Glaxo Aims to Expand Synflorix Label

GlaxoSmithKline plc (GSK - Analyst Report) recently announced that it is seeking to expand the label of Synflorix in EU and has submitted a variation to the marketing authorization application (MAA) for the same. Glaxo is looking to get Synflorix approved for active immunization against pneumonia caused by streptococcus pneumoniae in children aged between 6 weeks and 5 years.

Synflorix is already approved for the above mentioned indication in 67 countries. Apart from this, Synflorix is also approved for active immunization against invasive disease and acute otitis media caused by streptococcus pneumoniae in children aged between 6 weeks and 5 years in the EU and 90 other countries. As of now, Synflorix is not approved in the US for any indication.

In the second quarter of 2012, Synflorix revenues were up 10% to £101 million driven by strong performance in emerging markets and Asia Pacific (EMAP) region.

We remind our investors that Glaxo performed disappointingly in the second quarter of 2012. The company recorded earnings of 79 cents per American Depository Share which were well below the Zacks Consensus Estimate of 84 cents. Earnings fell 2.5% year over year. Revenues decreased 7.3% year over year to $10.2 billion and came in below the Zacks Consensus Estimate of $10.4 billion. Sales were hurt by a number of factors including European austerity measures and weaker performance in the US due to generic competition and discontinuation of certain products.

We note that several products in Glaxo’s portfolio including Valtrex, Arixtra, Evoclin, Lamictal, Imitrex, Requip, Combivir and Epivir are facing declining sales due to intense generic competition. We expect the company's top line and gross margins to remain under pressure in the coming quarters. The EU pricing pressure will continue to affect sales.

Glaxo is looking to combat the threat of genericization of its key products by signing deals and making acquisitions. The company is focusing on increasing the rights on its partnered products and promising pipeline candidates, so that it stands to benefit more from their success.

Glaxo’s acquisitions of Cellzome and Human Genome Sciences and increasing investment in Theravance Inc. (THRX - Analyst Report) and Amicus Therapeutics (FOLD - Snapshot Report) indicate its efforts to expand the pipeline.

Apart from this, Glaxo continues to make progress with its cost-cutting initiative, which should help reduce the impact of increasing generic competition over the next few years and facilitate earnings growth.

Our Recommendation

We currently have an Underperform recommendation on Glaxo. The stock carries a Zacks #3 Rank (Hold rating) in the short run.