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GlaxoSmithKline
August 6, 2008
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GlaxoSmithKline (GSK) is involved with the development, discovery, creation and
manufacturing of pharmaceutical and consumer health care products (finance.yahoo.com, 2008).
The company was founded in 1935 and is located in Brentfort, the United Kingdom, where it has
recently appointed Andrew Witty Chief Executive Officer of the company. GSK focuses much
of its resources on prescription drugs as well as vaccines and over-the-counter medications. The
company uses these products to treat conditions within the central nervous system, respiratory
system, cardiovascular system, and anti-viral and anti-bacterial ailments. GSK also produces
products within the consumer healthcare segment, such as Aquafresh and Sensodyne toothpastes
and mouthwashes (finance.yahoo.com, 2008). The company has a strong presence in the
United States, Europe, Asia, the Middle East and Africa.
Self Appraisal
GSK is a very geographically diverse company, having a strong presence domestically
and internationally. The company does not solely focus on pharmaceuticals like several of its
competitors; it has a diverse product line that hedges possible losses from drugs that may not
receive FDA and European approval. GSK has taken a heavy stance on developing new drugs,
with 39 of its 157 projects in clinical development being dedicated to new drugs. 34 of these
projects are in late station development, close to gaining approval from regulatory boards (GSK
Annual Report, 2007). In 2007, GSK received ten product approvals, including new products to
treat breast cancer, allergic rhinitis, and skin infections.
According to a January 2008 article in BusinessWeek, GlaxoSmithKline received
European Union (EU) approval to launch its HPV vaccine Cervarix. This potential blockbuster
has yet to receive FDA approval. The company is expected to launch four central nervous
system drugs, two of which are anticipating $1 billion in revenues within five years
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(BusinessWeek, 2008). Another four drugs are expected to hit the market within 2 years, but
will not see as significant revenues. Unfortunately, GSK was set back by the FDA for safety
concerns over its diabetes drugAvandia. This product had been a large success for the company,
with sales achievements over 368 million (BusinessWeek, 2008).
GSK saw an increase in sales from its best-selling asthma drugAdvair, which rose to
3.5 billion (BusinessWeek, 2008). Officials are worried that sales are slowing though, due to
the increasing pressure from generics which will soon hit the market. With the companys
diverse portfolio of pharmaceutical and OTC products, losses from generics will be mitigated.
During the past several years, GSK has become known as a social activist, improving
access to products within the developing world. In 2000, the company was suing the South
African government for voiding patents in the country. President Nelson Mandela felt that GSK
was not giving patients access to HIV treatments (BusinessWeek, 2007). Since then, GSK has
maintained a socially responsible image by providing drugs for AIDS and malaria patients. The
company provides these treatments at not-for-profit prices. Selling the drug at cost has enhanced
the image of the company, creating significant value among consumers. GSK sells its products
at cost in over 80 different countries, giving preferential prices to some of the poorest nations.
This work has given the company several advantages over its competitors. GSK has been able to
draw top scientists, while boosting its image among world leaders. As of 2007, the company has
14 different partnerships with the World Health Organization and nongovernmental groups
(BusinessWeek, 2007). These partnerships have provided GSK with an opportunity to test its
HIV vaccines will more lenient oversight.
GlaxoSmithKline has continued to reduce costs within its organization by reducing total
healthcare costs and expenditures (GSK Annual Report, 2007). In October 2007, GSK cut 1.5
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billion in costs by reducing jobs and closing manufacturing facilities. The company expects to
increase savings to 700 million year by 2010. The pharmaceutical giant is working to become
more efficient by outsourcing jobs to nations with lower labor costs. This efficiency will allow
the company to continue its expenditures in research and development. GSK uses Centres of
Excellence for Drug Discovery (CEDD) to target disease areas. The company uses this approach
to utilize small research and development teams to increase productivity. Two CEDDs were
opened in 2007 to treat Immuno-inflammation and infectious diseases, which are currently
headed by world-class scientists. By utilizing the knowledge of these scientists, GSK has
developed value that cannot be replicated by other rivals (GSK Annual Report, 2007).
The company continues to remain profitable by utilizing partnerships with universities
and other companies. GSK opened a new clinical imaging center at Hammersmith Hospital in
London, allowing the company to continue its research on cancer, stroke and neurological
diseases. A facility was also recently opened in China in order to take advance of advancing
sciences within the region. GSK currently has nine external product collaborations with
companies such as: Anacor Pharmaceuticals and Oncomed Pharmaceuticals
(yahoo.finance.com). By creating these partnerships, GSK has been able to share the costs of
research and development, while utilizing the strengths other sources can provide the company to
succeed. These companies provide GSK with new technologies which allow the company to
further innovate its products to set itself apart from its competitors. Partnerships have also
provided the company with a broad group of scientists to diversify thinking and knowledge
(GSK Annual Report, 2007).
During 2007, GSK reported revenues of 22.7 billion, a decrease of 2% from the prior
year. Pharmaceuticals accounted for 85% of total sales; however, pharmaceutical sales
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decreased 4% from 2006. Consumer healthcare products continued to growth, with revenues
increasing 11% from 2006. The decrease in sales could be from the legal issues surrounding
Avandia, which saw a reduction of 22% in sales. GSKs top selling pharmaceuticals include:
Advair,Avandia,Lamictal, and Valtrex. The four products accounted for more than 6.7 billion
in sales. The companys growth drivers,Arixtra, Avodart, Boniva andRequip accounted for
sales of 892 million, a 47% growth from 2006 (GSK Annual Report, 2007). GSK was able to
reduce research and development costs by 4%, but still saw a decrease in operating profit of 3%.
GSK currently holds 7.6% of the market share, making it one of the top ten largest drug
manufacturers in the world.
Strategic Problems
GlaxoSmithKline is facing several problems in the next several years. Several of the
companys patents will be expiring in 2008, and with growing generic brand competition, the
company expects possible declines during 2008. GSK can alleviate their future situation by
focusing on their vaccines. The company saw in increase in sales from their vaccine products of
20%. Vaccination products produced the second-highest revenues for the company, accounting
for almost 2 billion in sales. In order for the company to fund the research for vaccinations, the
company would need to develop more collaborative ventures with academic facilities and other
companies. GSK would require heavier amounts of funding, due to the complexities of
manufacturing vaccines. Regulations would be more stringent due to the biological nature of the
product, with health authorities possibly asking for another control to ensure high quality (GSK
Annual Report, 2007).
The company has encountered higher regulation standards, where regional and national
laws govern the testing, approval and marketing of pharmaceuticals. These regulations are a
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main factor in determining the success of GSKs products. If products do not meet regulatory
standards, then the patents for these products will be denied. Many of these regulations have led
to several of GSKs potential blockbuster drugs to be removed from FDA consideration. Though
the company does not need a presence in every nation, GSK needs to meet the demands within
the United States to remain competitive. The FDA Amendments Act mandates rigorous safety
reviews from the approval to post-marketing stages. The act also provides the FDA with tools to
require a sponsor for post-marketing studies (GSK Annual Report, 2007). GSK has an
opportunity to invest more capital in research facilities in Europe, as the European Union works
to decrease over-regulation within the pharmaceutical industry. The company may be able to
take advance of the loosening regulations, thus preventing the company from setting up costly
facilities thousands of miles away.
As consumers become more health and price conscious, GSK will need to find a way to
make products more attractive to buy. In the United States, generic brands are becoming a
growing industry. The current state of the economy and the rising healthcare costs have left
Americans pushed to find pharmaceuticals at lower prices. In other nations, governments have
strong influences on prices to consumers, which will determine the cost of supply
pharmaceuticals. GSK continues to collaborate with academics and other companies to reduce
prices for its customers.
The company should shift its focus to the United States and Asia, where the population
has been seeing a large increase in senior citizens. Many seniors will be in need of cancer
treatments, as well as other ailments that affect their livelihood. GSK has an opportunity to
market its products to seniors, who may be willing to pay more increase their lifespan. As the
Presidential election nears, healthcare has become one of the leading national issues. If the
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United States adopts a universal healthcare system, the market will expand with more patients
having access to medications. GSK can take advantage of this by increasing its marketing of its
cardiovascular drugs. The Medicare system will pay for the majority of prescription costs,
making GSK products more attractive to consumers. An alternative marketing strategy would be
stress the value of GSKs product, influencing consumers that what they are paying for is
medical relief and continued independence. As GSK stresses the long-term value of its
medication to consumers, it can inform its consumers that their contribution is allowing the
company to increase its innovations while preventing disease and providing better treatments.
Portfolio Analysis
GlaxoSmithKline has an extensive portfolio of products that directed to eight main
therapeutic areas:
Therapeutic
Area2007 (m) 2006 (m) % Change
Respiratory 5,032 4,995 0.7%
Nervous System 3,348 3,642 (8.1%)
Anti-virals 3,028 2,827 7.1%
Metabolic 1,514 1,875 (19.3%)Vaccines 1,993 1,692 17.8%
Cardiovascular 1,554 1,636 (5.0%)
Anti-bacterial 1,330 1,369 (2.8%)
Oncology 477 1,069 (55.4%)
Other 957 973 (1.6%)
Total 19,233 20,078 (4.2%)
The product portfolio for GlaxoSmithKline saw decreases in five of its eight therapeutic
areas, most notably within the oncology medications. This line includes products for breast,
ovarian, cervical and small cell lung cancer. Other products include treatments for leukemia,
Hodgkins disease, and side effect from chemotherapy. Sales were led by recently approved
Tykerb, which treats breast cancer. GSKs productZofran, which is primarily used to treat the
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side effects of chemotherapy, provided the company a leadership position within the segment.
Other major competitors within this segment include: Roche/Genetech, Novartis, Sanofi-Aventis
and Bristol Myers. GSK holds a very small market position in this line of treatments, which may
explain the small amount of sales (GSK Annual Report, 2007). Late in 2006, generics within
this area became available, leading to the significant decrease in sales.
GSKs position in metabolic pharmaceuticals dropped more than 19%, primarily due to
safety issues withAvandia. Two other products within this segment include combinations of
Avandia and other chemicals, which could decrease sales even further in 2008. GSK currently
sellsBonviva, a treatment for osteoporosis, which is co-promoted with Roche. The companys
major competitor in this segment is Takeda Chemical. Takeda and Eli Lilly just ended their co-
promotion of their competing drugActos in 2007. Boniva competes with Merck and Sanofi-
Aventis. All three companies will continue to see a decrease in sales in this segment as the
genericFosomax has been introduced to the United States, United Kingdom, Germany and
Canada (GSK Annual Report, 2007).
Vaccine products significantly increased from 2006 by almost 20 percent. The company
markets more than 30 vaccines worldwide, many of which are used to protect children and young
adults from six diseases at a time (GSK Annual Report, 2007). Infanrix is GSKs combination
vaccine, protecting individuals against diphtheria, tetanus, whooping cough, hepatitis B and
polio. Infantrix is currently the only pediatric combination available in Europe. The company
also manufactures several other vaccines which protect people from other wide-spread diseases.
GSKs main competitors are in this segment are Sanofi Pasteur (SP), Merck, Novartis and
Wyeth.
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GSK has used its extensive resources to develop vaccination products into a profitable
entity. With the companys HPV vaccine being approved for use in over 50 nations, GSK is in a
position to excel within the market segment. The company currently has 24 projects in clinical
develop, including seven in phase III trials (GSK Annual Report, 2007). In a market that
struggles to find mass producers for third-world diseases and conditions, GSK has developed
several drugs that can cure or prevent many ailments. By charging drugs at cost, the company is
making a positive impact in developing nations. These societies can now afford to protect its
citizens from treatable conditions that have plagued their nation for decades. Since there are still
many developing nations, GSK has an excellent opportunity to push its vaccines into this market.
GlaxoSmithKlines largest segments, respiratory and central nervous system disorders are
driven by the growth ofSeretide/AdvairandPaxil. Advairis included in a very competitive
segment which includes Merck and Pfizer. The companys asthma product does not have to
directly compete with generics, which allows GSK to expand its market share. Within the
central nervous system segment,Paxilmust compete with many branded drugs in the United
States, as well as several generic brands (GSK Annual Report, 2007). This market segment is
very saturated, making it an unfavorable place to quickly grab market share.
The anti-viral segment has allowed GSK to grow significantly. The company is a pioneer
in the HIV market, launching eight different drugs to expand the companies HIV portfolio. GSK
must compete with Gilead, Bristol Myers Squibb, Abbott and Roche. Though these companies
have their own lines of products, GSK has a significant amount of the segments market share.
With the companys current presence in developing nations, sales within the market should
continue to increase. GSKs anti-herpes drug Valtrex is a market leader, which compete with
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NovartisFamvir. The company has secured marketing rights of GileadsHepsera in several
key markets, allowing it extend its dominance within the sector.
Strengths and Weaknesses
GlaxoSmithKline has become widely known for its work with third-world nations. The
company has spent more than 3 billion in research and development, much of it going to
treatments in Africa. GSK has also found methods of cutting costs without effecting research
and development budgets. By implementing the 1.5 billion Operational Excellence program,
the company has been able to improve operational efficiency, while saving 700 million
annually by 2010.
GSK has excelled in keeping new innovations within its pipelines, especially when many
of its patents are due to expire. With almost 160 projects in clinical development, GSK has been
able to prepare to recoup potential losses from generics. The company has also formed several
partnerships with other competitors, providing a broader knowledge base within the industry.
Similarly, GSK has developed CEDDs, adapting its culture to decentralize much of its
bureaucratic model. CEDDs allow scientists and researchers to have access to company
technology, while breaking down facilities into research teams (GSK Annual Report, 2007). The
goal of this culture is to get employees more actively engaged in their projects, while improving
the quality and management of projects.
A weakness that the company displays is that it has not brought pharmaceuticals to
market quick enough to compete with generics. Though many drugs are currently in clinical
trials, sales revenues declined in more than half of the companys business segments. As a
result, sales declined 4%, including two segments that saw double-digit declines. Even as sales
declined, GSK was unable to reduce its cost of raw materials. Cost of sales increased 6%,
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wiping out savings from the reduction in selling and general administration costs. Competition
is very high within the industry, and with competitors producing over-the-counter and generic
medications, it is vital for GSK to produce timely treatments.
Though revenues have declined since 2006, GSK has hedged many of its losses with its
consumer healthcare business. The company diversified its business, balancing it with its
pharmaceutical business. GSK produced a sales growth of 14%, due in large part by its
successful launch ofalli, an OTC weight loss aid (GSK Annual Report, 2007). GSK has become
a product that consumers switch to, bringing them to purchase many of GSKs OTC brands.
With a presence in the OTC market, GSK can share its expertise and resources with its
researchers in the pharmaceutical market. This extended business entity can provide GSK with a
steady cash flow over the long-term, allowing the company to alleviate some of its losses from
the pharmaceutical market.
Objectives and Goals
GlaxoSmithKline is working to have 34 of the companys key assets patented during
2007. These products are currently in their late state development, and are expected to improve
the companys position within the marketplace (GSK Annual Report, 2007). By working
efficiently to successfully receive patents for its products, GSK would be able to increase its
revenues, thus turning around the companys recent hardships. Along with their current pipeline
of products, GSK is working to meet the needs of its customers. GSK is also looking to balance
its business between its pharmaceuticals, vaccines, and consumer health products. As long as the
consumer health business continues to flourish, GSK will have extensive amounts of available
cash to take some risks in innovative products and research and development.
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As regulators become more risk conscious, companies must be able to adapt their
business models to evolve with new regulations. One method that GSK has approached to meet
new standards is by working with local and national governments to ensure their products match
respective regulations. While working with governments, GSK is planning to reduce its
healthcare costs and lower its expenses in order to operate more efficiently (GSK Annual Report,
2007). By adhering to government standards and improving efficiency, products will not be
scrapped late in development, which causes the company to lose its investment in research and
development. Another goal when reducing costs is to outsource more of the companys
developing products to lower-cost nations. GSK will then be able to take advantage of cheaper
labor and untapped personnel resources to reduce the cost of its products.
GSK must decrease its prices in the United States and other nations in order to provide
affordable products to its customers. As the Baby Boomers begin to retire, they will be relying
on Medicare and other health benefits to pay for their pharmaceuticals. Since the healthcare
industry has seen significant increases in prices, GSK must work to reduce its prices of its
pharmaceuticals. If the company has to earn smaller margins on its products to influence
customers to become brand loyal to its products, the company may generate greater success in
the long-term.
Within the next year, GlaxoSmithKline plans to expand its business into Brazil, Indian,
China and Russia (BRIC). The corporation is aware of the growing populations in these nations,
and most of its citizens can afford quality healthcare. This opens up a large market for the
company, where its vaccines, anti-viral and cardiovascular products would strive. Many
neglected diseases remain present in Asia, and GSK has the resources to meet these perils. Since
the company focuses much of its efforts on unmet needs, its growing vaccination products would
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benefit the citizens of these nations, while developing stronger relationships with the national
governments to sell other products in the future.
A future goal for GSK should be to continue expanding its vaccination product line to
quell the needs of developing nations. Many diseases, including malaria and polio, have been
eradicated in developed nation. These diseases remain in existence in third-world countries due
to the lack of prevention and treatment. Currently, vaccine products are the fifth-highest revenue
segment for the company. Many companies are shifting their focus away from respiratory
products to other growing segments. The respiratory segment has become mature, and is flooded
with many competitors and generic brands. Though the company produces a majority of its sales
through this segment, a shift should be made to evolve with the changes in the marketplace.
GSKs goal should be to increase its medical presence in Africa, as well as other nations that are
in desperate need of medical attention. With GSKs cooperative programs with governments to
provide drugs not-for-profit, a large opportunity presents itself. By forming strong relationships
with these new nations and consumers, the company will be able to infuse other chronic
pharmaceuticals into the marketplace.
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Performance Based On Existing Strategy
(In millions of Pounds) 2012 2007 Growth 2006 Growth 2005
Revenue Pharmaceuticals 21,156 19,233 -4.2% 20,078 7.6% 18,661
Consumer Health 4,528 3,483 10.7% 3,147 4.9% 2,999Total Revenue 25,684 22,716 -2.2% 23,225 7.2% 21,660
Cost of Sales (6,010) (5,317) 6.1% (5,010) 5.2% (4,764)
Selling, general, admin. (7,154) (6,954) -4.2% (7,257) 0.1% (7,250)
R&D Pharmaceuticals (3,600) (3,219) -4.0% (3,353) 10.7% (3,030)
Consumer Health (115) (108) 3.8% (104) -1.9% (106)
Other operatingincome 713 475 54.7% 307 141.7% 127
OperatingProfit 9,518 7,593 -2.8% 7,808 13.6% 6,874
Profit before taxation 9,328 7,452 -4.4% 7,799 15.8% 6,732
Profit after taxes 4,945 5,310 -3.4% 5,498 14.2% 4,816
Gross Profit 76.6% 76.6% 78.4% 78.0%Gross Profit (Pharms) 71.6% 72.4% 75.0% 74.5%
Net Profit 19.3% 23.4% 23.7% 22.2%
Revenue/R&D 5.88$ 5.97$ 5.99$ 6.16$
GlaxoSmithKline has had several years of increasing and decreasing revenues. When
projecting sales five years out, a conservative approach was taken to assess what revenues would
be. A conservative growth of 10% over the next five years was given, which would cover
possible losses between 2008 and 2012. Assuming that the company would maintain the same
gross profit from 2007, the gross profit for pharmaceuticals would decrease by almost 1%. The
net profit ratio of the company would also fall 4% while following its current strategy. It is very
difficult to gauge how some of the companys segments will fair within the next five years.
Assuming that the companys revenues continue to increase by 6% annually within its consumer
products, some lost revenues will be forged. The amount of money the company makes per
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dollar spend on research and development will fall nine cents, showing a negative use of its
investments. Though the company currently has a lot of products in its pipeline, many of its
projects may not receive patents from the U.S. FDA. This snapshot of financial health for 2012
makes many assumptions, and is not a fully accurate predictor for sales generated from future
blockbuster products from GlaxoSmithKline.
During the next five years, GSK may lose market share if it continues its current strategy.
Should the predicted figures be correct, and the total market sales in the industry accumulate to
$400 billion in the United States, GSK may lose market share (Datamonitor, 2005). It is vital for
GSK to grow its market share in the United States in order to remain competitive among its
rivals. With many of the companys patents due to expire within the next five years, GSK must
produce more successful products that will overcome the potential losses from generic brands.
Knowing that the sales figures above may be far from accurate, a secondary approach to
GSKs financial future is warranted. GlaxoSmithKline has committed itself to improve its line
of vaccine medications, as well as find another drug that will lead the company likeAvandia did.
The company has few metabolic pharmaceuticals that can replace sales thatAvandia produced.
With the companys continued production in anti-viral medications, sales should continue to
increase as the company enters the BRIC countries. Anti-viral revenues grew 7% during 2006,
and should continue to do so over the next several years. GSK has a vast and successful
portfolio of HIV products, proving it has extensive knowledge within this segment. Anti-viral
medications will prove to be a very successful segment for the company, becoming its second
most profitable as sales slow within the central nervous system segment. Respiratory products
saw a slight increase in 2007, but that trend may not continue in the future. 5 billion of the
companys revenue is generated from this segment, the leading segment for GSK. As the
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segment continues be flooded by generic brands other named-brand prescriptions, GSK must
work to create more extensive value among its prescriptions to keep its price-conscious
customers.
Consumers within the industry are currently price-conscious, and this trend should
continue into the next decade. GSK may struggle to keep many of its customers as it tries to
implement its marketing strategy to create value for its products. The company plans to educate
physicians and patients that the value of the medication should supersede its price. Medications
that effectively treat chronic illnesses will allow people to live longer, more independent lives.
Consumers may accept this idea, but if the healthcare system in the United States does not
provide opportunities for people to purchase affordable medications, then consumers will turn to
generics. Unless GSK and other major pharmaceutical companies can market value is more
important than price, consumers will turn to generics.
Gap Analysis
GlaxoSmithKline is projected to be unable to reduce its cost of sales for its
pharmaceutical products. Cost of sales is expected to increase by 700 million within five years,
based on sales costs of 23%. This figure, however, may be overstated, due to the expectations of
GSK to reduce expenses by 700 million by 2010. The company recently invested 1.5 billion
into an efficiency program that should reduce expenses. With sales not growing as rapidly as
expected, though, the company is still seeing a reduction in net profits. GSK will continue to see
struggles within many of its product segments, investing capital in segments which have matured
and have significant amounts of competition. These inefficient expenditures will force the
company to continue its current pricing strategy, thus not improving the situation for its
customers.
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Though the company projected to expand their business in the BRIC nations, the
company remained focused on its leading product lines. Instead of branching out and utilizing
many of its products which have little competition, GSK continued marketing its respiratory
products for asthma and COPD. Though the company has seen some growth, the influx of other
substitute products will make the market extremely competitive. The segment will still be
profitable, and may have greater success in the future due to the aging population. The rapidly
changing age demographics in the United States may shift the companys prior objectives, thus
leading to an increase in sales from its cardiovascular and respiratory drugs.
A recent study by the Center for Disease Control found that AIDS patients have stopped
taking their medications for fear of the side-effects of the drugs (Sternberg, 2008). Patients
around the world have stopped taking their medications, at a time when new infections of the
virus increased to more than 55,000 people between 2003 and 2006. Education of the treatments
has not been sufficient enough, as many patients fear the side-effects more than the AIDS virus.
This will impact projections that anti-viral medications will be successful. As patients
discontinue treating their illness, revenues will decrease from anti-viral medications. HIV
patients in the United States and around the world may show a decrease in demand for these
products unless the side-effects from the drugs are minimized. In turn, these events will shift the
focus predicted to other pharmaceutical segments.
GSKs campaign will not be enough to influence patients that the value of the product is
more important than the price. Many people treat pharmaceuticals like a commodity, and
assume that all drugs will have the same effect. Price will be the key to consumers, and as GSK
continues its current strategy, it will be unable to meet its objective. GSK will be unable to
reduce its prices on most of its pharmaceuticals, since its cost of sales will continue to increase,
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decreasing overall profit margins for the company. The recent downturn in the U.S. economy
will affect many of the companys patients, including the Baby Boomers. Many of these
individuals may have lost significant amounts within their savings, preventing them from
focusing on the quality of their medication over the price. While many companies have reduced
their healthcare plans and coverage, patients will be unable to afford premium medications,
which will hurt GSK. Unless the company can reduce its prices through expenses or by
decreasing margins, GSK will continue to lose sales to generic companies.
Strategy Formulation
During 2007, GlaxoSmithKline made significant changes within the company. The
company saw the departure of its President of Pharmaceutical Operations and its Senior Vice
President. Not only were there management changes, GSK implemented its Operational
Excellence program in order to cut expenses. GSK has a positive outlook for 2008, with the goal
that its 10 product approvals in 2007 will turn out to be large successes.
When determining a successful strategy to implement, GSK must look at several
variables, and how each will be affected by the strategy. The company needs to determine how
must research and development will be required, as well as how the strategy will affect the end
consumers. Currently, the company is looking to reduce its expenses, while providing cheaper
products to its patients. If there strategy does not provide this, then it will be unsuccessful. The
strategy will need to have an impact on the current needs of the market, as many international
markets require certain products. The new strategy must be able to generate cash flow for the
company, allowing it to have cash available for acquisitions and research. A final determinant is
how competitors will react to GSKs strategy. If GSK has a strong position, then competitors
will be unable to counter the companys strategy.
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In order for GSK to remain a dominant leader in the pharmaceutical industry, it must take
advantage of its business strengths. As of 2007, 26% of the companys revenues were accounted
for by the anti-viral and vaccine segments. The segments were the only ones, besides the
respiratory segment, to have positive growth in 2007. Within these segments, GSK is currently
leading many of its competitors in overall sales. GSK was the pioneer company in anti-viral
medications, developing a strong portfolio of drugs to compete against rivals and generic brands.
The company specializes in the medications for herpes and HIV, with newly added HIV products
that have increased sales by 465 million. Lexiva andKivexa have grown 39% and 13%,
respectively, in sales, picking up the reduction in sales from the companys two largest sales
producers. Kivexa has become the second most profitable drug in GSKs line, making it a
significant threat to the rest of the market.
The companys vaccine line has seen even stronger growth, increasing sales within the
segment by almost 20%. GSK has a strong advantage over its many competitors in this segment,
offering a drug Twinrix, which is the only available vaccine for hepatitis A and B. The drug can
be used on adults and children. The other vaccines that dominate the segment includeInfanrix
andPediarix, which protect against several diseases that have been ignored by many drug
manufacturers. Though there are only five major competitors within this segment, GSK offers
multiple drugs that compete against only one other drug. Vaccine sales grew significantly in all
regions of the world, most notably a 44% grow in the United States, of the companys most
prominent markets. European sales grew 14%, making vaccinations a strong cash-producing
product for the company.
Due to the limited competition within these two sectors, GSK can significantly increase
its net sales and revenues during the coming years. Though the five competitors within the
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vaccine segment are large corporations, GSK has effective products which can overcome
pressures from rival drugs. The United States has a strong demand for vaccine products, as well
as anti-viral medications. The culture within the country is to live a healthy lifestyle, which
includes preventing illness and disease. Many of GSKs products would benefit Asia as well as
Africa, where many diseases go untreated or have fallen off the radar of many pharmaceutical
companies. GSKs relationship with foreign governments has made the company a strong
partner in providing vaccines to third-world nations at the cost of the drug. Though margins are
much smaller in Africa and Asia, the loyalty created with the government and physicians will
lead to increased sales in other medications the company offers. Growth of sales in Africa and
Asia climbed 10%, generating almost 4 billion. Though the market is smaller compared to
Europe and the United States, GSK would be filling a desperate need for millions of citizens
within these continents.
GSK would need to utilize its Operational Excellence program, which plans to save the
company 550 million within two years. Regulations for vaccines are much higher in the United
States, and research and development expenses are higher. Due to the rising demand for
vaccines from Baby Boomers, sales should offset expected increases in research. By
implementing some of the companys savings into marketing its vaccine and anti-viral lines,
GSK would see significant returns on investment within a short period of time. A factor that the
company must consider is the price of these products. In the United States, anti-viral
medications can be expensive, while vaccines typically are cheaper. Rising healthcare costs
have pinched the spending for many consumers, which may have an effect on sales in the future.
With the presidential elections approaching, and healthcare being a dominant issue, the United
States may see a reform in its healthcare system. This would be extremely positive for GSK,
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because a universal healthcare system or a reform within the system would make
pharmaceuticals cheaper for Americans. Assuming that the economy heals during the next year,
people will have more money available to spend on healthcare products.
Another strategy that the company could implement would be to expand its consumer
health products available. GSK currently hold leading global positions in all of its key consumer
product areas. The company excels at producing OTC medicines, oral care products and
nutritional supplements. Consumer health products increased sales in 2007 by almost 10%.
GSK holds a dominant portfolio of products, including Nicorette gum, Breathe Right nasal strips,
Tums, Fiber Choice, and Aquafresh toothpaste. Research and development costs are lower in
this area, as cycle times for innovation have decreased. Consumers are demanding better value
products that react quicker, making price not as important of a factor. GSKs products for
smokers and antacids have gained significant recognition for their quality and effectiveness. As
more aggressive competition arises from companies such as Johnson & Johnson, Proctor &
Gamble, Wyeth and Colgate, GSK has expanded its product mix to compete with these
companies. The consumer healthcare market provides the company with stable cash flow, which
can be utilized in other growing segments of the company.
GlaxoSmithKline could take advantage of its current strategy, where it is relying on 34 of
its assets are in late clinical states. The release of 10 products in 2007 is expected to generate
enough cash to keep the company profitable. Even though these products may be successful,
GSK is predicting a low of 1 to 2% in revenues in 2008 (GSK Annual Report). The company is
planning on its Operation Excellence program will reduce its expenses, making GSK look more
profitable. Sales in 5 of its 8 product segments have lost revenues, two of which saw significant
double-digit decreases. Research and development expenses are expected to remain stable, thus
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preventing increases expenditures. The company admits, however, that many of its
pharmaceuticals are extremely susceptible to generics and price controls. GSK could have
significant losses if regulations change for their products, as well as possible losses from
increased competition. Though the companys current strategy has worked well by relying on
innovation, it may be time to switch direction.
GlaxoSmithKline should focus on marketing its consumer healthcare products, as well as
invest more cash in its anti-viral medications and vaccines. This combined strategy will take
advantage of a growing segment that can produce significant cash flows. The consumer products
will produce a growing amount of cash that will hedge against possible losses from the other two
segments. The overwhelming demand for health products creates an opportunity for GSK to
promote its consumer products. GSK can implement this strategy by focusing on the value of its
products, while finding new uses by slightly modifying some of its brands. This will prevent the
company from having to rapidly develop new products.
By meeting prevention needs in the United States and the third-world, GSK can separate
itself from many of its competitors by focusing on untapped markets. As the populations age in
Asia and the United States, consumers will be looking to protect themselves from illness and
disease, thus increasing the demand for vaccine products. With HIV and AIDS still a problem in
developing nations as well as Europe and the United States, GSKs anti-viral treatments will fill
a need that has yet to diminish. GSK must educate physicians and patients how to properly use
its products to prevent some unintended side-effects. The future revenues of this combined
strategy outweigh possible costs, making it a logical choice for the company. GlaxoSmithKline
can revamp its focus by investing more in its growing product lines and consumer products,
generating steadily growing cash flows for the company in the future.