Pharmaceutical industry (ex of GSK)

Thèmes abordés

Pharmaceutical industry GSK merger

Résumé du document

This document summarizes the functionning of the Pharmaceutical industry by explaining the high cost of implementing a drug on the market. (time to market very long). High level of uncertainty.
Thus, the companies have to be powerful and wealthy in order to resist and succeed in this particular business.
This case study stresses on the GSK case who used to merger with small companies, but was it a merger too far?

Extraits

[...] In addition, to attract the best scientists, a system of royalties for the ones who would have discovered a new molecule leading to a new drug on sale would be implemented. It also appeared that small units of Research are more efficient and that the best ideas were mostly born in this kind of structure. Finally, the company also emphasized on the importance of making partnership with other firms in order to penetrate a particular foreign market. Thus, SB signed two licensing agreements with a Japanese firm in order to penetrate more easily the Japanese market. Yet, from the early start, observers were already skeptical over two points. [...]

[...] Access to inputs. By outsourcing production in low-price market and ship them to high-price market, companies gain competitive advantage on the market Threat of rivalry : Patent issues – R&D departments are the core system of pharmaceutical companies. When a patent is not protected anymore, the advantage the firm had is not the same. For the Allegra, a treatment for hay fever, sales decreased by in the US in only 12 weeks. Marketing factors – the key to penetrate a market is to adapt the whole marketing process to the country where the firm wants to sell. [...]

[...] Pharmaceutical companies have to constantly appraise their intern organization in order to remain efficient. Niches areas are becoming crowded – strategic choices of companies has to be reevaluated if they want to stay competitive in the future. Question which factors explain the wave of mergers and acquisitions in the pharmaceutical industry? Factors that can explain the wave of M&A in the pharmaceutical industry: competition with generics enhances a race to market pharmaceutical labs that used to focus on a few products need to find new ones strong control from the State saves in sales and marketing (economies of scale), necessary because pharmaceuticals are expensive to produce but inexpensive to reproduce to secure greater 'share of voice' and to acquire global commercial reach to combine a company with a strong pipeline but weak sales and marketing with its converse to leverage investment in 'technology platforms'=to invest in expensive new R&D capabilities to keep pace with industry leaders in speed to market. [...]

[...] This situation has forced GSK to establish a new R&D strategy. Thus, the firm has started a “radical new organizational structure” in order to save cost. This process allowed GSK to realize a trading profit margin to 35% in 2003. This re-organization process was based on several points. First, the firm has established an annual research budget which reached £ 2.4 bn. Then, the company decided to put the stress on coordination by taking advantages of the complementary research skills of Glaxo Wellcom and SB. [...]

[...] November 2010 Pharmaceutical Industry GSK, a merger too far? November 2010 Question by using the Five Forces Framework, assess the threat of rivalry and the threat of entry in the pharmaceutical industry. Threats of entry in the pharmaceutical sector are very high: Capital requirements / Government policy - Indeed, the process to commercialize drugs is very long (about 15 years), fraught with pitfalls (companies have to justify prices to government which impose standards to the industry). So, pharmaceutical brands need capital requirements in order to survive to these phases of commercialization. [...]