190 Million Reasons To Buy GlaxoSmithKline plc

Like the rest of the pharmaceuticals sector, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) has been taking increasingly-aggressive measures to hammer its product pipeline back into shape and counter the relentless trend of patent losses across its world-class product portfolio.

The medicines play has ploughed billions into its R&D operations by bolstering its organic lab work, as well as by snapping up a host of attractive industry specialists. And the firm shelled out a mammoth $190m just last week in a bid to boost its Vaccines division.

Vaccines business offers ripe opportunity

The vast sum was used to acquire 100% of vaccine manufacturer GlycoVaxyn, a company in which GlaxoSmithKline already held a minority stake.

The move gives GlaxoSmithKline access to the Swiss firm’s unique biological conjugation platform to develop prophylactic and therapeutic vaccines for numerous bacterial diseases, as well as providing the firm with the tools to develop a simplified conjugate vaccine manufacturing process. The drugs giant will also gain access to a number of early-stage vaccines to combat infections like pneumonia and Pseudomonas.

The GlycoVaxyn purchase follows its $5.25bn acquisition of Novartis’ vaccines division, a deal which received European Union approval in late January. Such measures are a necessity as, despite GlaxoSmithKline’s position at the top of the market, group vaccines sales dropped 1% in 2014, to £3.2bn , due to competitive pressures in the US and product suspensions in Japan.

Still, the medicine manufacturer’s vaccines business offers terrific long-term sales potential, and research house Kalorama Information says that total revenues in this field came in at a colossal $25.5bn in 2014, up from $23.9bn the previous year and $22.8bn in 2012. And sales are set to accelerate in the coming years as off-take from developing markets explodes.

Earnings predicted to snap higher from 2016

GlaxoSmithKline’s rejuvenated R&D operations are not anticipated to eliminate problem of further exclusivity losses any time soon, however, and City analysts expect the firm to punch a fourth consecutive year of earnings declines in 2015, with a further 4% drop.

However, the heavy lifting GlaxoSmithKline has been engaged in during the past few years is anticipated to prompt a turnaround from next year onwards, and a 4% rebound is currently pencilled in by the number crunchers.

The Brentford-based business still has plenty of hard work in front of it to replace lost revenues from the likes of Advair, its blockbusting anti-asthma treatment. But given the number of products the company currently has in late-stage testing, combined with its leading position in hot growth markets, I believe that GlaxoSmithKline’s long-term earnings outlook is something investors can get excited about.

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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.