Asthma, a common chronic disorder of the airways characterized by periods of reversible airflow obstruction, has affected nearly 39.5 million people in the US. Over the last decade, the number of persons with asthma has shot up by 28%. Current asthma prevalence is highest among adults aged 18-24 years. It is one of the main diseases leading to death in the US. To cater to this need of the hour, GlaxoSmithKline plc (NYSE:GSK) has come forward and submitted a supplemental New Drug Application "sNDA" to the US Food and Drug Administration (FDA) for treating patients of asthma.
The Drug - Breo Ellipta
It is a fixed dose to be taken as a once daily treatment for patients of asthma that are 12 years old and higher. It will be marketed under the brand name of Breo Ellipta. The company has filed for authorization of two dose regimens, 100/25mcg and 200/25mcg, administered once daily using the Ellipta dry powder inhaler.
Previously the BREO Ellipta, an inhaled corticosteroid / long-acting beta2-agonist combination (ICS/LABA), had been authorized by the FDA as a once per day prescription medication for the long term, to preserve treatment of airflow obstruction and for controlling exacerbations in patients affected by chronic obstructive pulmonary disease (COPD), which covers chronic bronchitis and emphysema. However, it is yet to be approved for the treatment of asthma in the US.
What is it expected to bring for Glaxo?
Finding additional uses of BREO Ellipta to generate more revenue from the existing drug by conducting additional research is a very effective way of enhancing the benefit derived from the company's current product portfolio. This is likely to add growth to the company's top line as the additional treatment option becomes available. Also, the company has the highest market share in the respiratory drugs segment in terms of revenue generation (as shown in the table below). This also indicates the effectiveness of the company's medicines launched in the past.
Source: Company reported data
Last month, the company declared that it had conducted a research and concluded affirmative results from its two Phase III studies. According to the research, patients of COPD who had been taking Incruse Ellipta (umeclidinium 62.5mcg) along with Relvar/Breo Ellipta (fluticasone furoate/vilanterol, "FF/VI") had exhibited higher progress in lung functioning (FEV1) as compared to patients receiving FF/VI and placebo.
It supports the efficacy and safety of Incruse and this way the company continues to explore new uses of its existing drugs, which can significantly enhance its revenue base within the same or slightly more research and development expenses.
The company has performed exceptionally well in 2013 with the successful authorization for 6 major products and 5 additional regulatory filings completed, which is expected to help drive the anticipated R&D internal rate of return higher to 13%. New product launches have fortified the company's business segments; namely, Respiratory, Vaccines, HIV and Oncology. The company expects 30 brand innovations/extensions under the consumer healthcare in the fiscal year 2014. The robust respiratory product portfolio with 2 significant recent approvals and 7 potential new products in line will assist in preserving the company's market leadership up till 2020 and afterwards. Operating and financial efficiencies have resulted in annual savings of approximately £400 million in 2013 and the same is projected for 2014 as well. These savings can be utilized to fund current investment requirements.
The company is currently generating an operating margin (ttm) of 25.4% while the industry average stands at 22.8%. Considering the rigor with which the company is coming up with drugs that are up to the standards of FDA and the cost savings in place, will help GlaxoSmithKline in maintaining its high margin.
The Road Ahead
The pipeline opportunity remains substantial with Phase III data for 6 potential new drugs and vaccines and around 10 NME Phase III starts across 2014 and 2015. In the light of the recent steps that the company has been undertaking, I believe GlaxoSmithKline will be able to maintain its lead in the respiratory segment as its new drugs replace the expiring patent of Advair.
While the company is currently trading at a significant discount based on its PE valuation, it is also offering an attractive dividend yield of 4.70% in an industry where 3.11% is the normal level.
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