GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) chief executive Andrew Witty was quoted in the Indian press last week as being supportive of lower prices for patented drugs in India.
Indeed, Witty sounded like a Fool when he told the The Economic Times that “the problem is too many people get obsessed with short-term volatility … you have to look at long term.”
Of course, Andrew Witty is a savvy businessman and he knows that by adopting a reasonable and accommodative approach to the Indian government’s requirements, he is likely to smooth the regulatory path for future product launches in India, which has a population of 1.2bn people (the population of the entire EU is just 500m).
One mistake is not a failure
Glaxo’s emerging markets strategy has taken a painful hit from the China bribery scandal, but that’s all it is.
I firmly believe that Glaxo’s emerging market growth will help fund the dividend income from my Glaxo shares for many years to come.
An 88-bagging opportunity
According to Glaxo, the overall pharmaceutical market in its Emerging Markets Asia Pacific (EMAP) region grew by an average of 14.7% per year between 2007 and 2012.
Despite this, 2012’s EMAP total of £112bn was just half the £221bn value of the US pharmaceutical market in 2012 — even though India alone has a population four times larger than the USA.
Glaxo’s own EMAP sales grew by 10% in 2012, and I was interested to learn that the biggest growth was in vaccines (up 14%) and what the company calls ‘innovative brands’ (up 15%). These are the two areas in which I would expect to see biggest growth in emerging markets, as rising personal income and increased tax revenues mean that spending on public health and modern treatments rises dramatically.
Although emerging market healthcare spending may never reach the elevated levels seen in the US, it’s worth noting that in 2012, Glaxo’s Indian sales were just 25 pence per head of population, while in the US, they were £22 — that’s 88 times more.
If that’s not a growth opportunity, then I’m not sure what is.
What if I’m wrong?
I have a substantial part of my own portfolio invested in Glaxo shares, because I cannot see any scenario — barring a global catastrophe or war — that can stop the rising tide of socio-economic progress in emerging markets, which in turn should mean rising sales for Glaxo.