This pharmacies to acquire the product. Generic drugs are

This report explains whether it is viable for The
University of Manchester to invest in GSK UK’s Leading pharmaceutical company
and how well does the company balance between the shareholders value and
corporate social responsibility(CSR) keeping in mind The University policies. The
report elucidates the context of the pharmaceutical industry and the
blockbuster business model . The report further explains the challenges faced
by the pharmaceutical industry. In addition there is an analysis of the strategies
GSK made in different situation . The final part of the report explains GSK’s
contribution towards corporate social responsibility(CSR)along with  some graphical and numerical representation .

 

The pharmaceutical industry is a component of the
healthcare sector which comprises of drug manufacturers , biotechnology
companies and drug marketers that are accountable for the evolution, production
and marketing of the product. The main objective in the pharmaceutical industry
is to cure diseases , infection and improve health by providing suitable drug.
There are some international bodies (WHO, FDA, Medicines and Healthcare
Products Regulatory Agency(MHRA)) that govern the industry as the industry has
a direct affect on the world population. There is a high degree of research and
development(R&D) that is required in order to develop a product. The
industry is dependent on the intellectual property rights (IPR) in order to
give the new drug to the market. The pharmaceutical industry maintains its
transparency for easy understanding of the drug pipeline for the investors and
commentators.

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The pharma industry focuses
on the production of three different group of products. Ethical, generic and
over the counter(OTC) are the distinct groups in which the pharma industry is
concerned with .The products that are patented and  generate high value are Ethical
pharmaceuticals. Patent prevents rival firms from retailing a product with an
identical molecular structure.  . A
doctor’s prescription is to be shown at the pharmacies to acquire the product. Generic
drugs are the products with expired patents which are economical close
substitutes for ethical . On the other hand the products like flu, branded cold
and other remedies that are readily available at chemists , supermarkets etc.
are over the counter(OTC)drugs.

There have been  a lot of debates regarding whether patents in
the pharmaceutical industry add any social benefit .The industry in defense of
the patents argue that without patents there would be limited incentive to
produce a drug as the high R costs incurred would not be recovered .With
little incentive there would be no new products to cure people. There has been
a lot criticism against the pharmaceutical industry regarding how instead of
spending more on R to produce a new product to cure people , the
companies are focused on marketing of the product that would lead to high value
for the shareholders. From investor group’s point of view pharmaceutical
industry is comparatively more transparent than other businesses. This is
because the analysts and investors are given substantial detail about the
pipeline of new products of the company .

 

GSK
is a British pharmaceutical company and has its headquarters in London. Before
the merger in 1995 which lead to GlaxoWellcome the company was only Glaxo and
in 2000 Glaxo Wellcome established another merger with Smith Kline(GSK). Pharmaceutical,
vaccines and consumer health care are three worldwide businesses that GSK
indulges itself in but pharmaceuticals is their crucial business segment. There
has been a substantial increase in GSK’s turnover between the year 2015 and
2016.According to the annual reports of GSK the turnover increased from £23.92bn
to £27.9bn giving them a net increase by
£4bn .GSK is one of the top ten
largest pharmaceutical companies in the world. It is 1st in the
access to medical index since it was launched in 2008.

 

An ethical drug lies
under the blockbuster category if the drug or medicine generates $1bn or more
sales per annum and is called blockbuster drug. Compared to OTC and generic drugs,
blockbuster drugs have a substantially higher price . The blockbuster drugs
generate 10-20 times more return on investment than the average drugs in the
pharmaceutical industry. One of the world’s leading pharmaceutical company
Pfizer has a 42% profit margin .  Generally
these type of drugs require high research and development(R&D).With high
cost required for the development of the drug , pharmaceutical companies rely
on extensive marketing in order to cover the cost of the product .  In 2015 GSK 
spent  $5.4bn on research and
development(R&D) which was almost 15% of the turnover whereas sales ,
marketing and general accounted for almost 39% of the turnover  . The pharmaceutical industry in order to
justify high prices argue that out of all their products launched, only 3 out
of ten (on average) generate profit with one of them will be a  blockbuster drug. After the drug has been
patented, it takes almost 15 years for the development of the drug due to
strict safety and efficacy requirement which leaves the companies with only 5
years for the sale of the product. .With no competitors in the market for the
patented drug , the company with the patent is in a monopoly which leads to
selling the drug at a premium price making the company have exceptionally high
margins. Extensive marketing ideals and procedures helps the product to perform
well and  generate higher profits and
leading to increase in shareholders returns but it reduces the benefit to the
society. Out of the 1035 drugs only 153 (15%) were approved by FDA as
noteworthy improvements between 1989 to 2000 . Most of the sales of
pharmaceutical companies is generated by a small number of patented drugs .

 Similar was the  case of GSK’S blockbuster model. GSK enjoyed
success in 1980s and majorly in 1990s.The company saw growth during this period
which was notifiable as the company moved to being the second largest
pharmaceutical company  in terms of the
sales revenue .A huge credit goes to their blockbuster drug Zantac  for the company’s success. Zantac an
anti-ulcer ant  was the biggest-selling
prescription drug.  Out of the $3.98bn of
Glaxo(as the company was then known) sales 50.2 percent of the sales was from
Zantac. In the 1990, the company had to keep the sales of Zantac to grow  till the time they do not develop any
promising drug that is launched in the market. Before the merger between Glaxo
and Smith Kline, Zantac was a me-too version of Tagamet. Glaxo opted for
extensive marketing for Zantac which made it highly successful. Out of the
total workforce , 40-50% of the total workforce were employed in marketing with
12-14% in R&D. Such a successful run for Zantac helped GSK to invest more
in research and development(R&D).

In contrast to Zantac
and its achievements , GSK got stuck in a huge turmoil with one of its drug
called Avandia which was once a blockbuster drug. Avandia was a drug to treat
diabetes . According to a study conducted by SmithKline Beecham the drug though
helped to treat diabetes but provided sign of higher heart risk. This was a
year  (approx.) before the merger between
GlaxoWellcome and SmithKline . The company made an effort to bury the results
of the study . “It was in 2004 when a legal settlement between GSK and the
state of New York required it to submit all the clinical trials including the
ones of Avandia”. GSK faced a lot of lawsuits which were filed by people for
hiding information about the risk involved with consuming Avandia. After years
of trials GSK was found guilty in July 2012 for not reporting drug safety
information and paid $3 billion in fines. Avandia was   removed from the European market but it is
still being sold in the US market.

 

The pharmaceutical
industry enjoyed plenty of  success
during the 20th century but with the changing environment and obstacles
of the market it is becoming difficult for pharmaceutical companies to cope up
with it .  The biggest challenge in front
of pharmaceutical companies is to develop a drug. Though drugs are still being
developed but those are for minor medical condition. The ethical drugs which have
been the center of focus for pharmaceutical industry has lost its efficacy now
. This is majorly because the drugs that are a hit will not be for long as the
patent life of the drugs is going to expire which makes it open for the
competitors to make the drug and sell it leaving the company with the patents
to sell it at a low margin.   The options
of blockbuster drugs has shrunk because some of the crucial medical issues have
been resolved and some of these medical issues are in their initial stages of
development  which leading to reduced
risk/reward ratio for R&D.A slower growth in emerging markets has led to
lower growth in the pharmaceutical industry .To overcome these obstacles look for
strategies that  are  best for the company. Companies shift towards
a different business area inside the same sector .Companies shift to animal
health, generic drugs , biologics either merging or acquiring a company of
expertise or by expanding it that sector on its own. Diversification has been a
prime strategy for pharmaceutical industry in order to survive in the business.
Diversification helps by reducing the risk of having a downfall in the business
after the patent of the blockbuster drug expires .. Numerous countries have diseases
that still have not been cured so  diversification provides companies to focus
towards the countries that have uncured diseases but might require a different
medical assistance as there are elements such as climate , culture, genetics that
come into consideration.   .

With
GSK being a UK based company , it has to prepare itself for  Brexit. How Brexit would impact GSK would
depend on what ties are between the UK and EU.GSK faces no trade barriers till
Brexit is formalized but after it is formalized whether there will be any trade
barriers is unknown. GSK looks to have prepared itself for Brexit as it is
ready to invest £

40m in life sciences
sector in Britain.

GSK has changed its
strategies from time to time according to the situation. In the 1980s when the
market was rising Glaxo’s main strategy was to utilize the boom period to its
full strength and it this by only concentrating on ethical drugs . When Zantac’s
(blockbuster drug) patent was coming to an end , Glaxo’s main strategy was to
merge with Wellcome which helped Glaxo to reduce its costs  . Later on another merger with SmithKline so
that their drug pipeline could grow and they could diversify . GSK response to
the patent expiration of its ethical drugs that were a source of revenue was to
change its research and development structure by breaking one research and
development team into 38 small teams called Drug performance units to research on
different diseases. To have innovative ideas the company  made chemists and biologists work together in
the same environment. Everything they had achieved in R in the past few
years was based on four principles that focused on – focus on the best science
, re personalize R , externalize R and focus on return on
investment. These changes of changing the development structure of GSK was
fruitful for the company as it improved the pipeline and has around 15 compounds
and 30 treatments in the later stages of development .

GSK has added areas
such as HIV, rare diseases ,oncology, respiratory. GSK is taking measures to
reduce the price of medicines and sell medicines at an affordable price in poor
nation and even in emerging markets. GSK has molded its pricing strategies in India
to avoid sales fall and is adopting the Indian style pricing for its drugs. In
a three-part deal with Novartis, GSK took over Novartis vaccine business with a
cash payment of $5.25billion. Whereas Novartis acquired its business of the
cancer drugs i.e. their oncology business with a cash consideration of
$16billion.The third part of the deal was a joint venture  Novartis and GSK in consumer healthcare. This
helped GSK to generate some cash proceeds and with the joint venture also there
it increased the company’s growth rate.

 

 

Corporate Social
Responsibility is the initiative or the responsibility that companies take for
the environmental and social welfare. Companies give due attention to corporate
social responsibility as it helps companies to have a competitive edge over its
competitors and even helps to build customer and brand loyalty .It even is a
source of  increasing profits .Pharmaceutical
companies generally publish their activities on CSR online through their
website keeping transparency so that their customers/investors can know how they
have contributed to the society which helps them to build their brand loyalty.

GSK has made its
business model adapt around a sustainable environment and has been contributing
towards the society. GSK has a board level Corporate Responsibility committee (CRC)
that looks over if the business activities are responsible or not. The committee
meeting are held 4 times in a year and provide advice for the better running of
the company and a review of the current activities in which the company is
engaged in. GSK regularly engages itself with charities for a better healthcare
and education in the areas the charities and the company is located. Working
with Save the Children , GSK has immunized 97600 children under the age of five
years. The company vaccinated around 290,000 children for measles or polio with
1 million children checked if they were malnourished or not. For the people who
are affected  by a natural calamity or a
disaster , GSK in association with its support organizations help people
affected by it by donating money , support or even staff members. They even provide
aid in the reconstruction of the place that is affected by the disaster. GSK
understands the need to preserve the natural resources that are diminishing at
a very high rate. GSK made a great contribution to the society by creating a
vaccine for malaria which could reduce the chances of it but unlike other drugs
GSK kept the price of the vaccine a little bit above the cost level to keep the
vaccine socially affordable. GSK’s contribution towards the environment has
been quite a lot .The company has reduced the carbon that is emitted by 25 % in
the last five years.

The company reduced its
water consumption in one of its sites in Kenya by 16%.GSK has still done some
harm to the society by not disclosing the information about how Avandia
increases heart risk. It put a lot of people’s life in danger . A bribery case
on GSK in China led to the downfall of its business in the Chinese market.

 

 

To conclude with the
report GSK saw a lot of growth in the 20th century and made strategic decisions
from time to time. Its high profit margin goods increased its earning and
shareholder value .