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Morningstar | Glaxo Is Set Up for Steady Long-Term Growth Despite Increasing Generic Advair Competition

As one of the largest pharmaceutical companies, GlaxoSmithKline has used its vast resources to create the next generation of healthcare treatments. The company's innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, in our opinion. The magnitude of Glaxo's reach is evidenced by a product portfolio that spans several therapeutic classes as well as vaccines and consumer goods. The diverse platform insulates the company from problems with any single product. The highest revenue generator, Advair, represents just under 10% of total revenue. The complexity in approving a generic version of an inhaled drug like Advair has held off significant U.S. generic competition well past the drug's 2010 patent expiration, but the early 2019 approval of a generic version of Advair will create headwinds for Glaxo. The company's advancement of its next-generation respiratory drugs should help Glaxo maintain its entrenchment in both asthma and chronic obstructive pulmonary disease as generic Advair competition intensifies. On the pipeline front, Glaxo has shifted from its historical strategy of targeting slight enhancements toward true innovation. Also, it is focusing more on the immune system, with genetic data to help develop the next generation of drugs. The benefits of this strategies are showing up in Glaxo's early-stage drugs. We expect this focus will improve approval rates and pricing power. From a geographic standpoint, Glaxo is strategically branching out from developed markets into emerging markets. Its consumer and vaccine segments position the firm well in these price-sensitive markets. While this strategy is likely to create some challenges, like the potential legal violations that arose in early 2013 in China, we believe the fast-growing emerging markets will help support long-term growth and diversify cash flows beyond developed markets.