The case describes the events which lead to the merger of two large pharmaceutical giant Glaxo welcome and SmithKline beecham which lead to the formation of the entity GlaxoSmithKline. The core concern of the case is that although the newly merged company has invested heavily in R&D there is little evidence of success.
Identification of supporting issues:
These are some of the other issues that came up in the case which lead to the overall lack of success:
* Significant overlap in the product portfolio of the amalgamating companies
* Few interesting medicines were launched but none of them were considered blockbusters
* The company was lacking a distinctive identity
* Keeping the stakeholders tolerant
* Organizing 15000 scientists worldwide for efficient yet effective research All these issues can be narrowed down into four broad strategic issues:
* Cost Reduction
* Breaking up the pipeline
* Effectiveness of R & D
* Economies of Scale
Top executives anticipated the combined company would save an annualised £1 billion after 3 years. These savings would come on top of previously announced restructuring at both companies, expected to cut a combined £570 million a year but the analysts were disappointed by the company’s estimates-They estimated the savings to be between ₤1.1 billion to ₤1.5 billion. Savings were ₤1.8 billion after two and a half years which increased the trading profit margins to 35%
Breaking up the pipeline
To deliver the most cost efficient research organization in the pharmaceutical industry Glaxo Wellcome’s investment in technology to automate the chemistry of developing drugs combined well with SB’s leaderships in genomics. SB had an existing pipeline of 4 promising drugs in final stages of developments. This was attractive to Glaxo Wellcome who relied heavily on its blockbuster drug Zantac.
GSK invested heavily on reengineering of R&D and marketing operations and innovation for the future strategy. There was a combination of centralization and decentralization. New semi-autonomous chemical entities concentrated on traditional activities and genetics. There was a high emphasis on genetic research.
Economies of scales
The cost of developing drugs is way up, especially with the moves into genomics and gene therapy There needs to be critical mass for better research and development and a global sales staff for these important drugs. This merger provided large enough research budget to get economies of scale
Central role player
The central role player in the case is Jean-Pierre Garnier, CEO of Glaxo Smith Kline.
PEST Analysis on Pharmaceutical Industry
* High level of political interest in the health care sector
* USA and UK are the market leader of the global market share
* Continuing interference of political interest in the industry * Pressure of rapid delivery effects product quality| Economic |
* Growth of the industry is one of the highest
* US pharmaceutical industry is considered as one of its key business
* In 2009 the growth rate of the industry in USA was lowest in the past 25 years| Social |
* Industry to maintain direct relation with the consumers
* Continuous investment in R&D to create more effective medicines and vaccines| Technological|
* Growth of technology drives the industry to responds faster
* High spending on R&D|
SWOT Analysis of GSK :
Strengths : 1. Existing strong healthcare platform 2. Strong sales and marketing infrastructure 3. Industry-leading player with regard to implementation of life-cycle management strategies 4. Strong market position 5. Demonstrated ability to drive cost elimination 6. Industry-leading early to mid stage R&D pipeline| Weakness : 1. Lack of blockbuster product launches since merger 2. Failure of R&D pipeline to deliver initial commercial expectation 3. Products becoming increasingly exposed to generic competition
4. Lack of clear and wide perspective .goals to achieve the aims 5. Lack of motivation and failing to make maximum use of the potential staffs 6. Low brand value for its products| Opportunities : 1. Large potential of economic growth of the industry 2. Potential for CEDD-inspired R&D pipeline to deliver strong growth 3. Continued cost elimination 4. Movement into biologics specifically antibiotics segment| Threats : 1. Further development setbacks impacting late stage R&D pipeline 2. Patent expiry on drugs that generate strong income 3. Competition is high as R&D rivals working on similar projects|
Reorganization of its operations:
GSK most evolve in its operation model and turn it from a complex organization to a more effective and efficient organization structure. Glaxo and SB had different operational model and the merger needed a general model that will pull the best competencies of both the companies into a common operational model. It should take on a global restructuring program. On this basis, it will radically change its business model giving it the capability to support a more diverse, growing business that is also expected to be more profitable in the long-term.
Diversification is immensely important in the constantly changing market these days. Through effective diversification GSK can ensure a larger share of the market throughout the world. It will subsequently help to increase its sales throughout. Diversified global business will come with new partnerships as well which will solve another of the issues of the management as well as investors. Diversification can also help set up subsidiaries all throughout the world. It will generate future sales growth by strengthening its core pharmaceuticals business and supplementing it with increased investment in growth areas such as vaccines, biopharmaceuticals and consumer healthcare. Further it should also seek to unlock the geographic potential of its businesses, particularly in emerging markets and Japan.
Creation of its own separate entity
It is absolutely essential for GSK to create a own brand image for its business operation. The two different entities still has their own image to the people. GSK has to ensure that it can capture the mind share of its consumers. For this purpose it has to deliver unique set of more valuable products. This can be done through efficient R&D which the company already has. Transforming the R&D will have to create a system for organizing the scientists so that they can work efficiently.
So to set things in motion GSK has to start turning some of the projects from the 147 projects GSK is pursuing into global blockbuster medicines. A more value-delivery focused approach will increase the number of projects and the probability of creating a blockbuster medicine. GSK’s focus should be on striving to build one of the strongest pipelines in the industry. It should concentrate on developing a higher volume of mid-sized products for more clearly-defined patient populations.