Hello. Welcome to the Company Focus. My name's Aamer Nawid. I'm a research analyst at Fat Prophets, and this week I'm going to be taking a look at pharmaceuticals giant GlaxoSmithKline.

The company released results early this week, so we're going to have a look at those, also have a look at the implications, say, of healthcare reform, a major factor, and look at the long-term share price outlook towards the end of the presentation.

It's all about European sovereign debt downgrades this week. But first-quarter earnings reports are a little bit more positive and suggest that top-line growth is returning. Last year, it was all about cost cutting and safeguarding earnings across a huge, huge sort of array of industries. Now that top-line growth is back, earnings are starting to look really attractive and Glaxo's not being left out.

Regular viewers will be aware that my take on xx defences gaining traction late this year as equity markets cool off. So far, though, we've seen the pharmaceuticals sector underperform the broader market, a continuation of the trend that sort of prevailed in 2009. So far this year, Glaxo shares have actually fallen by around about 8 per cent whilst the FTSE 100 has increased by around about 3 per cent. I think investors have been attracted to more racier plays, and there's been a little bit of a preoccupation with concerns over what exactly US healthcare reform meant for Glaxo.

Results released early this week suggest that all is well. The company beat analysts' estimations. Sales were up by 13 per cent. Earnings were up by 16 per cent. Encouragingly, although swine flu was a major theme here and a major factor, underlying sales excluding pandemic products were up by 4 per cent, so it shows that there is life beyond swine flu.

It's all about drug sales for Glaxo, and there was considerable strength in that particular division of the company, underpinned by emerging markets and the US. Whilst sales increased by 14 per cent overall - drug sales increased, that is - emerging market sales were up by over 43 per cent and in the US, the contraction in drug sales was 1 per cent. And whilst that doesn't sound great, when you compare it to the 24 per cent contraction last year, it's a pretty robust performance.

Glaxo continues to sort of face challenges in terms of generic competition, but as older products, as their earnings contributions fall off, established products are stepping up to the plate and newer products are coming on board.

To give you the idea of what's actually happened, Valtrex, an antiviral drug, has seen its contribution fall by 46 per cent. This has been sort of mitigated by established product, the asthma products, Seretide and Advair, stepping up. Cervarix, an HPV vaccine, has also stepped up. That's a new product, as is Tykerb, a cancer drug. Overall, it's encouraging to note that new sales - sales of new products - were 65 per cent higher than they were at this time last year.

Glaxo also has a burgeoning, a growing, consumer healthcare division, and that division saw sales increase by 9 per cent, whereas the market overall globally grew by 1 per cent. President Obama's still smoking, but it seems though more and more people are trying to give up. The smoking control contribution for this division actually saw its contribution rise by 16 per cent. Products like Lucozade and Sensodyne, they also made pretty telling contributions.

As far as healthcare reform goes, that was a cloud that was hanging over the pharmaceuticals, but with the bill now passed, the uncertainly has been removed to a certain extent. On the face of it, it doesn't look great for the big pharmas. It's going to cost around about $80bn over the next decade in terms of discounts and rebates. But from 2015 onwards, I think we're going to see obviously a huge increase in the number of insured people in the United States, and therefore, there's going to be an upsurge in drug consumption there. So maybe it's not as bad as what initially it was feared.

Having said that, the company was taking no chances. It implemented a whole series of cost-cutting initiatives, efficiency drives, to sort of offset any adverse earnings impact. Operational excellence is due to provide annual cost savings of £2.2bn by the end of 2012, and these cost savings are due to reach £1.5bn by the end of this year.

And financially, Glaxo's on very, very sound footing. Operating cash flow came up 22 per cent higher than last year. The gearing is comfortable, and the company even found time to actually boost their dividend by 7 per cent. Shares now yield around about 5 per cent.

So overall, I think it's fair to say that Glaxo has been hamstrung by healthcare reform as well as patent expiration fears, but with the bill now passed, fears may be overcooked. I wouldn't be surprised to see investor sentiment warm towards Glaxo shares. The company has recently had a number of drugs passed through European approval, and has fewer patent expiration woes than many of its peers. Glaxo is an industry champion. It has a huge emerging markets exposure, and boasts a robust dividend yield. These are all factors which I believe will underpin long-term earnings strength and long-term share price outperformance.

Thanks for watching. Make sure you tune in again next week.