GlaxoSmithKline

August 6, 2008
 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
(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 drug Avandia. 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 drug Advair, 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 company’s

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
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
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. GSK’s top selling pharmaceuticals include:

Advair, Avandia, Lamictal, and Valtrex. The four products accounted for more than £6.7 billion

in sales. The company’s growth drivers, Arixtra, Avodart, Boniva and Requip 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

company’s 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
main factor in determining the success of GSK’s 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 GSK’s 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
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 GSK’s 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
2007 (£m) 2006 (£m) % Change
Area
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,

Hodgkin’s disease, and side effect from chemotherapy. Sales were led by recently approved

Tykerb, which treats breast cancer. GSK’s product Zofran, which is primarily used to treat the
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.

GSK’s position in metabolic pharmaceuticals dropped more than 19%, primarily due to

safety issues with Avandia. Two other products within this segment include combinations of

Avandia and other chemicals, which could decrease sales even further in 2008. GSK currently

sells Bonviva, a treatment for osteoporosis, which is co-promoted with Roche. The company’s

major competitor in this segment is Takeda Chemical. Takeda and Eli Lilly just ended their co-

promotion of their competing drug Actos 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

generic Fosomax 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 GSK’s 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.

GSK’s main competitors are in this segment are Sanofi Pasteur (SP), Merck, Novartis and

Wyeth.
 GSK has used its extensive resources to develop vaccination products into a profitable

entity. With the company’s 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.

GlaxoSmithKline’s largest segments, respiratory and central nervous system disorders are

driven by the growth of Seretide/Advair and Paxil. Advair is included in a very competitive

segment which includes Merck and Pfizer. The company’s asthma product does not have to

directly compete with generics, which allows GSK to expand its market share. Within the

central nervous system segment, Paxil must 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 segment’s market share.

With the company’s current presence in developing nations, sales within the market should

continue to increase. GSK’s anti-herpes drug Valtrex is a market leader, which compete with
Novartis’ Famvir. The company has secured marketing rights of Gilead’s Hepsera 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 company’s 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%,
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 of alli, an OTC weight loss aid (GSK Annual Report, 2007). GSK has become

a product that consumers switch to, bringing them to purchase many of GSK’s 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 company’s key assets patented during

2007. These products are currently in their late state development, and are expected to improve

the company’s 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 company’s 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.
 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 company’s

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
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.

GSK’s goal should be to increase its medical presence in Africa, as well as other nations that are

in desperate need of medical attention. With GSK’s 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.

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
ConsumerHealth 4,528 3,483 10.7% 3,147 4.9% 2,999
Total Revenue 25,684 22,716 -2.2% 23,225 7.2% 21,660
Costof 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)
ConsumerHealth (115) (108) 3.8% (104) -1.9% (106)
Otheroperatingincome 713 475 54.7% 307 141.7% 127

OperatingProfit 9,518 7,593 -2.8% 7,808 13.6% 6,874

Profitbeforetaxation 9,328 7,452 -4.4% 7,799 15.8% 6,732

Profitaftertaxes 4,945 5,310 -3.4% 5,498 14.2% 4,816

GrossProfit 76.6% 76.6% 78.4% 78.0%

GrossProfit(Pharms) 71.6% 72.4% 75.0% 74.5%
NetProfit 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 company’s segments will fair within the next five years.

Assuming that the company’s 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
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 company’s 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

GSK’s 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 like Avandia did.

The company has few metabolic pharmaceuticals that can replace sales that Avandia produced.

With the company’s 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

company’s revenue is generated from this segment, the leading segment for GSK. As the
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.
 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 company’s 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.

GSK’s 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,
decreasing overall profit margins for the company. The recent downturn in the U.S. economy

will affect many of the company’s 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 GSK’s strategy. If GSK has a strong position, then competitors

will be unable to counter the company’s strategy.

 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 company’s 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 and Kivexa have grown 39% and 13%,

respectively, in sales, picking up the reduction in sales from the company’s two largest sales

producers. Kivexa has become the second most profitable drug in GSK’s line, making it a

significant threat to the rest of the market.

The company’s 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 include Infanrix

and Pediarix, 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 company’s 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
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 GSK’s products would benefit Asia as well as

Africa, where many diseases go untreated or have fallen off the radar of many pharmaceutical

companies. GSK’s 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 company’s 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,
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. GSK’s 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
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 company’s 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, GSK’s 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.