big is best. And with patent expiry having been threatening profits, GlaxoSmithKline’s strategy of focusing on its key strengths, divesting itself of non-core business, and using its financial power to make promising acquisitions and pour cash into R&D to refill that pipeline — well, it’s really hard to compete against a steamroller like that.
A new growth phase?
So, a core EPS rise of 4% in 2013, a big focus on pipeline development in 2014 and beyond, and an 8% total EPS rise forecast for 2015 — we really could be looking at the start of a new phase of steady earnings growth.
