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Forget About 2015: Why GlaxoSmithKline plc Should Enjoy Stunning Long-Term Growth

Today I am explaining why I believe GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is poised to enjoy solid earnings expansion in coming years.

Patent pressures expected to persist

Like the rest of the pharmaceuticals sector, GlaxoSmithKline has seen sales of key drugs fall through the floor in recent years, as the entry of generic rivals has eaten away at group sales in established markets.

With additional patent expirations anticipated to continue weighing on revenue expansion, City analysts expect group turnover to dip 13% during 2014 to £23.2bn. A 6% expansion is expected in the following 12-month period, to £24.6bn, marks a welcome if unspectacular step in the right direction.

Still, firm earnings growth at the company is anticipated to remain elusive for some time to come given the impact of patent stripping. Indeed, GlaxoSmithKline is predicted to punch a 17% earnings decline this year, and a meagre 1% rebound is estimated for 2015.

… but emerging markets underpin growth story

Of course, the effect of exclusivity losses in 2014 cannot be overstated, but this year’s colossal earnings dip can also be put down to the effect of corruption allegations in China. Turnover in the country dived a quarter during January-June, to £129m, as authorities detained key employees following claims the Brentford firm paid off doctors to massage drug sales.

But with investigations in this key growth region now resolved — GlaxoSmithKline having agreed to pay a £297m fine back in September — the business can look forward to seeing its products fly off the shelves across these lucrative markets. Indeed, GlaxoSmithKline saw Pharmaceuticals and Vaccines sales in emerging markets rise 9% in the first nine months of the year, to £2.3bn, even as troubles in China hampered the bottom line.

On top of this, GlaxoSmithKline has the tools at its disposal to keep new drugs flowing from its pipeline to mitigate the effect of patent losses. The pharmaceuticals giant currently has 19 drugs at late stage Phase II or Phase III testing, and a number of these have the potential to becoming leaders in their class.

Indeed, just this month GlaxoSmithKline filed for regulatory approval in the US and Europe for its mepolizumab asthma treatment. And the company has a string of other treatments — from its cabotegravir HIV product through to its losmapimod cardiology drug — which it believes should deliver barnstorming sales growth over the next decade.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK 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.