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GlaxoSmithKline Records Strong Profit

GlaxoSmithKline PLC announced that its core earnings increased during its 2016 first quarter, which is a sign that the company is on the path to grow against following two years of dropping profits.

The Britain based pharmaceutical giant’s transition to a business of lower margin following an asset swap of $20 billion with Novartis, combined with dropping sales of Advair is blockbuster respiratory treatment have hurt the company’s growth in earnings of late.

However, now that the integration of Glaxo’s businesses it acquired from Novartis is well on its way, its prospects have brightened.

Core per share earnings, a measure that strips away gains that were one-off or impairments, climbed to 19.8% from 5.8% in the period of three months that ended on March 31.

Revenue increased 11% to over £6.2 billion, which was up from last year at the same time of £5.6 billion. Stripping away the movement from exchange rates, revenue as well as core per share earnings both were up 8%.

Last year, Glaxo completed a big transaction with rival Novartis. Glaxo traded its high-margin portfolio of cancer drugs for the Swiss pharmaceutical’s vaccines franchise that is lower margin. It took over control of a joint venture pooling the consumer healthcare segments of the companies’, which sell drugstore staples at low margin from remedies over the country to toothpaste.

The deal was set up to reduce the exposure of Glaxo to the drug development phase of the business which is full of risk, which fails or succeeds on outcomes of long and expensive trials, life cycles of patents and the willingness of health insurers and governments to tighter budgets on medicines.

Vaccines as well as consumer healthcare products are less expensive to develop as well as being considered more stable.

Andrew Witty the CEO has promised that Glaxo will bear its first fruits of its transaction this year. He said investors should expect an increase of 10% to 12% in its core EPS during 2016, at rates of constant exchange, as he reported the first quarter company results Wednesday.

Improved margins reflected work, which has been done prior to the transaction with Novartis, such as its investments into manufacturing that is more efficient as well as a platform of IT that was new.

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