GlaxoSmithKline, plc (GSK) reported third quarter income of 92 cents per American Depository Share (ADS), 3 cents below the Zacks Consensus Estimate. The company reported earnings of 94 cents in the year-ago period.

Third quarter 2009 revenue increased 3%, with growth being driven by strong performances in emerging markets (up 25%), Japan (up 19%) and Consumer Healthcare (up 8%). We were pleased to see growth in Consumer Healthcare revenue despite the global slowdown.

Meanwhile, US sales continued to be impacted by generic competition with revenue declining 12%. Sales of products like Imigran (down 74%), Lamictal (down 21%) and Requip (down 30%) and Wellbutrin XL (down 81%) kept declining.

Pharmaceutical product revenue increased 2% with sales being driven by Advair/Seretide (up 5%) and Relenza. Relenza benefited from continued orders from several governments for stockpiling.

Although vaccine sales were lower in the third quarter due to phasing of shipments, we expect strong vaccine segment revenue in the fourth quarter of 2009. In addition to strong influenza product sales, the company has made significant progress in expanding its vaccine product portfolio. The approval of cervical cancer vaccine Cervarix in the US and Japan, H1N1 vaccine Pandemrix in Europe, and the H1N1 vaccine in the US should all help drive vaccine segment revenue.

GlaxoSmithKline continued to make progress with its cost-cutting initiative, which should help offset the impact of increasing generic competition in the next few years and help earnings grow faster than revenues. The company’s restructuring program is expected to deliver £1.7 billion in annual savings. GlaxoSmithKline announced that it has achieved annualized cost savings of about £1 billion.

In our view, GlaxoSmithKline possesses one of the strongest late-stage pipelines in large-cap pharma. We believe that the company remains interested in accelerating growth through acquisitions and partnering arrangements.

The company’s HIV partnership with Pfizer (GSK) and the Stiefel acquisition are the beginning of a trend which we expect to continue. GlaxoSmithKline has also been active in expanding its presence in emerging markets as evident by its recent deals with companies like Bristol-Myers Squibb (BMY) and Dr. Reddy’s Laboratories (RDY), among others.
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