GlaxoSmithKline, One of the world's leading research-based pharmaceutical and healthcare companies - is committed to improving the quality of human life by enabling people to do more, feel better and live longer. GSK was formed in 2000 by the merger of GlaxoWellcome (formed from the mergers of Burroughs Wellcome & Company and Glaxo Laboratories), and SmithKline Beecham (from Beecham, and SmithKline Beckman).The acquisition of Wellcome and the merger of SKB helped Glaxo move from being over reliant on the anti ulcer market to a position of strength. GSK operates in two segments- 1. Prescription Medicines and Vaccines 2. Consumer Healthcare In the HIV /AIDS sector GSK manufactures products like Retrovir, Epivir, Ziagen and Agenerase and thus has a sustainable hold in the market.GSK princiapally sells its products to wholesale drug distributors, dependent and multiple retail pharmacies, physicians, hospitals, clinics and government purchasing entities in the US and Europe. The middle Eastern and African market by comparison is relatively small in comparison to other geographical markets. Its competitors include Merck and Co, Boehringer Ingelheim, Hoffman LaRoche and Bristol Myers Squib who began offering HIV/AIDS drugs under the UN scheme, Accelerating Access Initiative (AAI) which was signed up only by Rwanda, Senegal and Uganda. The biggest challenge for GSK is ensuring that the patents continue to be recognized throughout the world so that smaller pharmaceutical companies do not benefit by producing generic ‘me too’ versions of the product. The challenge for the governments of developing countries is enforce drug safety and quality standards. The Pharmaceutical industry is expected to offer drugs at preferential prices and in searching and providing the relevant vaccines and medicines. The distribution and development difficulties require ensuring mass treatment by mass distribution. This becomes difficult because it requires greater financing particularly with drugs offered at preferential prices. The govt. and the funding agencies therefore come to offer aid to the pharmaceutical industry .Further the industry gets affected by WTO through the TRIPs agreement. Therefore pharmaceutical companies need to work around these challenges, especially GSK, one of the leading pharmaceutical firm to sustain their market share. Questions and Answers Q1. What is the main purpose of patents in the pharmaceutical industry? Patents are required in the pharmaceutical industry for the following major products: Pharmaceutical companies spend hugely on R&D. If the products are not patented, the expenditure in R&D would get wasted. The competition could copy the drug very easily if there is no patent present for the particular drug and thus would sell it at a comparative lower price than that of the originally produced drug. Thus due to thse steps, the researching pharmaceutical companies would be discouraged towards R&D and thus coming out of new products would be hampered. Q2. How would you categorise patents using Porter’s industry analysis framework? Patents could be categorized as: As the investment cost is very high as far as R&D is concerned. Hence threat of entry of new competitors is low. Threat of exit as well is high as once the investment is made in the industry, its difficult to leave it. The competition in the industry is very high so companies try to create an advantage for them this way by using patents to gain a competitive advantage. As the patenting company spends hugely on R&D, its easy to remove the threats from substitution as the substitutes would require heavy investments to come out with something similar if the product is patented. The supplier would be at an advantage as the bargaining power of the consumers would be low as whatever prices are set by the company, the consumers would have to agree to that and buy the product. Q3. What strategic options does GlaxoSmithKline have for the South African market? As South Africa is a poor and developing country, the company faced heavy criticism when it placed its products at high prices thus forcing the government to allow the generic drug market to develop there. Some of the strategic options that could be employed by GSK in South Africa to control the situation and be at an advantage could be: GSK could approach South African Government to grant some subsidies for their products so as to bring them at an affordable price within the reach of the people. GSK could approach the WTO to negotiate with the South African Govt. over the matter. GSK could enlighten South African Govt. about the R&D set into making drugs and convince them about the effectiveness and quality of their products thus discouraging them from going for the generic drugs thus restricting the generic drugs suppliers. One of the strategy that could be employed by GSK could be to initiate mass production of their products that could set the prices low and profits would not be affected as the demand for the drugs is very high. Q4. Prepare an outline analysis of the world market for anti-AIDS drug in terms of the underlying logic of the market economy. Countries around the world suffer from the effects of AIDS be it developed or developing country. The worst affected are the countries of Africa and South America that fall under the class of underdeveloped and developing countries. Very huge percentage of the population is affected some of the reasons for that could be poor sex education, low literacy rate, poor infrastructure etc. The situation is becoming same all around the world as countries in Asia are also coming under the grip of AIDS. As per the market economy logic, the prices are decided by the free price system driven by the supply and demand for the products. The government setting the price in such a situation works against the market economy and it backfires on the government as the decisions would be against the interest of the Drug Producers. As per the market system, as the prices of such anti-AIDS drugs increase, the demand for them decrease which would fuel the development for the low cost generic drug market which works against the interest of the companies hugely spending on R&D. Thus it is unlikely for the people in the developing world to make use of such high priced patented drugs. GSK realized this and thus reduced the prices of its various products in the South African market.