GLAXO: more profits

GlaxoSmithKline Pakistan Limited (PSX: GLAXO) has just had an impressive close to the half-year ended June 30, 2017. A look at the company notice released to the Pakistan Stock Exchange yesterday shows that GLAXO’s continuing operations booked a healthy top-line growth, added operational efficiency points to it, and expanded the bottom-line by more than a half compared to the half-year period a year ago.

The de-merger of GSK Consumer Healthcare (PSX: GSKCH) from GLAXO (GSK Pakistan) in 2016 should allow both firms to operate with a better focus in their respective business lines. GLAXO manufactures and markets a wide variety of prescription medicines and vaccines – but the 4P’s of this core pharmaceutical business are strictly regulated. GSKCH, on the other hand, sells over-the-counter medicines and consumer product – it now has more flexibility to market its products to its target market.

Last year, GLAXO, the leading pharma firm in Pakistan, commanded market share that was 14 percent by volume and 8 percent by value. Its core pharma business generated Rs25.1 billion in net sales in CY16, registering nearly double-digit year-on-year growth. Antibiotics continued to generate a big chunk of sales.

The year-end CY17 top-line also looks set grow in double digits year-on-year. But somehow the stock market doesn’t seem too enthused with the GLAXO scrip. The stock is down over 24 percent in the year-to-date period. Yesterday after the result announcement, the stock closed the day at Rs168.7 per share, which is four percent below the previous day’s closing price. The stock price has been on the way down for most of this year since hitting a peak of Rs274.47 per share in late January.

The top-line figure in 1HCY17 includes intercompany sales to GSKCH pending transfer of market authorizations by the Drug Regulatory Authority of Pakistan (Drap). Even after excluding that business, GLAXO seems to have grown its half-yearly top-line in double digits. The strong growth in antibiotics, analgesics, dermatology and respiratory segments has presumably continued. The top-line is helped by medicine purchases by the Punjab government.

Going forward, even as drug pricing remains a contentious issue between Drap and the industry, GLAXO will do well to keep enhancing capacity and invest in new products to meet the demand for quality products. However, since demand is also a function of doctor prescriptions, effective outreach to medical practitioners would remain a challenge in a low-income market with high competition.