GlaxoSmithKline

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GlaxoSmithKline
Drugs Giant Development
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How did GSKs strategic developments contribute
to its success or failure?
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(No Transcript)
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Historical Industry Developments
The Therapeutic Revolution 1939 - 1960
First wave Industry Restructuring 1989 - 1994
Second wave Industry Restructuring 1994 - 2000
Industry Consolidation 1960 - 1980

• Increased no. of MA among the big players
• 1989 (July)
• SmithKline Beckman and Beecham Group
• 1989 (Oct)
• Bristol Myers and Squibb
• 1990 (July)
• Rorer Group and Rhone/Poulenc
• - The Price Issues
• - Managed Care System
• - Consumers power

• Increased no. of MA among the big players
• 1994 (Dec)
• American Home Products and American Cyanamid
• 1995 (May)
• Glaxo Holding and Wellcome
• 1996 (Dec)
• Ciba/Geigy and Sandoz
• (Novartis)
• 1999 (Mar)
• Astra and Zeneca
• 2000 (Dec)
• SmithKline and Glaxo

• Few local player are strongly established in the
  national markets
• Switzerland
• Roche, Ciba/Geigy
• Germany
• Hoechst
• US
• American Home Products, Lilly, Sterling, Pfizer,
  Warner Lambert
• UK
• Glaxo, Wellcome, Beecham, ICI

Higher entry barriers to the market due to new
technologies and RD. - Difficult for new
entrants to break into the market - Established
firms keep expanding their area of influence in
terms of geographic markets served and scientific
interests Innovative research encroached by
government health care policies

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Historical Industry Performances Factors

• SCIENTIFIC DISCOVERIES TECHNOLOGICAL
• BREAKTHROUGH
• Discovery and exploitation of penicillin
• Developments of the broad-spectrum antibiotics
• Biotechnology
• Genomics

• MARKET FEATURES
• Bigger does not mean
• better due to the high value
• of the product
• Scale and scope
• Economies in RD and
• Marketing
• Specific value chain
• Short Rent-Earning life
• for patented drugs
• Medium concentration
• of the players in the market
• Ethical dilemmas
• Profit VS Health safety

• REGULATIONS
• NATIONAL HEALTH
• CARE POLICIES
• Patents Laws
• Monitoring of
• safety of drugs
• Control of prices

INDUSTRY PERFORMANCES DEVELOPMENT
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Value chain specifics
Discovery
Development
Marketing
Sales
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Market Players
Turnover
Geographical Spread
Size vs. revenue correlation??
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The Pharmaceutical Industry

• Average annual growth 5-6
• 15 companies
• Flooded market (generic drugs)
• Long and costly RD
• New product flow slowing down
• Differentiating companies on the basis of
  portfolio quality
• Secondary care vs primary care portfolios

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INDUSTRY ANALYSIS
GLAXO WELLCOME
SMITHKLINE BEECHAM
GLAXOSMITHKLINE
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Glaxos Strategic Inflection Points

• 1873 Birth of Nathan Company
• Production of dried milk ( Glaxo)
• 1918 Entrance into the Pharmaceutical industry
• Protectionism after war
• 1919 New director gt Research on
  Vitamin D
• 1935 set up of Glaxo laboratory
• 1942 Production of Penicillin
• 1947 new organisation around Glaxo
• 1940 Development Organisation not an originator
• Cortisone products, vaccines and antibiotics

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• 1955 Need for Growth
• 1957 study done by Glaxo
• Merger with Allen and Hanburys and take over of
  Evans Medical
• 1960 more innovations and marketing development
• gt Beginning of 1980,
• Many drugs
• Salbutaniol, Ceporin, Belnovate
• In many areas
• antibiotics, costicoteroids, vaccines

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The Zantac Issue
2 strategic decisions were key to Zantacs
success

• Smith Kline TAGAMET 1976
• Use of parallel development ? faster but
  riskier
• 1 out of 10 drugs succeeds

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• Launch of Zantac in 1981 as a premium brand
• Priced higher than Tagamet,
• Superior qualities (fewer doses, fewer side
  effects)

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2.2 billion sales by 1989
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1985 1988 Strategy Re Focus
Girolami In this business you cant succeed
without knowing what you are dependent on. You
have got to lock yourself in.
Glaxo had been a highly diversified company All
non-core businesses were divested
Left Glaxo with 97 of sales based in
pharmaceuticals
Girolami We are now, by deliberate policy,
wholly devoted to the discovery, development,
manufacture, and sale of prescription
medicines.
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Glaxo The Acquisition of Wellcome

• Industry pressures
• Zantac patents due to run out in 1997

Need for new blockbuster drugs!
Girolami
Preference for inhouse research and organic
growth ? avoids enormous disruption inherent in
mergers, which are often symptoms of structural
weakness.
Sir Richard Sykes
Merger brings more balanced research programme
and big savings in marketing and distribution.
Glaxo Launch Bid 9 Billion
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INDUSTRY ANALYSIS
GLAXO WELCOME
SMITHKLINE BEECHAM
GLAXOSMITHKLINE
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SmithKline Beecham MergerNOW WE ARE ONE

• BEECHAM GROUP (UK)
• 1960 Launch of worlds 1st semi-synthetic
  penicillin
• 1980 Diversification of via acquisitions

• SMITHKLINE BECKMAN (US)
• Ranked 14th
• 1976 Launch of Tagamet Worlds 1st bn selling
  drug!!
• 1982 Zantac vs. Tagamet

JULY 1989
SMITHKLINE BEECHAM

• 7.92 bn value
• The 1st of the MEGA MERGERS
• 63000 employees
• Aim to challenge Glaxo

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True Merger of Equals

To create a shared vision of a global healthcare
company

• Aim
• SmithKline Beckman
• no product
• aggressive US sales force
• Beecham
• Plethora of products
• no US sales force

• Reasons
• Consolidation expectations of industry
• Increasing regulatory role of the government
• Perceived necessity for changes in industry

• Results
• Wider product range for the combined company
• Larger scalescope economies of RD capacity
• More global marketing presence
• Significant progress since merger in every
  business unit
• Under-appreciation by financial community.
• 1993 market value growth 4 bn 11 bn.

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MERGER INTEGRATION PROCESS
Planning (July-Dec 1989)
Implementation (Jan-June 1990)

• Merger integration priorities
• Attaining the best RD
• Developing the best marketing
• Divesting other non essentials
• But over a year after the merger
• The merger wasnt enough!

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TOWARDS CORPORATE STRATEGY
Worlds best healthcare company in the world

• ACHIEVE EXCELLENCE

SIMPLY BETTER
VALUES CUSTOMER INNOVATION INTEGRITY PEOPLE PERFO
RMANCE
DEFINE A COMMON LANGUAGE INVEST IN EDUCATION AND
SKILLS TO CREATE COMMON BEHAVIOUR
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GLAXOSMITHKLINE 2000 GBP 130 billion
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Merger Implications
Benefits
Costs

• Lower costs GBP 750 million
• Increased RD investment (2001 4bn)
• Increased sales (2000 GBP 18 bn 2001 GBP 20 bn
• 15000 scientists
• Increased market value 7
• Scale economies

• Culture clash
• Rushed
• Cancer and heart
• drugs
• Lack of blockbuster
• drugs
• Tacit admission of
• past failures
• Sales force separation
• Future merger
• implications

• Belief that size will bring success

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Strategic Implications

• Research and Development
• Hybrid structure
• 3 key elements
• New structure, creating RD centres
• Continued investment into human genome
• Effective demonstration of GSKs products
• Aim
• Maintain business momentum
• Economies of scale,
• Business agility promotion,
• Scientist stimulation
• HR initiatives

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Success or Failure?

• Costing
• Scale economies
• Response to environmental impact
• Marshalling huge RD to provide a steady stream
  of BB drugs
• Instil competition without destroying cooperation
• Innovation without creating bureaucracy

• Drugs/products
• RD structure gt is it working?
• Merger of equals?
• Bureaucratic organisation, slow informational
  cascades
• Issue of control
• Power struggles

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Future Outlook

• Honeymoon period
• Drugs market entry
• RD spend evaluation
• RD organisational influence
• Pfizer challenge imitate or concentrate
• Deal making (100 in just 7 months)

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Conclusion

• 1989-1994
• 1994-2000

Main Inflection Points

• GlaxoWellcome heritage
• SmithKlineBeecham heritage
• GSK
• Courtship
• -Union
• -Outcome
• Size in this situation matters the ultimate aim
  of value creation