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SmithKline Beecham has one of the best and fastest growing drugs
portfolios amongst the pharmaceutical giants. Recent interim results confirmed
this view: pre-tax profit rose 14% to £913m, on turnover which lifted
10% to £4.22bn (excluding currency adjustments). Earnings per share
grew 14% to 10.8p. Despite government soundbites to reduce national health
budgets, margins remained firm at 22% and volume growth was strong.
Drugs, drugs, and more drugs
Examining the results in more detail, it is apparent that new products
launched have lived up to their expectations of being powerful profits drivers,
whilst older, more established drugs, still saw firm trading. For example,
Seroxat, the anti-depressant which is also approved for treating
obsessive compulsive disorder and panic, achieved a 22% growth in sales to
£610m, with market leadership in most European countries.
Augmentin, the antibiotic and a relatively old product, saw sales rise
19% to £535m. Coreg, a treatment for congestive heart failure,
rang in a 68% rise in sales to £35m, whilst Avandia achieved
sales of £44m after less than a month on the US market as a diabetes
treatment. Drugs in the pipeline also include four in late stage development
in the cardio-pulmonary category, each of them with considerable earnings
potential.
The right prescription
SmithKline's portfolio of drugs puts the company in a prime position in
the consolidating pharmaceuticals industry. The collapse of merger talks last
year, first with American Home Products, then with Glaxo Wellcome, were
disappointing; however, it does not preclude future developments.
On fundamentals alone, however, the shares offer defensive attractions as well
as considerable growth prospects. As the ageing population in developed
countries rises, so will the demand for treatments. Management has reiterated
solid earnings growth this year, with earnings set to rise by a total of 24.4%
over the next two years. Recent profit-taking means that this blue chip stock
is now looking cheap. BUY.
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