Multi-Vision

Consultancy
Kristina Rocha Mello
Giovanna Hsu
Ei May Htaik
Kelly To
Jonathan Lloyd

Negative Implied Value of Growth

J, Gordon et al, JP Morgan

Pharma 1.0: The Blockbuster Model

Blockbuster drug: Revenue>$1 billion per year
Traditional Blockbuster model:
High sunk cost i.e. Research & Development
Charge a high premium, as a reward
Patents provide a crucial period of exclusivity and protection

Weakening Patent Protection

Weakening Patent protection Challenges

Widespread availability and issuance of generics
Cheaper, due to absence of R&D costs

Increase in patents being challenged by

1. generic manufacturers
Due to increase in demand for generics from cost
constrained healthcare providers.

2. developing countries
Struggle to afford the prices, and therefore exert pressure
on pharmaceutical companies

There isnt an inexhaustible supply of potential

blockbusters to sustain revenue streams once
existing patents expire.

GSKs Patent strategy

Diversifying risk:
Moving from blockbusters to markets with quicker,
more certain revenue streams:
Healthcare and biopharmaceutical:
Oral care products (Sensodyne)
UK energy drink (Lucosade)
Nutritional Supplements (Horlicks)

GSK Annual Report, 2011

 Entering new markets:

Countering the impact of loss of patent by making
their products more available in the less developed
countries
flexible pricing model providing GSK patented
drugs according to the countries ability to pay.
Kept at no more than 25% of original price

 Taking a closer interest in generic firms:

Acquiring generic brands
establishing their own generic drugs
GSK:
2008- acquired 16% stake of South Africa based
Aspen
2009-licensing and selling agreement of
Dr.Reddys generics
2009- acquisition of Bristol Myers Squibb (BMS)
in Lebanon, Jordan, Syria, Libya and Yemen

 Licensing patent drugs to generic firms before its

patent expire
Get royalties in exchange for know-hows
-2002- GSK licensed Augmentin to three generic
firms 6 months before it expired.
Using an open innovation strategy:
Give access to patents they have no interest in
researching on in exchange for royalties.

 Increasing efficiency and the in the time taken

to develop a new innovation.
GSK introduced in 2008 a restructuring
program- Operational Excellence
Focus on brand alliance & heritage for existing
medicines

Regulatory Challenges

Regulatory Challenges
Different Environments
Have to satisfy a different set of regulations in
each market
Need for harmonization of regulatory
requirements

 Changing Regulations
Stricter rules in US & EU
Patient Protection and Affordable Care
Act (2010):
Impacts:
1.Annual Fee
2.Generic Drug Approval
3.Advertisement

.Global Warming & Animal Rights Groups

Restructuring & Cost Savings

Operational Excellence restructuring
program (2008)
Aimed at delivering 2.8 bn in annual savings
by end of 2014.
Main focus areas: R&D, manufacturing and
support functions
Key points:
1. Redirect savings to expansions in emerging markets, vaccines
and consumer healthcare.
2. Cover loss in sales to generics
GSK Annual Report, 2011

 Core Business Services (2011)

Standardization of support functions aimed at
maximization of economies of scale and
increased productivity.

Challenges Beyond the US Market

Group turnover by Geographic Regions

2001

2011
Asia Pacific, Japan and Others; 19%
USA; 32%

Rest of the World; 22%

USA; 50%

Emerging Markets; 19%

Europe; 28%
Europe; 30%

Europe
Introduction of cost-benefit analysing stage to new drug approval process:
NICE
Complexities in the approval and pricing procedures in individual countries
125 drugs approved by EMA (2009-2012):
50-60% available in Germany and the UK
30-40% available in Spain, France and Italy
10 sample drugs:
Country

Price Highest

Price Lowest

Germany

Italy

UK

4
F. Reinaud, 2012

Impact of Eurozone crisis on sales and supply chain: 7 billion in 2010 and
2011

Emerging Markets
Diversity of the market
The wealth pyramid
Differences due to existing structures
patient biology,
medical infrastructure,
patient access,
insurance coverage,
drug approval processes,
the presence of local competitors
Serious challenges to patent rights
Growth is not enough to offset the negative growth from the
European region.

GSKs strategy
Asia Pacific, Japan, and Emerging Markets (APJEM) R&D group (2009).
Branded generics Dividing the R&D process between GSK and Dr Reddys
Laboratories in India
Intra-regional business development partnership with Amgen to take over
the complete process of development of denosumab in emerging markets
And local regional development medical need or commercial opportunity
Contribution of emerging markets to overall sales and growth

Expansion of Japanese business:

Sales in GSK grew by 14% to 2 billion
4 new compounds approved

Challenges in Research & Development

Challenges in Research & Development

Pipeline
Patients expiring
Insufficient drugs to fill current pipeline
Pressure for scientist developed
Shifting R&D towards new innovation
Change in focus to developing new drugs
Exhausted incrementally modified drugs (IME)
Time lag to an output gap
Average of 10-15 years to develop new drugs from
discovery to approval
Increase in average R&D cost $800m - $1bn due to
many failure of drugs during clinical trials
Rigorous testing for safety and effectiveness

 Drug Discovery: From molecules that can become a drug to core

diseases or illnesses
Preclinical Trials: Lab and animal testing to determine if drug is safe
enough for humans
Clinical Trials
Phase 1: Perform human testing on small group of volunteers
Phase 2: Test on small group of patients
Phase 3: Test on large group of patience for safety and efficiency

http://www.innovation.org/drug_discovery/objects/pdf/RD_Brochure.pdf

 Application is not
increasing
Finding drugs for
chronic disease is
complex
insufficient
Knowledge or
understanding new
diseases

Number of Application filed and Approved drugs For

NMEs

Lack of Innovation
40
35
30
25
Application Filed
Approv ed Drugs

20
15
10
5
0
1

10

Year 2001-2010
http://www.fda.gov/downloads/AboutFDA/Tra
nsparency/Basics/UCM247465.pdf

GSKs Strategy
Focus on delivering product of value and best
science to the R&D organisation
Collaboration with Academia and external
organisation that support GSK strategies
Deliver new drugs in current pipeline and
maintain productivity
Maintaining investors appetite through positive
IRR

GSKs Strategy
Collaboration with academies
Increasing GSK knowledge base enhancing the ability to
discover
Bringing in the best minds to stimulate innovation and
entrepreneurship and speed drug discovery
collaborated with University of Cambridge to develop
treatment for liver diseases

GSKs strategy
Externalisation
GSK acquires Cellzome to enhance science capabilities and
bring medicines into patient faster
Cellzome technology provided GSK with screening
capability: Identify compounds with drug targets
Reduce attrition rate in early phases of development
Cutting cost of failures

New Entrants: Changing The Market

New Entrants: Changing the Market

Biotech companies provide the scientific breakthroughs.
Venture Capitalists provide the financial backing
Rational Drug Design.
They make the medical keys to fit the biological locks.
Amgen, shares appreciated 16,000% since 1983 IPO
They are increasingly holding the rights to the most marketable
drugs.
Challenge for existing pharmaceutical firms is how to benefit from
these advances and accrue a share of the revenue.

Strategy: Collaboration and Control

Amgen: worlds largest independent Biotech company
Collaboration with GSK on commercializing antibody
denosumab.
Amgen: USA and Canada
Joint commercialization: Europe, Australia, New
Zealand and Mexico
GSK: China, Brazil, India, South Korea
$120m + royalties to Amgen in return for shared profits in
Europe and full sales rights in emerging markets.
Bring denosumab to patients ... more effectively than if we
commercialized the drug globally on our own Amgen
A strong addition to our biopharmaceuticals portfolio
-GSK

New Entrants: Healthcare Technology

Investments by non-pharmaceutical companies in healthcare
technology (apps, internet) are massively outpacing those of
pharmaceutical companies.
Patient empowerment
Data driven
Outcome focused approach
Pharmaceutical companies should be indispensable in providing
content with their unique knowledge.
But e-companies are quick growers and quick learners.
Challenge for pharmaceutical companies is in staying relevant
and ensuring their products and knowledge are being shared.

 Strategy: Collaborate as a third party (2010).

1 of 137 oncology apps on iTunes.
MedTrust Online, with GSK input.
Locates clinical trials close to the
patients location.
Capture, organize, analyse, integrate
and present the most up to date
medical facts from a vast array of
sources. MedTrust
Provide simple yet highly effective
information-based solutions to the
cancer community GSK

 Control: First party technological products (2011) .

Pharmaceutical companies investment
in healthcare technology rose 78% in
2011.
Leading iTunes Pollen app is produced
by GSK.
Offers pollen information, forecasts,
and medical routines to end users.
Directs users to Piriton, GSKs allergy
relief medicine.
This strategy provides revenue streams
and ensures no other firm claims this
segment.

The Changing Market

Pharma 1.0 - Blockbuster Industry was a rewarding place to play.
High barriers to entry; the reward of high revenue streams.

Pharma 2.0 - Changed the industry from within

Age of weakening patent protection, regulation, the need to enter
emerging markets, and challenges in research and development.

Pharma 3.0 The digital environment

GSK need to ensure they remain relevant and secure a prime place
in these new product and information channels.

References

Patent Protection:
Ehrhardt, M (spring 2012), Five steps towards a revitalized pharmaceutical supply chain,
http://www.strategy-business.com/media/file/00094-Five-Steps-Revitalized-Pharma-Supply-Chain.pdf
Pinset Mansons (October, 2001),Threat to international patent protection: the pharmaceutical industry's
perspective,http://www.out-law.com/page-382
GlaxoSmithLine (2011), Horlicks http://www.horlicks.co.uk/health/
The Pharmaletter (October 16, 2006) GSK to buy CNS Inc for $566 million,
http://www.thepharmaletter.com/file/20671/gsk-to-buy-cns-inc-for-566-million.html
My news desk (Nov 07, 2012)UK energy drinks market dominated by GSK's Lucozade brand,
http://www.mynewsdesk.com/uk/view/pressrelease/uk-energy-drinks-market-dominated-by-gsk-s-luco
zade-brand-810651
Industry week (Dec. 13, 2010) Drugmaker GSK Buys Sports Specialist Maxinutrition, Company is
expanding its consumer healthcare business
http://www.industryweek.com/industry-clusters/drugmaker-gsk-buys-sports-specialist-maxinutrition
Pilmmer,G (June15, 2009) GSK in generic drug alliance Glaxosmithkline (July 02, 2009) GSK further
extends its product portfolio in the Middle East and North Africa,http://www.ft.com/cms
/s/0/b228c9d8-59df-11de-b687-00144feabdc0.html#axzz2D8zkuskw
GlaxoSmithKleine (July 02, 2009) GSK further extends its product portfolio in the Middle East and
North Africa (
http://www.gsk.com/media/press-releases/2009/gsk-further-extends-its-product-portfolio-in-the-middl
e-east-and-north-africa.html
Chandon,P.(2003) Innovative marketing strategies after patent expiry: The case of GSKs antibiotic
Clamoxyl in France 7th August. International journal of medical marketing vol 4 174-177 pg 75
http://www.strategy-business.com/media/file/00094-Five-Steps-Revitalized-Pharma-Supp
ly-Chain.pdf

Introduction:
J.Gordon et al, (November 5, 2012), GlaxoSmithKline Plc, JP Morgan.
Regulation:
Baines, Donald.A, Problems Facing the Pharmaceutical Industry and Approaches to Ensure Long
Term Viability, at
http://repository.upenn.edu/cgi/viewcontent.cgi?article=1032&context=od_theses_msod&
sei-redir=1&referer=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt&rct=j&q=pharmaceutica
l+industry+challenges&source=web&cd=2&ved=0CDYQFjAB&url=http%3A%2F%2Frepository.upen
n.edu%2Fcgi%2Fviewcontent.cgi%3Farticle%3D1032%26context%3Dod_theses_msod&ei=96WnUNu
RO-W00QXKwoHgAw&usg=AFQjCNFqI7pkpnhSgOh3zpNfLPiAztvfzQ#search
Morgan Lewis (April 15, 2010), Healthcare Reform Law: Impact on Pharmaceutical Manufacturers,
http://www.morganlewis.com/pubs/WashGRPP_ImpactOnPharmaManufacturers_LF_15apr10.pdf
Joice Tait, Pressures for Changes in the Pharmaceutical Industry, available at:
http://www.genomicsnetwork.ac.uk/media/Innogen%20Review%20Making%20New%20Medicines.
pdf
Karim, Nicha (June 20, 2012) Challenges and Opportunities for Pharma Industries, available at
http://pharmabiz.com/ArticleDetails.aspx?aid=69654&sid=9
http://repository.upenn.edu/cgi/viewcontent.cgi?article=1032&context=od_theses_m
sod&sei-redir=1&refe
repository.upenn.edu

Beyond the US:

Evolving R&D for Emerging Markets, June 2010, Nature Reviews Drug Discovery 9, 417-420, Box 1.
F. Reinaud, June 2012, Time to Market for New Pharmaceuticals Increasing in Europe While Prices
Continue Downward Pressure,
http://healthcare.blogs.ihs.com/2012/06/19/time-to-market-for-new-pharmaceuticals-increasing-in
-europe-while-prices-continue-downward-pressure-2/
J Whalen and S. Stovall, June 2012, Drug Firms Urge Price Action, The Wall Street Journal Online,
http://online.wsj.com/article/SB10001424052702304870304577488041346373860.html
Cancer Research UK,
http://www.cancerresearchuk.org/cancer-help/about-cancer/cancer-questions/how-are-drugs-license
d-in-the-uk
H. Parmar, Pharmaceutical direct-to-consumer advertising in Europe, Pharmacerutical Field,
http://www.pharmafield.co.uk/features/2005/12/Pharmaceutical-direct-to-consumer-advertising-in
-Europe
Research and Development:
http://www.ungs.edu.ar/globelics/wp-content/uploads/2011/12/ID-246-Correa-Privatization-of-knowl
edge-Intellectual-Property-Right.pdf
http://www.fda.gov/downloads/AboutFDA/Transparency/Basics/UCM247465.pdf
http://www.fda.gov/Drugs/DevelopmentApprovalProcess/default.htm
http://www.innovation.org/drug_discovery/objects/pdf/RD_Brochure.pdf
http://www.telegraph.co.uk/finance/newsbysector/pharmaceuticalsandchemicals/9266958/GlaxoSmi
thKline-to-buy-Cellzome-for-61m.html
http://www.bmj.com/content/345/bmj.e4348

New Entrants: Changing the Market:

Pharmaceutical industry rapidly expanding partnerships with new entrants in
health care space, Ernst & Young, 15 th Feb 2011,
http://www.ey.com/GL/en/Newsroom/News-releases/Pharmaceutical-industry-rapi
dly-expanding-partnerships-with-new-entrants-in-health-care-space
A Recent History Of The Pharmaceutical Industry - Based On All Five Forces,
Venture Navigator, August 2007, http://www.venturenavigator.co.uk/content/154
Roche seals $47bn Genentech deal, BBC, March 2009,
http://news.bbc.co.uk/1/hi/business/7938938.stm
Amgen to Collaborate With GlaxoSmithKline to Commercialize Denosumab in
Europe for Postmenopausal Osteoporosis (PMO), Amgen, July 2009,
http://www.amgen.com/media/media_pr_detail.jsp?releaseID=1312524
MedTrust Online app, available at
https://itunes.apple.com/gb/app/cancer-trials/id376117391?mt=8
GlaxoSmithKline and MedTrust Online Team to Provide Cancer Doctors Better
Mobile Access to Clinical Cancer Trials, MedTrust Online,
http://medtrust-online.com/about-medtrust-online/mtol-in-the-news/53-gsk-pres
srelease
GSK Piri Pollen app, available at
https://itunes.apple.com/gb/app/piri-pollen/id433740845?mt=8