GlaxoSmithKline (GSK) - Case Study

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GlaxoSmithKline (GSK) - Case Study Powered By Docstoc
					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

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

Q2. How would you categorise patents using Porter’s industry analysis

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

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

    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
    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.