GLAXOSMITHKLINE PHARMACEUTICALS GlaxoSmithKline plc is a global healthcare group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health related products. The company operated in two segments: Pharmaceuticals (Prescription pharmaceuticals and vaccines), and Consumer Healthcare. STRATEGIC BUSINESS UNIT – PHARMACEUTICALS MANUFACTURING AND MARKETING STRATEGIC GROUP FOR THE SBU – CONTRACT MANUFACTURING Company Information & Market Analysis
GlaxoSmithKline PLC (NYSE:GSK), formed through the merger of British drug makers Glaxo Wellcome and SmithKline Beecham in December 2000, ranks as the world’s second largest pharmaceutical company. GSK group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health-related products. GlaxoSmithKline supply one quarter of the world’s vaccines and by the end of February 2008 GSK had 24 vaccines in clinical development. It has operations in some 114 countries, with products sold in over 140 countries.
The company operates in two segments: Pharmaceuticals (prescription pharmaceutical and vaccines) and Consumer Healthcare (over-the-counter medicines, oral care and nutritional healthcare). The company offers a wide range of respiratory drugs, the most important of which is Seretide/Advair (2007 sales of $7. 0 billion), a leading asthma treatment. GSK is believed to be the leader in HIV/AIDS therapeutics, with its Trizivir, Epivir and Combivir drugs. The markets for its products are the United States, France, Japan, United Kingdom, Italy, Germany and Spain. The U.
S. accounted for 48% of pharmaceutical sales in 2007, Europe 30% and other regions 22%. The dollar value of the global pharmaceutical market was projected to exceed $770 billion in year 2008, according to IMS Health Multinational operations GSK is a global healthcare group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health-related products. It has and operations in some 114 countries, with products sold in over 140 countries. The company operates in two segments: pharmaceutical and consumer healthcare. Estimated 7% of the world’s pharmaceutical market * Every minute more than 1100 prescriptions are written for GSK products around the world * 10 manufacturing facilities around the world for investigatory and launching drugs and then after two years of early production, company has 80 manufacturing plants around the world for new pipeline products Michael Porter’s Five Forces Model of Indian Pharmaceutical Industry INDUSTRY COMPETITION Pharmaceutical industry is one of the most competitive industries in the country with as many as 10,000 different players fighting for the same pie.
The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 18% market share. Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry. Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharmaceutical industry are very low. The fixed cost requirement is low but the need for working capital is high.
The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells us that in bigger companies this ratio is in the range of 3. 5 to 4 times. For smaller companies, it would be even higher. Many smaller players that are focused on a particular region have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. An important fact is that pharmaceutical industry is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1. 2 times average in India).
Though volume growth has been consistent over a period of time, value growth has not followed in tandem. The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharmaceutical industry product differentiation is not possible since India has followed process patents till date, with laws favoring imitators. Consequently, product differentiation is not the driver, cost competitiveness is. However, companies like Pfizer and Glaxo have created big brands in over the years, which act as product differentiation tools.
This will enhance over the long term, as product patents come into play from 2005. Bargaining Power of Buyers The unique feature of pharmaceutical industry is that the end user of the product is different from the influencer (read doctor). The consumer has no choice but to buy what doctor says. However, when we look at the buyer’s power, we look at the influence they have on the prices of the product. In pharma industry, the buyers are scattered and they as such does not wield much power in the pricing of the products.
However, government with its policies plays an important role in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority). Bargaining Power of Suppliers The pharmaceutical industry depends upon several organic chemicals. The chemical industry is again very competitive and fragmented. The chemicals used in the pharmaceutical industry are largely a commodity. The suppliers have very low bargaining power and the companies in the pharmaceutical industry can switch from their suppliers without incurring a very high cost.
However, what can happen is that the supplier can go for forward integration to become a pharmaceutical company. Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies, who turned themselves into pharmaceutical companies. Barriers to Entry Pharmaceutical industry is one of the most easily accessible industries for an entrepreneur in India. The capital requirement for the industry is very low; creating a regional distribution network is easy, since the point of sales is restricted in this industry in India.
However, creating brand awareness and franchisee amongst doctors is the key for long- term survival. Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations. Going forward, the impending new patent regime will raise the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge. Threat of Substitutes This is one of the great advantages of the pharmaceutical industry. Whatever happens, demand for pharmaceutical products continues and the industry thrives.
One of the key reasons for high competitiveness in the industry is that as an ongoing concern, pharmaceutical industry seems to have an infinite future. However, in recent times, the advances made in the field of biotechnology, can prove to be a threat to the synthetic pharmaceutical industry. Conclusion This model gives a fair idea about the industry in which a company operates and the various external forces that influence it. However, it must be noted that any industry is not static in nature. It’s dynamic and over a period of time the model, which have used to analyze the pharmaceutical industry may itself evolve.
Going forward, we foresee increasing competition in the industry but the form of competition will be different. It will be between large players (with economies of scale) and it may be possible that some kind of oligopoly or cartels come into play. This is owing to the fact that the industry will move towards consolidation. The larger players in the industry will survive with their proprietary products and strong franchisee. In the Indian context, companies like Cipla, Ranbaxy and Glaxo are likely to be key players.
Though consolidation within the current big names is not ruled out. Smaller fringe players, who have no differentiating strengths, are likely to either be acquired or cease to exist. The barriers to entry will increase going forward. The change in the patent regime will see new proprietary products coming up, making imitation difficult. The players with huge capacity will be able to influence substantial power on the fringe players by their aggressive pricing which will create hindrance for the smaller players. Economies of scale will play an important part too.
Last but not the least, in a vast country of India’s size, government too will have bigger role to play. Key Success Factors The key success factors that emerge are as follows: ? Expertise in R&D – After the TRIPS in 2005, most Indian companies have shifted towards innovative research and for discovery of NCEs and NDDs for existing drugs. ? Manufacturing Competence – The increasing complexity of the chemical structures of drugs, has raised their cost of production, has prompted many pharmaceutical firms on improving manufacturing efficiency.
The Indian companies compete in international arena on the basis of lower costs of production, access to quality raw material at competitive price and technological competence that has a bearing on the cost of production (bulk drugs). Cost containment through efficiencies in supply chain. ? Nature of Product Portfolio – The product mix of the company i. e. presence in bulk drugs and/or formulations, has a bearing on its financial performance, as the dynamics of the two are different. The bulk drugs is essentially a commodity business that focuses on cost competitiveness.
The formulations business on the other hand, is retail oriented where brand and marketing network are important. The therapeutic profile of the product portfolio can affect the financial performance of companies. This is because of the differences in the demand pattern in different therapeutic segments. Also realizations tend to be inversely proportional to molecule age. Thus the company’s ability to introduce new products quickly and the age of its product portfolio tends to have a significant impact on its prospects. Marketing and Distribution Network – marketing and distribution network forms an important success factor for a formulations player. Successful product launches have helped companies generate significant sales from certain pharmaceutical products. Brand building is another area of critical importance, especially for OTC products. Aggressive marketing helps in generating repeat sales. Access to a well diversified distribution network is critical, given the vast geographic expanse of the country. An extensive distribution network gives improved penetration and has helped quite a few formulators increase their turnover.
SWOT ANALYSIS Strengths * Qualified staff and experienced managers * Comprehensive set of documents in health sector * Well developed primary health care already accepted by stakeholders * Rationalised hospital system * Will to improve leadership in Ministry of Social Affairs * Transparent public health and health care service purchasing * Balanced finance in the health sector * Strong IT development * established track record of product development * strong market position Weaknesses * No clear, widely shared goals for the system Difficulties with continuity of care (leading to frequent cases of patients lost in system) * Poor intersectoral linkages between health care, public health and social care * Raising cost sharing (as an expression of inability to cope with cost increases) * Unsustainable revenue base * Lack of sustainable training and management skills * Low ability to retain the professionals * Unfavourable ratio of different competences * Geographically diverse locations? * Discontinuation of products in the latter stages of development * Co-marketing agreements can limit gsk’ s global presence
Opportunities * Societal changes * Economic growth * Free movement of goods, services, labour * Technological development * Empowerment of citizens and their greater engagement Threats * Demographic change and ageing * Ecological and public health threats * Raising population expectations to health system * An increase in the number of safety issues surrounding products * Competition from products similar to GSK’s in R&D that reach the market close to or before GSK’s products * The new economic potential of emergent China, India and competition in diverse regional markets. counterfeit drugs being sold in competition with legitimate products * political pressure to sell at prices that fail to pay for the development of new drugs or to recover past development costs * patent expiry on drugs that generate strong income * ever increasing cost of drug trials and ever higher standards imposed by national drug approvals bodies (Aspirin would not get approval if invented today! ) International growth strategy * As a leading global pharmaceutical company, GSK wants to establish more international commercialization capabilities. GSK has established a new business model of prioritizing emerging economy investments in capacity and regulatory expertise to strengthen the company’s footprint in growth markets * Acquisitions- GSK says “smaller firms come calling “. Acquisition reinforces GSK’s ongoing efforts to invest in and expand its business as part of the company’s strategy to globalize and diversify. Small drug companies squeezed by the credit crunch are turning to GSK to discuss being acquired. Some of the important acquisitions include: * Sirtris Pharmaceuticals Inc. * Cambridge biotech Egyptian mature products business of Bristol Myers Squibb * Agreement with AstraZeneca for Alvedon * ID biomedical corporation- major step toward fulfilling our mission of becoming a leading global influenza vaccine manufacturer. * Vaccine Boost- with the flu season approaching, GSK has expanded its flu vaccine capabilities in North America. * Biotech Strategy- GSK is shifting more to a biotech approach, creating small units of up to 80 scientists to pursue development programs. Those groups will then apply for research funds from a central investment board.
It plans to also set up a venture arm to invest in promising new therapies pursued by early-stage companies or set up small companies to focus on Glaxo drugs. Value Chain Framework The key success factors of the industry show that a firm needs to be strong in each of the elements of the value chain to be a truly successful player. This is the reason we find that world over, all pharmaceutical players are integrated. Now to analyze the forces driving the kind of strategic alliances Indian firms are entering internationally, we try and map the competencies of the Indian firms against the value chain and look for possible gaps.
Due to poor research and development, they have been able to develop new products. Thus, they need strategic alliances with firms that have expertise in these areas. Secondly when entering new geographic market, firms face entry barriers in terms of sales and distribution network. Pharmaceutical products require extensive sales penetration and relationship with doctors. It is difficult for a new player to build in a short time. Moreover, it requires considerable investment which is financially not feasible when Indian firms only have a few products abroad. India challenges
Indian formulations market offered several challenges to GSK. India has a process patent regime leading to many local pharmaceutical companies getting globally patented products, reverse engineering them with a different process and selling them in India at competitive prices. The Indian formulations industry is very fragmented as well, leading to severe competition. In addition, India has a price control system managed by the National Pharmaceutical Pricing Authority (NPPA, Govt. of India) through the Drugs Price Control Order (DPCO) issued from time to time.
Factors for success GSK has overcome these challenges by leveraging some factors highlighted below: Local strategy within global framework GSK India adopted a country-specific strategy in India with global support. Within the guidelines of ethical business and medical practices, GSK plc, has given full autonomy to the local management in running the India business. In-licensing To augment its portfolio and to counter the competition from local companies that leverage the process patent regime in India, GSK adopted the inlicensing approach to launch products.
This facilitated GSK India to have a product portfolio to counter local competition, while simultaneously respecting the worldwide Intellectual Property Rights of the innovator company. Power branding strategy Given the intense competition in the market and the resultant pricing pressure, GSK is focusing its efforts on 30 of its most profitable brands that account for about half of its sales and profits. These brands have higher growth opportunity as compared to the rest of the portfolio. This had resulted in 42 per cent growth in net profit, at US$ 36 million, for 2003. Strong doctor franchise
Through consistent ethical practices, commitment to providing world-class medical information and significant investments in training and developing its field force (GSK has one of the largest field forces in the country), GSK has built a strong franchise with the doctor community. Efficient supply chain and IT leverage Across the supply chain, GSK has been taking several initiatives to enhance efficiency. An e-procurement system has been implemented. In manufacturing, cost savings through various initiatives to increase productivity, reduce inventory, improve the delivery performance and reduce waste have been carried out.
In addition, all manufacturing sites have been imparted Lean Manufacturing and Six Sigma concepts. GSK has also established a sales and distribution system which has very good width and depth, thus providing significant reach for its products. GSK has improved operational efficiency and decision making by the extensive use of IT for its business processes. An internet-based Purchase Order Visibility System, a Sales Force Automation system and a Human Resource Management System have been implemented recently.
In addition GSK has an efficient ERP system as well. Local management with strong parental support A key success factor for GSK has been the flexibility and freedom within the global ethical and commercial framework that the local management has, to adopt India-specific strategies. This gives significant speed in decision-making and responding to the local market dynamics. Leveraging the India Advantage Product development GSK plc has partnered with Ranbaxy, a leading Indian pharmaceutical company, on drug discovery and clinical development.
GSK is bringing in its biology skills (target identification) and its global reach for clinical research while Ranbaxy is providing its chemistry skills to this joint initiative. GSK plans to build strong collaborations in drug discovery in India and accelerate its own drug discovery programmes. Indian managerial talent GSK plc has high regard for the managerial talent available in India. Managers from India are constantly promoted to other geographies of GSK. For example, the current head of Asia Pacific is from the India team. High-end data analysis
GSK conducts high-end statistical data analysis for clinical trials from its centre in Bangalore, India, through its 60 employees. Future plans GSK plc is highly aware of India’s process chemistry skills, product development capability and manufacturing strengths. In addition, the rich biodiversity and the doctor base available in India make it a promising clinical trials destination for GSK innovations. India is likely to be one of the major trial centres for GSK plc. GSK India is expected to play a more significant role in GSK Worldwide in the years to come.