Table of Contents

Topic Identifying the Pharmaceutical Industries Dominant Features SWOT Analysis Pestle Analysis: Porter Diamonds Five Forces Model: Drivers of Change: Key Success Factors: Scenario Planning Strategic Group Maps: Page Number 2 12 17 22 28 32 42 47

Evaluating how well the companys current strategy is working? 52 GlaxoSmithKline TOWS Analysis: Space Matrix Quantitative Strategic Planning Matrix BCG Matrix: GSK BCG Matrix: Ansoff Matrix Industry Value Chain Benchmarking Bowman Strategic Clock 58 61 67 73 74 75 77 81 84

Identifying the Pharmaceutical Industries Dominant Features:

1. Market Size and Market Growth: IMS Health reported today that the size of the global market for pharmaceuticals is expected to grow nearly $300 billion over the next five years, reaching $1.1 trillion in 2014. The global pharmaceutical market research has been done by many companies and almost all of the market reports indicate a significant growth of pharma market in 2010-2011. The forecasting indicates pharmaceutical market growth of about 4 - 6% in 2010-2011. The established markets, including the US, UK, and Japan, together account for 30% of the global demand for pharmaceutical excipients. If present industry overview is taken into consideration then the global pharmaceutical market in 2010 is projected to grow 4 - 6% exceeding $825 billion. The global pharmaceutical market sales are expected to grow at a 4 - 7% compound annual growth rate (CAGR) through 2013. This industry growth is driven by stronger near-term growth in the US market and is based on the global macro economy, the changing combination of innovative and mature products apart from the rising influence of healthcare access and funding on market demand. Global pharmaceutical market value is expected to expand to $975+ billion by 2013. Different regions of the world will influence the pharmaceutical industry trends in different ways. Life Cycle of Pharmaceutical Industry: In recent years, just like others, pharma has matured into the Competitive stage of its life cycle. Most pharmaceutical executives understand the importance of product life cycles for brand planning. Similarly, they need to recognize the drivers and implications of industry life cycle stages. Moreover, understanding industry life cycles can help companies anticipate and benefit from market changes, ultimately providing a competitive edge in an increasingly competitive field. Experts identify four industry life cycle stages, though these vary from industry to industry. For pharma, the life cycle can best be characterized as Commencement, Commercialization, Competition, and Commoditization. The life cycle typically takes the form of an S-curve. The introductory stage is a relatively flat line, reflecting the challenges of gaining customer acceptance (Commencement). As customers appreciate and demand the product, explosive growth occurs (Commercialization). That growth eventually tapers

off as customer segments become saturated (Competition). Ultimately, sales growth stops and begins to decline as cheaper substitutes and alternative products appear (Commoditization). The pharmaceutical industrywith more than $286 billion in salesis currently in the Competitive stage. What's the telltale indicator? A relatively consistent decline in sales growth over the past decade, from solid double digits to single digits. In 2007, pharma's annual growth rate hit 3.8 percent, the lowest since 1961, when the Commercialization stage began. Other characteristics of the Competitive stage: increasing marketing and R&D costs, more sophisticated buyers, greater competition, and decreasing profits. 2. Number of Rivals: Below is the illustration that diagrammatically displays the big companies which are competing against each other for the top spot in the industry. After analyzing the illustration we can comfortably say that the level of competition in the pharmaceutical industry is high and the degree of competition can be evaluated using various measures such as revenue or rapid growth in the generic growth industry. Revenue Rank 1 2 3 4 5 6 7 8 9 10 Pfizer Novartis Merck & Co. Bayer GlaxoSmithKline Johnson & Johnson Sanofi Hoffman-La Roche Astra Zeneca Abbott Laboratories Company USA Switzerland USA Germany United Kingdom USA France Switzerland United Kingdom USA Country Total Revenues 67,809 53,324 45,987 44,200 42,813 37,020 35,645 33,547 26,475 22,476

The pharmaceutical industry currently represents a highly competitive environment. One can distinguish three layers of competition for Big Pharma companies. First, obviously, Big Pharma companies compete among themselves. Although not all leading pharmaceutical companies cover all segments of pharmaceutical market, almost all of them are active in

R&D and production of drugs in the segments with the highest potential such as treatment of infectious, cardiovascular, psychiatric or oncology diseases. Secondly, Big Pharma companies experience significant profit losses due to competition from the generic drug manufacturers. Opposite to the research-oriented pharmaceutical companies, which invest significant financial resources and time to develop new medicines, generic drug manufacturers spend minimum resources on R&D, and start manufacturing already developed by other companies drugs after their patent expiration. Because generic drug manufacturers do not have to recoup high R&D costs, prices of their products are usually much lower then those of major pharmaceutical companies; as the result, after patent expiration, generic drugs manufacturers capture significant market share, dramatically decreasing revenues of the Big Pharma companies. Finally, the whole pharmaceutical industry competes with other health care industries. In this case, pharmaceutical companies should not only demonstrate high efficiency of their products, but also provide obvious proof of cost advantages in comparison with other forms of care.

Contrary to the assertions of some, rapid recent growth of the generic drug industry is not the only source of increased competition in the pharmaceutical market. The competition among research-based pharmaceutical companies continues to increase. One companys patent on a specific drug does not preclude other innovator companies from making rival medicines to treat the same disease. Increased competition in the rush to find new and better cures for diseases has resulted in a shortening period during which a new breakthrough medicine can hope to be alone on the market. For example, Tagamet, an ulcer drug introduced in 1977, had 6 years on the market before another drug in the same class, Zantac, was introduced. In contrast, Inverse, the first of a new class of anti-viral drugs known as protease inhibitors, was on the market only 3 months before a second protease inhibitor, Norvir, was approved. Patients and the American health care system benefit from this robust innovator competition. Consolidation in Pharmaceutical Industry: Consolidation in the Pharmaceutical and Biotechnology Industry has been grabbing headlines lately and of course we have a strong point of view about how this may shape or mis-shape the industry going forward. While the biggest headlines involve the Pfizer (PFE) - Wyeth (WYE), the Merck (MRK) - Schering Plough (SGP) and Roche (RHHBY.PK) - Genentech (DNA) consolidations.

To us, Pfizer (PFE) is the prime example of the Consolidation Campers with expenditures of nearly $200 billion in the last several years to acquire Warner Lambert and Pharmacia along with several other smaller acquisitions, only to have its stock market cap for the consolidated company reach under $100 billion despite loads of restructuring, re-engineering and synergy targets. It appears that once synergy targets are met (1-4 years), company values as measured by stock market capitalization seem to wane quickly and the quest/thirst for more consolidation continues at a frantic pace. 3. Pace of Change in Technology: Given current pressures on the pharmaceutical industry, the percentage of pharmaceutical research and development spend being outsourced to CROs is increasing. This increase will continue as long as CROs can demonstrate a strong value proposition based on global full-service capability, high-quality deliverables, cost-efficiency, experienced and productive teams, timeline acceleration and scalability of resources. While IT services traditionally have not been included as core CRO service offerings for pharmaceutical companies, technology is becoming increasingly important in addressing multiple challenges faced by the pharmaceutical industry today. To reduce costs, to assure drugs are safe and to provide more patient transparency, involvement and even oversight. While there are many traditional approaches to addressing these challenges, technology has emerged as an interesting alternative and can even be a critical differentiator. If applied appropriately with performance-based data, process optimization and staff training, then technology solutions can transform IT from liability to asset. Experience has shown us there are several best practices for creating value through technology: 1) prioritize your efforts based on business need; 2) deliver a holistic solution; 3) leverage key partnerships; 4) implement a tight governance model; and 5) work to a pre-specified ROI. The key is to ensure you are closely aligned with your business and working on its greatest needs and highest priorities. How do you know what those needs and priorities are? You wont unless youre closely aligned, your senior staff is closely aligned, you have business and operations people embedded in your group and you ask the right questions and listen carefully to the answers and requests for help.

If the Company is unable to keep pace with technological change or with the advances of its competitors, its technology and products may become obsolete or non-competitive.

The biotechnology and pharmaceutical industries are subject to rapid technological change which could affect the success of the Companys drugs or make them obsolete. The field of biotechnology is characterized by significant and rapid technological change. Research and discoveries by others may result in medical insights or breakthroughs which render the Companys drug candidates less competitive or even obsolete before they generate revenue.

The Companys business faces intense competition from major pharmaceutical companies and specialized biotechnology companies engaged in the development of drugs directed at the conditions and disorders that are the focus of the Companys therapeutics programs. As a result its competitors may be able to establish superior proprietary positions. 4. Process Innovation: Pharmaceuticals are important products for our lives. They are indispensible for patients. They are often lifesaving. Some of them are not lifesaving but improve the quality of life. The longer the lives of people become, the more beneficial this type of drug will be. However at the same time, they are potentially dangerous. Their wrong administration may cause death or serious damage. Mainly because of this, modern government strictly regulates every aspect of the industry: research, development, manufacturing, marketing and delivery. So the main goal of the process innovation is to obtain operational excellence. Increasing pace of innovation could elevate returns, so operational excellence has become a strategic necessity for the long-term vitality of the industry. There are two egregious top-level measures of operational efficiency that can be effectively used to drive operational excellence. The first measure is end-to-end throughput time of the production life cycle from the first chemical reaction through distribution. The second is the total amount of inventory. At the beginning of Toyota's long journey to becoming Lean, their leadership focused on removing inventory and wait-time from their manufacturing processes. Total inventory is also very high in the pharmaceutical industry. From an operational excellence perspective, excess inventory frequently masks incapable work processes. Reducing inventory exposes these incapable processes and affords opportunities to redesign them. Up to what extent competitive edge could be acquired. Which company has acquired it? The competitive edge can be acquired in the process innovation of Pharmaceutical industry up to a great level. The process innovation of pharmaceuticals requires high-quality skills, sophisticated equipment,

and a highly controlled environment. Moreover research and development (R&D) for new pharmaceutical is on the cutting edge of biomedical sciences. The better, highly specialized these factors are the stronger would be the competitive edge. In order to implement break-through solutions that would eliminate the existing time-consuming, errorridden way of receiving order requests from their distributors through mails, faxes and over the phone, Reckitt Benckiser, along with EfroTech, a fast growing, dynamic local software house, opted for the online ordering system E-order, a unique product offering from EfroTech. 5. Product Innovation: In the international competition to attract business to a country, innovative capability is rapidly becoming more important. However, innovation is not a state, it is a highly dynamic process. Alongside the necessary material resources, research and innovation are dependent on a framework that fosters innovation: Through public attitudes: acceptance of new technologies and a general willingness to accept economic risk determine the extent to which a country can pursue innovative research and development. Through political/legislative developments: in other words, providing incentives and rewards for innovation through pricing and patents to protect the fruits of innovation. Through taxation; for example incentives to create venture capital and encourage private investment in research. This innovation-friendly framework requires constant adaptation to new requirements. 6. Vertical Integration: While vertical integration is a feature of many businesses, its incidence or prevalent varies across industries, across different markets in the same industry, and among firms operating in the same market. Explaining such variation in vertical integration has long been an active area of industrial organization research. The motives for vertical integration identified in the theoretical literature can be grouped into two major categories: (i) improvement of efficiency for the integrating firm and (ii) foreclosure of rival firms from the supply of an input or from access to a market. Each category is further divided into subcategories.

The health care industry of the 1990s is moving rapidly toward "integration" of various functions to achieve greater efficiencies. Companies involved in the delivery of health care are trying different combinations and alliances in an effort to control health care costs while taking advantage of the synergies possible with new technologies. The integration of pharmaceutical manufacturers and pharmacy benefit management firms (PBMs) has been the subject of criticism by some private groups, including pharmacy associations, and scrutiny by government agencies, notably the Federal Trade Commission (FTC). Most concerns have focused on the potential of these mergers to be anticompetitive under the antitrust laws. However, there is evidence that what's behind the integration is an effort by pharmaceutical manufacturers to move away from products and become service-oriented companies to better position them in a managed care world. Pharmacy-benefit management companies try to control prescription drug costs by creating formularies of approved drugs for use by participating physicians and pharmacists. PBMs encourage physicians to prescribe more cost-effective drugs. They also monitor the effectiveness of particular drugs. PBMs presently cover about 120 million lives, and are expected to include more than 200 million by the end of the decade. The recent rise of PBMs has coincided with a reduction in drug price increases, from 9.5% in 1989 to 3.l% in 1993. Much of the contribution of PBMs to lowered prescription drug prices has resulted from demanding discounts from pharmaceutical manufacturers in return for placing their products on the formularies. In the past two years, three pharmaceutical manufacturers have acquired the three largest PBMs, which by some measures comprise 80% of the pharmacy benefit management market. In July 1993, Merck & Co. acquired Medco Containment Services for $6.6 billion. British pharmaceutical manufacturer SmithKline Beecham P.L.C. agreed to buy Diversified Pharmaceutical Services last May for $2.3 billion. The most recent acquisition, of PCS Health Systems by Eli Lilly & Co. for $4 billion, was delayed by an FTC review of the deal, which resulted in a proposed consent decree. Mergers among competitors are called horizontal mergers, while mergers among firms serving different functions in a given market are called vertical mergers. The acquisitions of PBMs by pharmaceutical manufacturers fall into this second class of "vertical mergers" because the merging companies

previously served different functions in the prescription drug market. Manufacturers produced and marketed the drugs, while the PBMs arranged large volume purchases of drugs and compiled patient information for managed care systems. 7. Differentiation:

The study found that product differentiation is being increasingly employed to sustain the profitability of pharmaceutical companies. New dosage forms, fixed drug combinations and new indications are the most exploited differentiation strategies. Although product differentiation has helped large pharmaceutical companies to replenish their drying product pipeline, it has also immensely benefited drug delivery companies that were, till now, fringe players. The research output helps business strategists in pharmaceutical industry to appreciate the importance of product differentiation, and make it one of their core business strategies. As with all industries, customer service is seen as a key to success. I feel that customer service will become much more of a focal point for both the larger pharmaceutical companies and individual pharmacists as more players enter the market. Our research shows that customers already regard the role of the pharmacist as a service position, with 82 percent of respondents relying on them to offer guidance and 89 percent to fill prescriptions. Whats more, respondents also used the pharmacist to act as a liaison between themselves and their physician to determine the best drug for their condition (53 percent). For pharmaceutical companies, differentiation can be achieved in a number of ways. However, customer service will have the greatest impact in the long term. A happy customer is a customer who will return time and time again. My experience and research in this field has shown that outstanding customer service builds loyalty, which in turn builds a level of trust that will encourage repeat business. The threat of new entrants to the market could also be further limited by the increased product differentiation which would be resultant of the combining of genomic and pharmaceutical expertise. GlaxoSmithKline would have a greater competitive advantage over rivals through the delivery of insightful new and innovative products to the market. Competition between the key leaders in the ethical pharmaceutical industry is based on product differentiation; mainly by brand. The major players in this industry including Glaxo Welcome, Novartis and Pfizer pursue the strategy of product differentiation through building a successful brand name, and

thus having a strong presence in the mind of buyers. For generic drug firms following a cost leadership strategy, this may not cause a problem, however even entrants into this market may be deterred as even after patent expiry, many people still revert to branded products due to loyalty developed. The establishment of GlaxoSmithKline would allow the firm to further strengthen its differentiation strategy through the increased innovation resulting from genomic knowledge. The brand identity resulting from the combined reputations of the firms would aid the firm in its differentiation strategy. The critical element of their differentiation strategy has been segmentation. Hence, a profitable market has been identified for urban trend-setters and for athletes. This forms the basis for product and branding strategies to work in coordination in order to meet the demands of separate consumers an imperative for market development. For instance, you may have noticed that the original, fizzy Lucozade is popular among those for seeking a refreshing soft-drink. On the other hand, athletes are much more likely to be drinking the still carbonated drinks. These differences are due to the products differentiation. 8. Economies of Scale Henderson and Cockburn (1996), employing firm level data for the period 1960-1988, have shown that there were economies of both scale and scope in drug discovery, indicating that there were gains to be made from spreading various fixed costs, such as investment in common search technologies over multiple projects, as well as gaining scope advantages from applying knowledge gained in one project to another. With respect to drug discovery, Henderson and Cockburn (1996) concluded: Cockburn and Henderson (2001) also examined the possibility of economies of scale and scope in the drug development phase. Employing firm level data for 708 development projects for a similar period to that for discovery, 1960-1990, they found that there were economies of scope for development projects, but not economies of scale. Thus firms conducting diverse programs were more productive, suggesting that larger firms are able to efficiently transfer general knowledge about clinical trials across different projects within the firm (Cockburn and Henderson 2001, p1038). These economies of scale and scope have favored large company structures. Economies of scale and scope favor larger firms with diversified development projects. Returns from approved drugs are highly skewed but sufficient given favorable demand conditions (e.g. relatively inelastic prices) to provide pharmaceutical companies with at least above average profitability. Besides economies of scale in manufacturing, clinical trials and marketing, bigger companies can allow investments in more research and development (R&D) projects that diversify their future drugs portfolio and make them much more stable in the long term.

9.

Scope of Competitive Rivalry:

GlaxoSmithKline (GSK) is among the top 20 FT Global 500 companies and among the top 5 pharmaceutical companies in the world. GSK develops, manufactures and markets pharmaceuticals, vaccines, over-the-counter (OTC) medicines and health-related consumer products (Data monitor, 2005). The company primarily operates in 116 countries and its marketing is done in over 125 countries. It is headquartered in Brantford, UK and employees about 100,000 people (GSK, 2004). GlaxoSmithKline (GSK) is a British multinational pharmaceutical, biologics, vaccines and consumer healthcare. GSK employs over 90,000 people worldwide, according to GSK website, including over 40,000 in sales and marketing. Its global headquarters are GSK House in Brantford, United Kingdom, with its United States headquarters based in Research Triangle Park (RTP) in North Carolina and its consumer products division based in the Pittsburgh suburb of Moon Township, Pennsylvania. The research and development division has major headquarters in South East England, Philadelphia and Research Triangle Park (RTP) in North Carolina. The company's stock is listed on the London stock exchange and ADRs are listed on the NYSE. The single largest market is in the United States (approximately 45% of revenue), although the company has a presence in almost 70 countries. In November 2009 GlaxoSmithKline formed a joint venture with Pfizer to create ViiV Healthcare. Viiv Healthcare received all of Pfizer and GlaxoSmithKline's HIV assets ViiV Healthcare is 85% owned by GlaxoSmithKline and 15% owned by Pfizer. GlaxoSmithKline has three different product areas: prescription medication, consumer health, and vaccines. While each of these units is sizable, GlaxoSmithKline is especially dominant in the vaccine market, supplying roughly one quarter of all vaccines worldwide. Some of its best known consumer products include Tums (antacids) and Aqua fresh (toothpaste). GlaxoSmithKline's prescription products include medications to treat cancer, asthma, malaria, and depression among other maladies.

SWOT Analysis: GlaxoSmithKline Strengths Strength - Strong Financial Position GSK is world second largest pharmaceutical company. In 2010 GSK's turnover was $28.8 billion. GSK is the worlds largest investor in R&D and UK's biggest private sector funder of R&D. In 2010 GSK invested 3.96billion in R&D which was 14% of total sales of GSK. (www.gsk.com). Strength - Efficient Use of Resources GSK is the winner of 2010 chemical industry manufacturing and resource efficiency award due to Global presence of GSK to manage and use its resources efficiently and obviously at low cost. GSK has manufacturing plants across the world where raw materials are available easily. GSK has a network of supply chain to reach every single market in minimum time. GSK also has strategic agreements with Aspen to manufacture and supply the products in Germany and Africa to maximize the market share. Motivated participation and a dedication to improve performance by team playing are at the heart of GSK's success. In the last decade, manufacturing performance has been shifted around through in a systematic way to solve problems, a way to ensure what every team member does is aligned with company's objectives and staff at all levels working together for the improvement. This approach, and a process to cut down all waste, has turned the industry round from threatened loss or closure to one taking on board new research products and competing effectively in the pharmaceutical market. www05.abb.com/.../improving%20business%20performance%20conference.pdf GSK has set its targets to become carbon neutral by 2050.GlaxoSmithKline (GSK) has set out a road map which is aimed at guiding the company towards its goal of a carbon neutral value chain by 2050. This follows the GSKs recognition in its 2010 Corporate Responsibility Report that carbon neutral is an ambitious goal of GSK, and that a well-defined way is currently not set to achieve this objective, or its other newly-set 2015 and 2020 goals. But, what GSK knows is that achieving these goals will facilitate the GSK in terms of saving as much as 100 million (US $160 million) a year by 2020 in reduced energy, materials and distribution costs. http://www.envido.co.uk/resources/529-glaxosmithkline-could-save-p100m-in-2020-bybecomingcarbon-neutral Strength - Strong R&D Focus A few companies have proven themselves adept at inventing new markets, quickly entering emerging markets, and dramatically shifting patterns of customer choice in established markets Prahalad and

Hamel.(2006) GSK has always been exploring new markets by working on very challenging therapeutic areas. GSK has a wide range of pharmaceutical products that include respiratory, Anti viral, Central Nervous System, Anti bacterial, Oncology, HIV etc. In addition to these prescription products GSK is also paying its attention to OTC (over the counter) products. GSK has a consumer healthcare business that brings an added dynamic dimension to the company. GSK provides dental healthcare, nutritional supplements and drinks two millions of people across the world. GSK has four dedicated consumer healthcare R&D centers and consumer healthcare regulatory affairs. Sensodyne, Aqua Fresh, Lucozude and Horlicks are some market hot leading brands of GSK. Strength - Global Presence GSK is a global organization with its offices in over 100 countries. GSK has major R&D centres in UK, USA, Belgium and China. GSK has manufacturing and supply network across the world and its products are sold in more than 150 countries. GSK manufacture 4 billion packs per year in 28000 different presentations like tablets, capsules, syrup, injection, inhalers etc.

GlaxoSmithKline Weaknesses
Weakness Out Dated IT System GSK's outdated IT system would hold back the company for five years (Analysts Morgan Stanley). Since the start of this year GSK is down by more than 7% to set aside $2.2bn to cover US legal costs. The underinvestment of GSK is a major obstacle to operating performance, cash conversion and bolt-on acquisitions, (Analyst Andrew Baum) http://www.ft.com/cms/s/0/cc62a6c0-2468-11e0-8c0e-00144feab49a.html#axzz1L5qNTnot Weakness - Patent Expiry The life of a patent in most countries is 20 years from the filing date. However the long development time for pharmaceutical products may result in a substantial amount of this patent life being used up before launch. GSK is also facing the patent expiry for a number of bulk-buster products . The following table shows some of the patent expiry dates of GSK. Weakness - Financial Penalties Over the past few years the settlements with various pharmaceutical companies include unlawful promotion of medicines, over-charging for government health programs, kickbacks, poor manufacturing practices, concealed study findings, environmental violations, monopoly practices and illegal distribution. http://www.ft.com/cms/s/0/54fa8bb4-233e-11e0-b6a3-00144feab49a.html#axzz1L5qNTnot

The companys latest 2.2bn charge in large part represents planned settlement of a probe led by Colorado over unlawful or aggressive marketing of its products, but also some product poor manufacturing. GSK refused to provide the details, partly to prevent the lawyers from calculating the average payment per patient in medicine litigation claims that could inflate demands from future claimants. Weakness -Parallel Trading In the UK wholesalers are exploiting the EU free trade and importing products from countries like Greek, Spain etc. where prices are low. Parallel importing can be seen as a potential barrier to access of new medicines, and a potential barrier to market development (Data monitor2006) Value of these imports has crossed the value of 300m according to BAEPD. GSK and other companies are selling controlled and monitored stocks which can only meet the need of national markets. The amount of drugs GSK supplies to European wholesalers to the roughly the same levels as in 2001. (http://www.the-rtma.com) Opportunity - Strategic Agreements In addition to its own R&D GSK have strategic agreements with other pharmaceutical companies and organizations Valeant Pharmaceutical, NHS, academia to boost its research. GlaxoSmithKline announced a new long-term share buy-back program with 2 billion expected to be returned to shareholders in last quarter of 2011. All these strategies will help GSK to lead in the market and face the legacy problems. Opportunity - Product Approvals and Launches GSK has got approval of launch of six products in USA and EU market. Annual report of GSK shows a peer-leading pipeline of 30 late stage assets. Ten new compounds and vaccines of GSK are in phase III clinical trials since the start of 2010. Having a number of new patents will generate cash for GSK to further invest in R&D and the new generic brand of GSK will give a tight competition to other pharmaceutical organizations. Opportunity - BITC Community Mark GSK has become one of the first companies to be given the Community Mark by Business In The Community (BITC).GSK has been awarded this Community Mark because of its international initiatives, as well as its work at a local and national level within the UK. Through its Global Community Partnerships programs, GSK works with collaborating organisations to build strategic partnerships that generate mutual benefit for GSK, its partners and the beneficiaries of the programmes. http://www.zenopa.com/news/18673800/GSK_receives_BITC_CommunityMark

Opportunity - Expansion of Relationship with Aspen GSK also has extended strategic relationship with Aspen having 16% of Aspen's shares in exchange for transfer of products and manufacturing facility in Germany and Africa. This strategy will help GSK to grow in the emerging market. (GSK website) GlaxoSmithKline - Threats Threat - Patent Infringement Claims GSK is having tough competition from manufacturers of other pharmaceutical companies who market generic products against all of GSK's major products. Generic drug manufacturers have also shown a eagerness to launch generic brands of products prior to the expiry of patent. Resolving this issue is challenging and may need a dedicated team to ensure the validity or enforceability of a patent or keep an eye on the generic products so that these do not infringe the patents. Other countries of the world where GSK operates, patent protection may be significantly weaker as compared to the USA or the European Union. Some third world developing countries have reduced or intentionally minimized patent protection for pharmaceutical products generally or in specific therapeutic indications to facilitate early competition within their markets by generic brand manufacturers. (GSK Annual Report 2010) Threat R&D Unsuccessful New Products GSK invest about 14% of its sales in developing or researching new products. Development of new products by R&D requires money, time and human resources, and the output is always uncertain. One of the most important threats that the GlaxoSmithKline is facing is the risk of the R&D. Not all of the innovations, development processes or improvement planning is sure to be one hundred percent successful. A new molecule can fail at any stage of the research or testing stage process, and drug regulatory authorities may not give approval to one or more lately stage product candidates for any specific reason. New product initially may seem promising in development but, after huge investment of company's money, time and employees efforts, may fail to achieve desired results altogether or have only limited commercial success in terms of efficacy against disease or safety issues or drug reactions, an inability to get necessary approval by regulatory authorities, difficulty manufacturing or excessive manufacturing costs etc. Threat Competition Pharmaceutical industry is considered as one of the highly competitive industry in the world. The number of the companies that are emerging in the said industry is the most obvious evidence that

shows the growth and improvement as well as the development of the said industry. A major factor that can affect the overall performance of pharmaceutical businesses is the presence of the generic drugs. These are the drugs or medicines that are offering the same effective power of a particular substance or chemical but in a low price. GSK is also facing competition not only by the generic products but the competition from newer, better drugs is equally disheartening. Threat - Stringent Regulatory Environment Health authorities all over the world such as in Europe the European Medicines Agency FDA of United States, and the Japan Pharmaceuticals and Medicines Device Agency have increased their concern on safety issues and product differentiation while calculating the benefit and or risk balance of drugs, which has made it more difficult for pharmaceutical products to gain regulatory approval. Threat - Increased Pricing Control Pharmaceutical organizations are always under the price controls or pressures and other restrictions in many countries, including US, Italy, France, Spain, Germany and Japan. Some governments involve directly in controlling the prices of pharmaceutical products. In addition, in some countries major pharmaceutical product purchasers (either governmental agencies or private health care providers) have the economic power and choice of generic brands which they use to put substantial pressure on prices. It is not possible to accurately foresee whether existing controls, regulatory authority restrictions or buyer's pressures will increase or whether some new controls, economic pressures or restrictions will be introduced in any geographical area where GSK is operating. Pricing strategy is important to the pharmaceutical companies because most of the consumers, especially those who belong to the lower class always settle for the low price of medicine or drug.

Pestle Analysis: Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include: Tax policy Employment laws Environmental regulations Trade restrictions and tariffs Political stability

Global Politics: There has been widespread investigation into the likely impact of liberation of international trade by World Trade Organization (WTO) for China. In the early 2005 China announced the end of some of the remaining quota systems prevailing on different segments. This has facilitated the process of globalization for ethical drug manufacturers like GSK and also opened up a market of 1.29 billion people. There are growing concerns of parallel trading in the Europe and its effects on the revenues of the pharmaceutical companies. With the accession of the ten Eastern European and Baltic states to the EU in 2004, large distribution companies with pan-European operations have emerged as distributors and have started to source products from the lowest point of supply in Europe through the medium of parallel imports. Pakistani Political Factors: In pharmaceutical industry prices are fixed by ministry of health. It exposes a significant risk on pharmaceutical industry. Profit margin of pharmaceutical industry will be reduced due to price fixation policy. Price fixation is a long term threat for pharmaceutical industry.

ECONOMIC CHANGE
Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macro economy: Economic growth Interest rates Exchange rates Inflation rate

Global Economic Factors: It has been estimated that in 2004 the global pharmaceutical market was worth 275 billion, with projections showing an annual global sales growth of 6% over the following five years (Datamonitor, 2005). Drawing upon Pollack (2005), it can be stated that the majority of the sales in the industry originate from the 'Triad' countries i.e. US, EU and Japan. The health of economy is a vital influence on the extent of discretionary buying and how much is spent on necessity purchases. The trends in personal disposable income has seen steady rise of 14% in the period of 2002-2005 (HM Treasury, 2005). This growth has been assisted by low unemployment, low inflation and falling interest rates for much of the period. The following graph and the table of figures have been made with the help of data taken from ONS (2005). Pakistani Economic Factors: Inflation and exchange rate fluctuations are important factors influencing pharmaceutical industry of Pakistan because raw material such as molecules and supporting material is imported. Inflation and exchange rate fluctuations expose a risk of increase in cost because main cost involved in pharmaceuticals is import of raw material. This change will increase pressure on cost control functions.

SOCIAL CHANGE:
Social factors include the demographic and cultural aspects of the external macro environment. Some social factors include: Age Religion Income Distribution Life Style Trends Education

The most numerous five year age groups (at the 2001 census) were the 5-year group born in the years 194651 (the postWorld War II baby boom); the baby boom born a generation later in 1966 71 (the largest group of all); and a more modest boom a generation after that, born in 198691.
[16]

The 194651

group reaches retirement age from 2006 onwards (women from 2006 and men from 2011), and the sudden increase in the number of people claiming the state pension has led politicians and political commentators to fear a "pensions crisis".

In the figure above we can clearly say that a large population of United Kingdom lies in the age group of 15-64. But the age group has a very little impact on the sales of the pharmaceutical industry. As now a days young ones are in need of medicines with almost the same amount as the old ones.

Now coming towards the ethnicity the United Kingdom mostly comprises of the white British followed by the Indians and the Pakistanis. But Ethnicity has nothing to do with the pharmaceutical industry. People from each ethnic group are bound to get sick and will need medicines so ethnicity has no impact on the pharmaceutical industry.

Now moving on to the religions, same thing is to be repeated here religion has no impact on the performance of the pharmaceutical industry. People from all religions use medicines when they get sick so religion has nothing to do with the performance of the industry. Now education has a slightly retrospect to it. The more the educated people are more they know about the desired medicine. Because in under developed or developing countries people tend to go for things that are unacceptable in the world of medical science.

Technological Factors: Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include: R&D activity Speed of Technological Transfer

In 2007 the UK had the third-highest share of global pharmaceutical R&D expenditure of any nation, with 9% of the total, behind the United States (49%) and Japan (15%). The UK has the largest pharmaceutical R&D expenditure of any European nation, accounting for 23% of the total; followed

by France(20%), Germany (19%), and Switzerland (11%).

In recent years, increasing emphasis has been put on the role that multinational companies and developed world Governments should play in supporting technology transfer into developing countries.

Environmental Factors:

Environmental Laws Waste Disposal

Although the pharmaceutical industry is not considered a "dirty" industry compared too many others, it faces new challenges in controlling and preventing environmental pollution as it expands. The U.S. Environmental Protection Agency reports that by 1995 pharmaceutical facilities in the United States alone were annually releasing more than 177 million pounds of air, water, and soil pollutants composed of 104 different chemicals. As the pharmaceutical industry grows and consolidates globally, the expanding size and output and increased visibility of multinational pharmaceutical companies require them to deal with environmental problems more effectively. The environmental performance reports of leading international pharmaceutical companies indicate that they publicly recognize their corporate responsibilities for environmental stewardship. The largest pharmaceutical firms are moving quickly to integrate proactive management policies into their overall business strategies. Leading firms are introducing pollution prevention and clean manufacturing practices into their operations through product and process life-cycle analysis in order to reduce waste and minimize negative environmental impacts. Legal Law: Competition Law:

Competition Law enforcement within the pharmaceutical industry has traditionally focused on prohibiting agreements that restrict parallel trade either through the imposition of a Supply Quota System ("SQS") or by means of dual pricing. Through SQS pharmaceutical companies allocate a certain quantity (quota) of pharmaceuticals to a particular country, set either by reference to previous purchase figures or to local consumption. Dual pricing was used by GlaxoSmithKline when it required Spanish wholesalers to pay a higher price for products which they export to other Member States than for those resold on the Spanish market. Employment Laws:

Employment laws also have strong roots in the pharmaceutical industry. The major pharmaceutical giants in the industry such as the provision for safe working conditions, minimum wage rate, job satisfaction and job security.

Porter Diamonds Five Forces Model:

Force#1: Rivalry
Competition Intensifies as competitors become equal in size and Capability: Now this point can be taken as a fact for the pharmaceutical industry. For the period of 1999-2006 Gsk was a one of a kind in the industry in terms of size and capability and as a result was facing minimum rivalry. But since the induction of continuous technological changes the close competitors such as Roche and Pfizer have become equal in size and capability and a result the rivalry in the industry has increased. Rivalry intensifies as it becomes less costly to switch Brands: Now theoretically this point is correct that rivalry intensifies as it becomes less costly to switch brands but in the case of GSK and pharmaceutical industry this point doesnt applies. This is for a simple reason that the brand switching is not dependent upon the will of the customer but is dependent upon the prescription written by the doctor. The patient has to buy the drug which has been prescribed to him. Rivalry Increases as the products of Rivals become standardized: Due to rapid introduction and facilitation of technology in the pharmaceutical industry the issue of standardization has not been a problem anymore. The machinery has moved from been manually operated to being automated. As a result the performance or the quality of the end product rests with the machine rather than the labor. So due to standardization the quality of finished products has improved which is a great outcome for the industry as a small mistake can take some ones life. Rivalry is weaker in industries where there are too many Rivals: This a fact when there are too many competitors in a particular industry the rivalry decreases for a simple reason that when too many rivals exist the large companies try to find a segment and hold on to it and concentrates on that rather than confronting each other. Rivalry increases if one of the competitors becomes dissatisfied with his current market situation and tries to improve it: This is a real fact and this has happened in the pharmaceutical industry. Focused on emerging markets, GlaxoSmithKlines Pakistan subsidiary is gearing up for expansion in its consumer healthcare arm. The company has been making targeted acquisitions and is looking to expand its core area away from the products in which the government regulates prices.

Force#2: Potential entry of new competitors Presence of sizeable economies of scale:

GlaxoSmithKline (GSK) has announced that it has reduced the prices of its HIV medicines for more than 60 developing countries by up to a third and its anti-malarial medicines by up to 38%. The company said the price reductions were the result of a review of manufacturing costs and of increased economies of scale. Economies of scale enable companies to cut profit margins and so secure a share of this new, vast, market and protect their rights over the products. We can look forward to more companies making substantial cuts in the prices of drugs for developing countries. New Entrants: Not only Gsk but quite a few of the pharmaceutical giants have been present in the industry for decades now and enjoy the advantage of economies of scale. So as a result new investors would have great competition while entering the industry and would require a lot of initial investment to compete with theses giants.

Cost and resource disadvantages, not related to size:

Learning Curve Effect:

GlaxoSmithKline and other pharmaceutical giants have inhibited the culture of continuous improvement in the drug production methods through induction of technology as it changes which leads towards high quality and standardized products which could be difficult for new entrants to achieve. New Entrants: Since the pharmaceutical giants are well established and have developed their expertise it would be difficult for the new entrants to match their standards. And to achieve standardized and high qualities such as the giants would be very difficult. Key Patents:

Thousands of patents are applied for to protect variants of existing products, processes of manufacture or, where admitted, second indications of known pharmaceutical products. But in case of a new entrant, key patents can effectively block entry as can lack of technically skilled personal and inability to execute complicated manufacturing techniques. Partner with best and Cheaper Suppliers

Pharmaceutical giants such as Gsk and Roche have developed viable and long term relationships with their supplier. They have hired those suppliers who understand the objectives of these giants and help

them achieve their goals of high quality products. Due to this long term partnership Gsk enjoys the advantage of low costs or cheaper suppliers as they have cordial relations with their suppliers. New Entrants: In case of the new entrants, it is very difficult to gain the confidence of the suppliers; as they are new in the business they cannot make immediate long term relationships with the suppliers since they have a very limited experience and these things take time. Favorable Locations

Gsk or other pharmaceutical companies have established their facilities in locations which are close to the waste disposal sites in order to avoid transportation cost. In this industry the locations don't have to be attractive as the facilities are not developed with the aim of inspiring customers. New Entrants: Same is the case with the new entrants. They dont need to find attractive locations but they may face difficulty in finding suitable locations for their facilities due to competition. Favorable locations also cost more so more and more investment would be needed. Low Fixed Cost

Many Companies in the pharmaceutical industry are outsourcing their operations to become more and more efficient. But the case is the opposite with the Gsk. They are bringing their outsourced work back in house in order to lower their fixed cost. New Entrants: New Entrants start their business from scratch so it is near to impossible to have low fixed cost. The have to bear high fixed cost and are years away from being able to lower their fixed costs.

Brand Preference and customer Loyalty:

Brand Preference is a basically a key thing which plays with the customers mind while they choose which brands medicine to buy. But if we see in the context of developing countries like Pakistan Brand loyalty exists with companies such as Gsk, Roche and Pfizer. New Entrants: New Entrants in any industry are those who are yet to establish their customers. They dont have customers that are loyal to them and have begun from scratch. While doing this they could face the barrier of attracting customers that are loyal with other brands.

Capital Requirements:
New Entrants Manufacturing and distribution Facilities

 Working Capital Initial Promotions Contingency Funds Other Barriers Access to Technology Expertise Experience

Access to distribution channels:

New entrants most probably have problems in reaching their target market. The distribution channels such as the retailers and wholesalers would be reluctant to buy their products and hence the distribution of the new product would be limited. To overcome this barrier they would have to offer incentives to the wholesalers and retailers so that they would launch their products. This could lower the profit margins of the new entrant.

Regulatory Policies:
Regulatory Policies could be a possible barrier for the new entrants as they can bar their entry into a particular industry. In the International Arena the host government basically puts up these regulations to protect their domestic businesses. As a result Barriers to entry are created and the cost of entry into the industry increases.

Force#3: Competitive pressure from sellers of substitute product

a) Whether substitutes are readily available and attractively priced. A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. Similarly to the threat of new entrants, the treat of substitutes is determined by factors like Brand loyalty of customers, Close customer relationships, Switching costs for customers, The relative price for performance of substitutes b) Whether buyer view the substitute as being comparable or better in performance and other attributes. Basically Gsk is facing competition from substitute products in the generic drug industry. But it is one of the finest generic drug manufacturers. So this threat could be neutralized. Gsk is also the most

experienced among the sellers amongst the sellers of the substitute products and due to factors such as brand loyalty and brand preference the threat from sellers of substitute products can be diminished. c) How much it costs the customers to switch to substitutes: Switching to the substitute products isn't easy for the end users in the pharmaceutical industry. It isnt like the food industry as if you have mood for something other than fried chicken they switch. Medicines are prescribed by the doctors ant the customers cannot switch until or unless they are prescribed by the doctor.

Force#4: Competitive pressure from supplier bargaining power

a) Whether the item being supplied is readily available from many suppliers at ongoing market price. Each supplier has its own bargaining power and that power basically decreases when the item supplied is readily available from many buyers in the market. Same is the case with the pharmaceutical industry. Contracts have been made by Gsk with the suppliers on the base of the quality of the item. And contracts are terminated if suppliers dont comply with the situation. b) Whether few large suppliers are primary source of a particular item. The suppliers for the chemicals and the chemical compounds in the generic drug industry are limited to one or two companies. The domination of a few suppliers in an industry with more customers sets a high bargaining power for the suppliers. There is no domination of suppliers in any other segment of the pharma market. c) When its difficult for industry members to switch from one supplier to another. It is difficult for the companies such as Roche, Pfizer and Gsk to switch suppliers in the generic drug industry. As there are only a limited number of suppliers of chemicals and chemical compounds for this sector of the industry. As its difficult for industry members as well as Gsk to switch suppliers it sets a high bargaining power for the suppliers. d) Whether certain needed inputs are short in supply The required inputs for the manufacturing of drugs have not been in shortage for quite a while now. The items required are readily available even in the generic drug industry where the suppliers are limited. So the suppliers bargaining power is quite less in this case. e) When certain suppliers provide differentiated inputs that enhance the quality of product. The suppliers of Gsk have traditionally contributed to the quality of the products and improving the brand image of the organization through their dedicated work. They are also providing them with their brand value which in turn leads to higher supplier bargaining power.

f) Whether industry members are major customer of a supplier. This is the case in the generic drug sector of the pharmaceutical industry. This is due to a simple reason that there is limited number of suppliers in this sector. The business of these companies can become partially dependent upon the willingness of the supplier to provide the desired inputs.

Force#5: Competitive pressure from buyer bargaining power

a) Buyers cost of switching to competing brand is low.

As mentioned earlier switching brands is not dependent upon the will of the customers but is dependent upon the doctors and doctors prescribe drugs of those companies which are reputed such as Pfizer and Gsk.
b) If number of buyers is small or customer is important to a seller.

A large customer base of the pharmaceutical industry allows no leverage to any customers. As no customer needs to be treated in a special manner.
c) If buyer demand is weak and sellers are struggling to secure additional sales of a product. The demand for the pharmaceutical products is very high so the pharmaceutical industry needs no extra effort to gain additional sales.

Conclusion
According to porter diamond forces worst scenario is when the five forces are active. In the context of fast food industry we conclude that; Entry into the industry has some restrictions and barriers due to the economies of scale and experience curve of the already existing big competitors in this industry prevail. There isnt a great deal of supplier bargaining power in the pharmaceutical industry with the exception of the generic drug sector. The Buyers Bargaining power is very low as the switching of brands is not based on their will but on the advice of their doctors. It has an emerging substitute in the generic drug sector which can pose a threat if customers start switching.

Drivers of Change:
Driver#1: Growing use of Internet and Emerging New Technologies
How the driver has affected the industry in the Past 5-10 years? When pharmaceutical companies cut their sales forces, they need to find innovative ways to reach their customers; technology and internet are allowing them to do just that. Many pharma companies are now using e-detailing as a business development strategy. E-detailing means communicating the features, benefits and risks of products over the Internet. Rather than having a live sales person gives a presentation, physicians are able to schedule appointments online to learn about the products they're interested in. This helps save pharmaceutical companies money and time. Pharmaceutical companies are also starting to use mobile marketing as a way to reach physicians. How is this driving for increasing or decreasing the demand of the Product? Growing use of internet has increased the brand awareness globally amongst the customers. It has made the product information more accessible to the consumers. And it has also made customers more aware about the products which were not known to them previously such as herbal products. As a result it has increased demand for pharmaceutical products. Is the driver making competition more or less intense? Growth in the use of internet and technology has intensified the competition in the pharmaceutical industry. The use of internet and new technologies has basically allowed the pharmaceutical industry to grow the sale of unprescribed drugs. This has intensified competition as companies which are not giants are looking towards the internet and new technologies to compete with the giants. The better use of technology in this way has helped GSK to maintain a market standing by increasing the capability to compete its rivals. Will the driving force lead to higher or lower industry profitability? Basically Internet has increased the profitability of the industry. It has expanded the customer base. Due to new technology and the use of internet the industry has been able to tap areas which were not tapped earlier such as the herbal drugs. Similarly the introduction of new technologies has made the processes of the industry more and more efficient which has led to lower costs and in return higher profits.

In the next five or ten years what will be the impact of the driving force in the industry? The growth in the use of internet and technology seems to have a great impact on the industry. The competition within the pharmaceutical industry would be intense and the companies which will fail to adopt these drives would wash away from the industry. The demands and expectations of the customers would increase, making the competition even intense.

Driver#2: Changes in the Long term Industry Growth Rate

How the driver has affected the industry in the Past 5-10 years? The pharmaceutical industry has been a powerful and dynamic industry in the past 10 years, growing even when other industries (like tech stocks) have taken sharp downturns. However, due to the financial crisis of 2008 and subsequent economic recession, economists predict that pharmaceutical industry growth will slow in the coming years, despite strong performances. How is this driving for increasing or decreasing the demand of the Product? Basically the demand for the pharmaceutical products has been dependent upon the growth rate of the industry. As we have known that with the passage of time newer technologies are being incorporated in the processes which has led to cures for diseases which were incurable in the past. As a result demand for the pharmaceutical products has increased. Is the driver making competition more or less intense? The growth and expansion of the pharmaceutical industry has basically increased competition, as companies are looking to tap into areas which were unexplored earlier. So the companies have to be on the lookout for such opportunities which would help them gain competitive edge in the industry. Will the driving force lead to higher or lower industry profitability? The long term industry growth rate will increase the profitability. Expansion of the business worldwide will create new opportunities i.e. the company will now be able to attract a wide stream of customers. In the next five or ten years what will be the impact of the driving force in the industry? For the next 10 years, we still see more, see through less. In our opinion, under this circumstance, that economic and social stability, policy of cure does not appear the change, pharmaceutical industry may

appear "golden decade". Enterprises, as the main body of this change, what they can do are to adjust development strategy of companies in time.

Driver#3: Changes in who buys the product and how they use it
How the driver has affected the industry in the Past 5-10 years? Over the past 5-10 years the people were only reluctant to buy the conventional drugs which were being used for years. Now new drugs have been introduced such as the generic drugs and the herbal drugs. Demand for industry products increasing because of the driver. As a result of introduction of generic and herbal drugs the demand for these products has increased to an unimaginable level. And companies who have employed these products are reaping great deal of rewards. Is the driving force making the competition more or less intense? Due to expansion in customer base and new uses for existing products the level of competition has gone up notch. As the competitors try to tap in those areas a gain the same benefits as their rivals. Will the driving force lead to low or higher industry profitability? As the companies find new customers to use their products or find new uses for the existing products generally the sales increase and as a result the profitability of a firm also increases. In next 5-10 years impact of the driving force on industry. Now if new uses for existing products or new customer are continuously found the industry will continue as will the level of competition but due to the current era of recession the growth of the industry might take a hit and companies might have to move towards consolidation.

Driver#4: Increase in Globalization How the driver has affected the industry in the Past 5-10 years?
The pharmaceutical industry has taken advantage of the modern trend of globalization to increase their assets and influence in medical healthcare across the globe. Companies spend large amounts of money on advertising, marketing and lobbying (government or parliament i.e. the decision-making body).

It is without doubt that globalization has had a role and many effects to play on the pharmaceutical industry in the past 10 years, as well as the public well-being around the globe. Demand for industry products increasing because of the driver. Due to globalization the demand of pharmaceutical products has increased. The companies can enter markets which were inaccessible before such as many of those under developed or developing countries. Is the driving force making the competition more or less intense? Global entry of GSK to other countries has forced its competitors to compete with it in foreign markets and spend their revenues to get globalized. In the early years of GSKs globalization it was solely benefiting from foreign markets. Now most of its competitors have globalized and competition has increased. Will the driving force lead to low or higher industry profitability? Globalization is contributing positively to the Pharmaceutical industries profitability. The Pharmaceutical companies are having a increased customer base. As they have entered markets which were not accessible earlier the sales are likely to increase as will the profitability of the pharmaceutical companies.

Key Success Factors: 1. Product attributes, competencies, competitive capabilities with greatest impact on future competitive success. A key factor in the success of Gsk is its ability to satisfy the medical needs of a wider range of customers. For example, GlaxoSmithKline (GSK) and the Immune Disease Institute, Boston (IDI) has announced five year collaboration worth $25 million to build a unique partnership in immune inflammation research. The collaboration aims to combine IDI's world-class immunological expertise with GSK's pharmaceutical capabilities within a competitive framework. The partnership will be pioneering in the way it allows researchers at both institutions to develop joint grant proposals in targeted areas of research under an innovative and competitive Alliance Research grant program. In addition to the substantial scientific benefits brought by a long-term synergy with world class immunologists, GSK will receive an exclusive Right of First Negotiation for a substantial portion of the new technologies discovered and disclosed by IDI scientists during the term of the agreement. The research term for the collaboration is five years and will be anchored through GSK's Immune-Inflammation Centre of Excellence in Drug Discovery (II CEDD). This would help GSK enhance their customer base as well as their competitive capabilities. 2. Technology related key success factors. Technology not only measures performance values within the organization, but it also assists in strengthening the position of the organization in the market. Competitive and technological changes in the pharmaceutical industry-from powerful new drug chemistries to innovative R&D partnerships and marketing plans-are reshaping the business strategies of many pharmaceutical and biotechnology companies. According to new research from the MIT Program on the Pharmaceutical Industry (POPI), many companies today are searching for ways to increase productivity, decrease costs, and develop new treatment modalities that will enhance profitability. For example, 7 months ago McLaren Group today announces that it has formed a long-term strategic partnership with one of the worlds leading pharmaceutical corporations, GlaxoSmithKline (GSK). This ground-breaking

collaboration brings together two great British companies, both of which are focused on innovation and high-tech research, and will run initially to 2016. This relationship is not a conventional business consultancy it is more specific, dynamic and game-changing than that. It is the distillation, communication and application of 45 years worth of winning Formula 1 expertise, meticulously adapted and tailored to the needs of a new McLaren Group partner, GSK. 3. To improve production process proven abilities. Its efforts in improving production processes and packaging and enhanced supply to meet demand better are proof enough. Back in the 1980s, other industries quickly adopted Lean, Six Sigma, and other basic operational excellence tools, but now pharmaceutical manufacturing is becoming a convert. Facing challenging profitability and revenue goals along with the twilight of the Blockbuster model, companies are now looking to enhance their manufacturing efficiencies. Within the last 18-24 months, Avi Edelstein, a partner with the management consulting firm Tefen, has seen a dramatic shift in the commitment to cost reduction in pharmaceutical manufacturing. With the Blockbusters of the past, you couldnt make the drugs fast enough, says Edelstein. Improving operations meant keeping the equipment running. With patents running down, pharma companies are becoming very serious about efficiency. Pharmaceutical Manufacturing recently surveyed drug industry professionals to gain insights into manufacturers current operational excellence practices. The survey is still ongoing, and detailed results will be interpreted in June on PharmaManufacturing.com. But the 48 responses received so far indicate where the industrys Op Ex programs are and where theyre going, highlighting accomplishments and areas for improvement. Positive Findings

Company goals are focused on increasing operating efficiency and reducing manufacturing costs.

Facility strategies stress flexibility both operational and manufacturing. Reducing cycle and setup times are recognized as two of the keys to improving manufacturing agility. More companies have bridged, or are bridging, the islands of information within their facilities

Formal maintenance programs are in place and are being utilized. Most companies see the reduction of manufacturing setup times as a key goal of operational excellence.

Areas for Improvement Other results suggest that there is still considerable room for progress:

Companies are still struggling with on-time delivery. 60% of respondents say top management sees manufacturing as a cost center. About 40% of the equipment at many plants is over 10 years old and is manually operated.

Elements in the operational excellence toolkit, such as Quality by Design, Process Analytical Technology and advanced process control, are being underutilized.

Models are not yet flexible enough to adjust production capacities based on demand. Regulatory compliance and plant safety were lower on respondents priority list this year, which could be either good or bad news.

4. Manufacturing related key success factors: a) Ability to achieve economies of scale. Henderson and Cockburn (1996), employing firm level data for the period 1960-1988, have shown that there were economies of both scale and scope in drug discovery, indicating that there were gains to be made from spreading various fixed costs, such as investment in common search technologies over multiple projects, as well as gaining scope advantages from applying knowledge gained in one project to another.

b) Quality control know-how: GSKs Quality Management System is an innovative yet practical tool that is benchmarked against all international standards and guidelines ensuring risk minimization, and more importantly top-notch managerial skills. Our QMS is a living system which focuses on the ever changing needs of our main customer groups patients, regulators, company / shareholders. This is a fast-paced world and industry where changes are constant, and the QMS has been created to ascertain that everything is managed in a controlled and proficient manner. To reiterate GSKs quality statement: Quality is at the heart of everything we do from the discovery of the molecule through to product development, manufacture, supply and sale and vital to all the services that support our business performance. JP Garnier, Chief Executive Officer c) High utilization of fixed assets: Fixed Assets are used in the business for producing goods to be sold. The effective utilization of Fixed Assets will result in increased production and reduced cost. It also ensures whether the investment in the assets have been judicious or not. Gsk is very good at reviewing all parts of the process and finding ways to make it more efficient so they can cut costs of production, so increase profit and control safety and quality management. They know down to the second how long each stage should take. d) Access to attractive supplies of skilled labor: One of Gsks key success factors has been its implantation of its Plan to Win. The plan focuses on five key drivers of success; people, product, place, price, and promotion. The first factor is Gsks people or employees. Gsk is striving to do a better job of staffing during busy periods as not to overwhelm and to reward outstanding employees for exception work. It is also putting more emphasis on its hospitality training to ensure a friendlier and customer focused support staff.

e) High labor productivity If the staff levels remained the same (approx. 8000) between 2007 and 2008 then productivity of labor has improved by 209.3 annually or weekly 4 per worker. This could be due to improved training by Gsk to improve specialization and division of labor has been applied to the production tasks. The resulting gain in productivity means the production process has become more profitable for the producer. The decrease in productivity of labor between 2008 and 2009 is only true if staff numbers stayed the same, but in reality Gsk may have reduced staff numbers or reduced their hours to parttime to cut the cost of labor, because of the reduced demand by consumers in 2009, which has resulted in decreased production, this means less income for workers as they have reduced hours or they have become unemployed. f) Ability to manufacture products according to buyer specifications Gsk states that part of its success is due to its commitment to the well-being of customers. Gsk has established a global advisory council to provide expert guidance on nutrition and well-being. To satisfy health-conscious customers, the pharmaceutical company began to include high-quality choices in the product-line. 6. Skills and ability related key success factors: a) Talented workforce: Attaining a stable and qualified workforce is a challenge in the 21st century global economy. "GSK is committed to attracting and developing talent at all levels, and youth training and apprenticeships have a vital role in building the right skills our employees need for the future. We are delighted to announce this programme today, which will give young people hands-on experience in the life sciences industry; a key sector for the UK." "The Government has significantly increased investment in apprenticeships because we know they work for businesses and employees. The unique combination of high-quality training and meaningful work experience they offer helps to build a workforce with the skills our economy needs to grow. I am delighted that GSK are not only hiring new apprentices, but also expanding their program to cover a wide range of new disciplines." The apprenticeship scheme is complementary to GSKs existing programs to attract the best young talent. Last year, the company announced plans to reimburse 100% of

uncapped tuition fees for up to 100 students recruited under the company's graduate scheme. GSK also takes on hundreds of undergraduates annually in the UK, on year-long industrial placements across the business. a) Product Innovation Capabilities In the international competition to attract business to a country, innovative capability is rapidly becoming more important. However, innovation is not a state, it is a highly dynamic process. Alongside the necessary material resources, research and innovation are dependent on a framework that fosters innovation:
Through public attitudes: acceptance of new technologies and a general willingness to accept economic risk determine the extent to which a country can pursue innovative research and development. Through political/legislative developments: in other words, providing incentives and rewards for innovation through pricing and patents to protect the fruits of innovation. Through taxation; for example incentives to create venture capital and encourage private investment in research.

This innovation-friendly framework requires constant adaptation to new requirements. b) Telecom electronics, short delivery time capability: Processes are done to minimize time; this ensures an effective and efficient operations. Many of these processes are done through the use of advanced information technology, through calculating the time of the processes or even making a database to observe procedures and make improvement to their processes. Delivery Time is of the essence and the goods must be received or services performed on the dates and at the destination(s) set forth on the Order Page. If Supplier fails to meet any such delivery date, GSK may, without limiting its other rights and remedies, direct expedited routing, charge excess costs incurred thereby to Supplier, or cancel all or part of this PO. All rejected or over-run goods and material with GSKs printing or identification must be destroyed by Supplier at Suppliers expense and not sold as surplus.

c) Supply Chain Management Capability Supply chains have improved drastically in the past ten to fifteen years. The revolution can be attributed to companies shift in focus to efficiency. This applies both to the supply and manufacturing operations. GlaxoSmithKline is an example in case. Its efforts in improving production processes and packaging and enhanced supply to meet demand better are proof enough. GSK has RFID supply chain projects planned but faces a tough test with respect to being the first mover in investing huge sums into the technology or adopt a wait and watch policy. GSK may lose out in both cases owing to failure of the relatively new technology or lose out to competitors who can gain significantly by adopting the technology faster. d) Strong e-commerce Capability In the last two decades, E-commerce has become synonymous with communication, strategy and business practices, facilitating electronic transactions for business process via EDI (Electronic Data Interchange). E-commerce enhances value of the industry through key underlying processes such as, high value drug innovation, clinical development and trial, project and people management, marketing and sales. The synchronization of E-commerce and corporate strategy has created cogent value for this industry. This article reviews the application of E-commerce and discusses its significance in the pharmaceutical industry implying four major aspects as the covenants for the success of the pharmaceutical industry. The pharmaceutical sector appears to have the ideal characteristics for using electronic business tools that support B2B relations (business to business) for buyers as well as sellers. Firstly, many of the products that it sells lend themselves to a simple description and exhibit a high degree of standardization. Furthermore, the specific challenges faced by the pharmaceutical sector, such as managing product recalls, is encouraging collaboration along the whole value chain. These factors increase the use of commercial and communication platforms in the sector. Finally, the global nature of the pharmaceutical sector means that companies have to sell or manufacture in diverse international markets. 7. Distribution Related Key Success Factors a) Strong Network of wholesale distributors

Distribution affects a companys cost and customer satisfaction and drives a firms profitability. This article reports a marketing initiative at GlaxoSmithKline (GSK) to redesign its distribution network. In the United States, GSK ships its products to more than 25,000 retail stores, handling more than 80,000 customer orders and 20 million cases of products. Using a nonlinear mixed-integer programming model, the authors develop a distribution network with a dual emphasis on minimizing the total distribution costs and improving the customer service levels. Specifically, they address the following issues: (1) determining the optimal number of regional distribution centers that the firm should operate with, (2) identifying where in the United States the firm should locate these distribution centers, (3) allocating each retailer/customer distribution center to an appropriate regional distribution centers, and (4) determining the total transportation costs and service level for each case. GlaxoSmithKline plc utilizes multiple avenues of distribution for its line of pharmaceutical and healthcare products, including wholesaler distribution networks as well as retail businesses and chain pharmacies. The company has been developing strategic collaborative drug development agreements and alliances with pharmaceutical companies and academic organizations like Theravance, Inc.; Galapagos Genomics NV; Wellcome Trust and the Institute of Cancer Research; ChemoCentryx, Inc.; Human Genome Sciences, Inc.; Eurand, Inc.; and Genstruct, Inc. Specifically, GlaxoSmithKline has entered into a strategic alliance with NeuroSearch AB tat focuses on diseases of the Central Nervous System and the discovery and development of ion channel drug candidates. b) Strong Direct sale capability The direct sale capability of Gsk has been enhanced due to the presence of the Gsk direct shop. The one stop shop for your healthcare and pharmaceutical products. GSK Direct offers our customers a complete range of healthcare and pharmaceutical products from all of our different brands including Aquafresh, Biotne, Piriteze, NiQuitin and Corsodyl. Each one of our market leading brands offer products designed to alleviate common health issues with focus on common treatments such as cold and flu symptom relief, painkillers, weight loss assistance and smoking cessation aids. All of our products offer free delivery to UK customers, with next day delivery available on orders made before 1pm.

c) Ability to secure favorable display locations on retailer shelves: Different companies innovate new ways to display products in retail stores like Walmart and Target. This does not apply to Gsk because it has it does not manufacture products whose sales might be largely influenced by the shelf position. 8. Marketing related KSF: a) Breath of Product Line: Breadth of product line refers to the variety of different product items a store carries. GlaxoSmithKline's broad pharmaceutical product line includes antibiotic, antidepressant, gastrointestinal, dermatological, respiratory, cancer, cardiovascular and many other medications. b) Well Known and respected brand name: GSK employs over 90,000 people worldwide[20] including over 40,000 in sales and marketing. Its global headquarters are GSK House in Brentford, United Kingdom, with its United States headquarters based in Research Triangle Park (RTP) in North Carolina[21] and its consumer products division based in the Pittsburgh suburb of Moon Township, Pennsylvania. The research and development division has major headquarters in South East England, Philadelphia and Research Triangle Park (RTP) in North Carolina. The single largest market is in the United States (approximately 45% of revenue), although the company has a presence in almost 70 countries. In November 2009 GlaxoSmithKline formed a joint venture with Pfizer to create ViiV Healthcare. Viiv Healthcare received all of Pfizer and GlaxoSmithKline's HIV assets. [22] ViiV Healthcare is 85% owned by GlaxoSmithKline and 15% owned by Pfizer. c) Technical Assistance None needed for Gsk but if problem with drugs the support centre can be contacted and drugs would be replaced.

d) Customer guarantees and warrantees: GlaxoSmithKline does not guarantee or provide any explicit or implicit warranty of coverage, coding, or reimbursement. GSK cannot and does not guarantee that your personal information will never be disclosed in a manner inconsistent with this policy. We give no express or implied representation or warranty (whether statutory or otherwise) in respect of this website, its contents (including without limitation, as to their condition, quality, performance or fitness for purpose) and all such representations and warranties are excluded except to the extent that their exclusion is prohibited by law.

Scenario Planning Scenario 1: The producers

Scenario one tells the story of how the absence of new drugs continues to cause mounting cost pressures. Efficiencies are sought in marketing, manufacturing and research. Former employees return to the emerging markets of India and China which see a growing concentration of manufacturing and marketing expertise, increased patient demand and government support for research initiatives. Investors see the potential for making money on volume. Western pharmaceutical companies are challenged to deepen existing relationships with emerging country firms. Southern governments become more powerful and successfully insist on technology transfer arrangements and favorable interpretation of IPR agreements. All these changes result in more competition and increased accountability in the global pharmaceuticals market. The story ends with a section on the implications of the Scenario for institutional investors, pharmaceutical companies and governments: Implications of Scenario One: The Producers Scenario Possible Implications for Institutional Investors: 1. Investors accept that the traditional pharmaceutical industry will continue to underperform as investments during the transition phase but also increase their efforts to identify new opportunities and products. Non-traditional sources of innovation become a new target for investment. 2. All links in the investment chain (trustees, asset allocation advisers, fund managers and sell side analysts) place progressively greater emphasis on understanding the economics and logistics of commodity generic markets across different geographies and the ability of the pharmaceutical majors to partner effectively with emerging market producers. 3. Investors actively provide incentives to pharmaceutical executives to make a smooth transition by re-structuring remuneration packages to focus less on maintaining EPS growth per se but rather on R&D productivity and appropriate partnerships. Investors also engage proactively with company boards on CEO succession planning to ensure senior management is fit for purpose given this new environment.

4. Given that the Pharmaceutical Industry is reflective of wider economic and demographic changes, there is a change in the pattern of graduate hiring, with investors looking for graduates and former corporate managers with Chinese and Indian ethnic roots and linguistic skills.

Scenario 2: The Patients

Scenario Two tells the story of how the increase in disease propensity advances, but there are no commensurate drug breakthroughs. Individuals assume greater responsibility for their health. Health spending shifts away from drugs and towards diagnosis/prognosis and early treatment intervention. Pharmaceutical companies seek non-conventional sources of medicine, opportunities in emerging markets and revisit the existing library for novel indications. Investors signal a willingness to accept greater risks and benefits of therapies and successfully call for increased transparency in clinical trials and post marketing surveillance. The story ends with a section on the implications of the Scenario for institutional investors, pharmaceutical companies and governments. Implications of Scenario Two: The Patients Scenario Possible Implications for Institutional Investors: 1. Investors accept that the traditional industry will continue to under-perform as investments, but the increase in overall healthcare expenditure provides investors with new opportunities, e.g. diagnostics, bio-markers and new health promotion ventures. 2. Fund managers seek alternative investments such as emerging market pharmaceuticals and higher risk new product ideas from academia/biotech. 3. Fund managers develop new financial saving products that allow customers access to a pension/life assurance pot to pay for catastrophic healthcare. 4. Investors actively provide incentives to pharmaceutical executives

to make a smooth transition by re-structuring remuneration packages to focus less on maintaining EPS growth per se but rather on R&D productivity and appropriate

partnerships. Investors also engage proactively with company boards on CEO succession planning to ensure senior management is fit for purpose given this new environment. 5. Investors become increasingly alert to political risk associated with growing societal tensions about inequality of access and price this risk into their valuations.

Scenario 3: The Politics & Public Health

Scenario Three reveals how a global flu outbreak causes public outrage about the lack of investment into new antibiotics and vaccines. Governments assume a more active role in directing R&D priorities first for acute and then for chronic diseases. Over time elements of a Social Business Compact become clear, including government commitment to expand access; sophisticated purchasers who negotiate price on value-for-money calculations; higher rewards for innovation in exchange for more secure IPT agreements; patient agreement to a healthy living package as part of insurance and pension plans; pharmaceutical company agreement to less aggressive pricing in exchange for volumes and reward for true innovation. The story ends with a section on the implications of the Scenario for institutional investors, pharmaceutical companies and governments. Implications of Scenario Three: The Politics and Public Health Scenario Possible Implications for Institutional Investors: 1. Investors accept that the traditional industry will continue to under-perform, but build up weighting again as prospects for R&D agreements between industry and government become apparent. 2. Investors place greater emphasis on generic firms with FDA approved quality standards and necessary standing in lucrative OECD countries, and on those companies successfully playing the volume-price trade off. 3. Investors actively provide incentives to pharmaceutical executives to make a smooth transition by re-structuring remuneration packages to focus less on maintaining EPS growth per se but rather on R& D productivity and appropriate partnerships. Investors also engage proactively with company boards on CEO succession planning to ensure senior management is fit for purpose given this new environment.

4. Innovative financing mechanisms for new drug discovery offer new investment opportunities to first-movers. 5. Institutional investors encourage a drug- development friendly regulatory environment.

Scenario 1: False AlarmLow Probability, Low Impact American business has a short attention span, and there are sometimes fads and short-lived obsessions that quickly disappear. In the False Alarm scenario, the news cycle churns on and the media get tired of discussing something as arcane as clinical trial design and disclosure. Political interest, too, moves on when the election year is over. The whole thing goes away in a few months. In this scenario, the politicians have scored their victories and moved on to reform industries other than pharmaceuticals. The election year passes, and no political points are left to win. The news media find that the only details of the story left to debate are so specialized and complicated those only pharmaceutical company executives, physicians, and FDA regulators are willing to tune in. This scenario is unlikely, as aging Americans, Medicare budget battles, and rising drug costs keep pressure on all aspects of the pharmaceutical business. The public probably wont simply turn away at this point.

Scenario 2: Self-RegulationHigh Probability, Low Impact If no additional major events occur, and pharmaceutical companies step to the plate to increase their own disclosure, the government may allow the industry to police itself regarding its disclosure of information to the public. This is the low-government- intervention scenario, SelfRegulation. In this scenario, pharmaceutical companies all agree to post the results of completed Phase III trials that are material to understanding marketed drugs. Phase II and III trials of compounds not yet on the market will be conducted without any requirement for disclosure, though often the investment community will learn of these so as to understand the impacts of R&D and products in the pipeline on a companys future. Scenario 3: Government RegulationHigh Probability, High Impact The scenario with the greatest likelihood and impact for the industry is one of federal regulations mandating the disclosure of clinical trials. In this scenario, legal actions continue to pile up, along with continued pressure on the health-care industry in general. The voluntary database PhRMA (Pharmaceutical Research and Manufacturers of America) fails to become a useful tool because of a lack of voluntary participation. Public and government discontent continues to grow. To avoid further legal actions, drug companies agree to a government- run database disclosing data on all Phase III and IV trials, regardless of their results. There would be penalties for a lack of disclosure. Scenario 4: Total Disclosure Low Probability, High Impact (Wild Card) If there are more scandals involving drug safety or obfuscation of trial data, the public could become so distrustful of the pharmaceutical industry that government agencies might move to demand full registration of all research activities, from preclinical to Phase III and IV trials, irrespective of the market potential of the drugs. All participation would be mandatory. Other drug company activities would likely be monitored as well, including whatever the sales representatives tell prospective customers and how much doctors are paid to provide clinical information.

Strategic Group Maps:

High

G
Total Sales
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Low

Low

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High

Revenues

High

G R

Employees

Medium

Low

Low

Medium

High

Total Sales

High

R P G
Low Medium High

R&D

Medium

Low

Safety

High

P G R

Revenues

Medium

Low

Low

Medium

High

R&D

High

P G

Total Sales

Medium

Low

Low

Medium

High

Revenues

Evaluating how well the companys current strategy is working? Whether company is achieving stated financial and strategic objectives.

GSK sets out new strategic priorities - Grow a diversified global business GSK will seek to generate future sales growth through supplementing strength in the core small-molecule pharmaceuticals business, with new investments in fast growing areas such as vaccines and consumer healthcare and new growth areas such as biopharmaceuticals, said Witty. At the same time, we are actively seeking to unlock the geographic potential of our different businesses, particularly in emerging economies. - Deliver more products of value The core of GSK has been and will remain pharmaceutical R&D, said Witty. We have been relentless in our efforts to improve R&D productivity and this is why we had started to implement a new vision for our R&D organization which is science-led and focused on value creation. Following an extensive review, GSK focused around 8 research areas: Immune- Inflammation, Neuroscience, Metabolic Pathways, Oncology, Respiratory, Infectious Disease, Ophthalmology and Biopharmaceuticals. GSK also established new Drug Performance Units (DPU) within its Centers of Excellence for Drug Discovery (CEDD). These units, focus on a given biological pathway such as schizophrenia within the Neuroscience CEDD, and comprise between 5-80 scientists. - Simplify GSKs operating model

To meet the demands of our future environment and support GSKs first two strategic priorities, it is clear that we created a new operating model for GSK and simplify our organization, said Witty. Spanning the entire business, GSK commenced a series of activities to improve the efficiency of its operations, including further efforts to improve GSKs selling model and its manufacturing. A project had also started within the company to generate substantial working capital savings. Witty noted that the activities are in addition to GSKs ongoing restructuring program and said that these initiatives would not be to the detriment of sales growth. Go previous 10 years objectives and see whether achieved or not.

Financial Objectives: GSK confirms offer to acquire Human Genome Sciences for US$13.00 per share in cash - Transaction would deliver Human Genome Sciences shareholders immediate full value and certainty - Acquisition would give GSK full ownership of Benlysta, albiglutide and darapladib "The transaction is well aligned with our long-term strategy of delivering sustainable growth, simplifying GSK's business model, enhancing R&D returns and deploying our capital with discipline. GSK is uniquely positioned to realize the full value of Benlysta, albiglutide, darapladib and Human Genome Sciences other assets for the benefit of physicians, patients and shareholders. Through complete ownership, we can simplify and optimize R&D, commercial and manufacturing operations to advance these products most effectively and efficiently while securing the full potential long-term value of the assets. "We also expect to achieve at least $200 million in cost synergies to be fully realized by 2015 and expect the transaction to be earnings-accretive beginning in 2013. The transaction meets GSK's strict financial criteria for acquisitions. GSK has also assessed the potential returns of this acquisition relative to its long-term share buyback program. As part of this ongoing program, GSK continues to expect to repurchase 1-2 billion in shares in 2012." Whether the company is above average industry performer.

GlaxoSmithKline safety record falls below industry average. GlaxoSmithKline (GSK) has set a number of targets to improve its health and safety record, according to its 2007 Corporate Responsibility report. The move comes in the wake of 1,278 illness or injury incidents reported last year by the company, taking GSK's health and safety performance below the industry average. Many of the incidents were to do with chemical exposure, driving accidents and process safety, and the total included three separate incidents of employees losing fingertips while using machinery.

During annual inspections, auditors also identified nine separate occasions where there was a high probability of incidents with potentially serious consequences. This included inadequate control of flammable substances and risk of chemical exposure. Plans for improvement include making 80% of operations which involve the handling of chemical compounds 'respirator free' by 2010. This means that it will be safe for employees to handle hazardous chemicals without protective respiratory equipment. GlaxoSmithKline Pharmaceuticals Ltd, the Indian unit of Europes biggest drugmaker, said drug sales growth will lag behind the industry average this year after some suppliers ran out of vaccines and imported medicines. Sales may rise between 8% and 10%, compared with an average 14% to 16% growth forecast by rivals, Kal Sundaram, managing director of the Mumbai-based company, said in an interview on Monday. Glaxo India is struggling to match the growth of bigger rivals including Sun Pharmaceutical Industries Ltd and Cipla Ltd who sell copies of medicines made by other companies for both the Indian and overseas markets. The companys sales suffered in the first half as suppliers did not deliver all the products it needed. In the first six months of this year, as much as 4% of our growth was affected by a lack of stock, Sundaram said. Drug sales rose 9% last year to Rs 1260 crores ($273 million) Whether the firm sales are growing faster, slower or about the same pace.

UK drug maker GlaxoSmithKline says its sales have returned to growth during the three months to 30 September after a decline earlier in the year. The company said sales in Europe fell 1% because of the weak economy. GlaxoSmithKline Plc reported an underlying sales growth of 4% in 2011 and improved pharmaceutical productivity, as the effects of a multi-year restructuring programme and a new R&D strategy started to deliver results.

In a teleconference with journalists on 7 February, Andrew Witty, the chief executive, said the company is a different place to where it was three and one-half years ago with a business that is exposed to multiple sources of growth including the emerging markets, consumer healthcare and Japan.

GSK and Roche to overtake Pfizer by 2012 -- A report from URCH Publishing is predicting that Pfizer will lose its top-place market share (currently 6.2%) to GlaxoSmithKline, and will in fact slip to third, behind Roche. The rationale for the projection comes from the consideration of pipelines and patents, among other factors. [Source: FiercePharma] Whether companies are acquiring new customers and retaining old ones. Whether firms profit margins are increasing or decreasing and how well its profit margins are with its competitors.

Profit Margin measures overall efficiency of a company and shows its ability to withstand competition as well as defend against adverse conditions such as rising costs, falling prices, decline in sales or management distress. Profit margin tells investors how well the company executes on its overall pricing strategies as well as how effective the company in controlling its costs. Profit Margin = Net Income / Revenue x 100 = 18.44 %

In a nutshell, Profit Margin indicator shows the amount of money the company makes from total sales or revenue. It can provide a good insight into companies in the same sector, as well as help to identify trends of a company from year to year. Based on latest financial disclosure GlaxoSmithKline plc has Profit Margin of 18.44%. This is much higher than that of Healthcare sector, and significantly higher than that of Drug Manufacturers - Major industry, The Profit Margin for all stocks is over 1000% lower than the firm. Pfizer 11.6% Roche 14.8% Trends in firms return on investments and how they compare trends with competitors in the industry.

GSK management today announced the results from its first 3 year review of its "novel" Discovery Performance Units. DPUs were formed in 2008 as a means of focusing drug

discovery activities in some defined areas and were intended to bolster the pipeline, control costs, and increase ROI in R&D. GSK reports that's its R&D ROI rose from 11% to 12%, while their target remains at 14%. The overall R&D budget meanwhile is supposed to stay flat at $3.7 billon. More to the bottom line, GSK plans to file for approvals on 4 new drugs and vaccines in 2012, including Relovair for COPD, Promacta for hepatitis C, and trametinib for melanoma. Six other DPUs have late stage projects. Pfizer - 12.18 % Roche 10 %

Whether companies overall financial strength and credit are improving or on decline.

Whether companys can demonstrate continuous improvements in such internal performance measures: 1. Days of inventory 2. Employee productivity www.indeed .com/reviews 3. Unit cost 4. Defect rate 5. Misfiled orders 6. Delivery time. Firms image and reputation with the customers (customer feedback)

GlaxoSmithKline (GSK) is the most reputable company in the UK pharmaceutical sector, according to the latest UK RepTrak Pulse 2011 survey, published today by business consultancy, Reputation Institute. GSK ranked at 44 out of all the UK companies surveyed, with 72.16 points, ahead of its nearest reputational competitor, Shire, which gained 69.29 points, in 70thplace out of 191 UK companies. Between 70 and 79 points is considered a strong/robust reputation. As a whole, the sector fell by almost four points, or just over 5 per cent. GSK's reputation is very well known and respected in both the pharmaceutical and medical communities.

GlaxoSmithKline TOWS Analysis:

Strengths

Weaknesses 1. High Layoffs (Response to loss of revenues) 2. Vioxx - Product Liability ($750 million) 3. Highest R&D with historically increasing expenses 4. Low innovation in response to weak economy 5. High salary of skilled pharmaceutical representatives 6. Revenue drop at $347 million 7. Weak core portfolio (Overly dependent on joint venture) 8. Growth rate unstable (Hard to forecast future revenues) 9. Aggressive marketing open to scrutiny by government agencies

1. Brand Image and Awareness 2. GSK Lobbies for healthcare reforms 3. Highest Profit Margin in the industry 4. High volume of product approval by FDA 5. Diversified Product Portfolio 6. Knowledge of benefits and risks 7. Sophisticated Online Search Tool 8. IPhone application

9. Transparency 10.Expansion to developing countries in an attempt to provide access

10. High Institutional Ownership

Opportunities 1. Increasing elderly population worldwide.

S-O Strategies 1. Create product knowledge program geared towards older people who May not be a technology savvy as the average customer, also in different languages geared toward different cultures

W-O Strategies 1. Higher staff salary to encourage learning and effectiveness

2. Strategic Acquisition 3. Focusing on Research & Development for Chronic diseases vs. Acute diseases 4. Driving out competitors with lower prices 5. Potential drug revenues after a competitors patent expired. 6. Penetration of Vaccine and Biologics for emerging international markets (Gardasil) 7. Product Diversification through Acquisitions

(W1, W5, W10, O10)

(S1, S2, S6, S7, S9, S10, O1, O6, O9) 2. Utilize all acquired companies and their products to emerge in combined markets

2. Human Resource restructure geared towards higher morale and loyalty

(W10, O10)

(S5, S6, S7, S8, O2, O7, O10)

3. Make access problems known to public and set up convenient ways for people to donate

(S2, S3, S10, O1, O6)

8. Diversification into biologics, diabetes, oncology, and infectious market segments 9. Constant growth of pharmaceutical and Health Care Industry by 10% 10.Educate staff to promote loyalty through relationships from distribution channels

4. Utilize Combined capacity to stay ahead of competition and exceed industry growth of 10%

(S5, O2, O8, O10) 5. Utilize not only products and product knowledge/ Research to better both companies products. Combine research to make new products (S4, S5, O2, O3, O7, O10)

Threats 1. Risk of expensive class action law suits 2. Loss of patent protection 3. Tightening of FDA Regulatory Oversight 4. Increased global competition 5. Price of prescription drugs increase which is reducing Medicaid drug benefits 6. Failure to identify risks due to lack of time & study of long-term effects 7. Compete with smaller generic company along with other larger firms 8. Expensive Research & Development costs 9. Industry marked by rapid advances 10. Hard to forecast external factors

S-T Strategies 1. Focus research on stable Top sellers (Innovation) (S4, S9, T2, T7, T9, T10) 2. Human resource restructure geared at providing more programs for employees And a better sense of team and belonging

W-T Strategies 1. Form a layoff plan that will clearly show how employees to be layed off are Chosen (W1, W2, W5, W10, T1, T2) 2. Increased research on growing epidemics and new illnesses (W3, W6, W8, W9, T8, T9)

(W1, W5, O9, O10)

Space Matrix

The space Matrix gives us a clearer way to see which directions our strategy should be headed in based on where we are. It coincides with the above matrices and gives a sense of guidance. Financial Strength (FS)
Score

Environmental Stability

Score

Return on Investment 7,808,400/47,195,700 = 16.54 *Highest Profit Margin Quick Ratio

Technological Changes

-5

Price Elasticity

-4

EPS

Competition

-5

Sales Growth

Barriers to Enter

-1

Average

3.5

Average

-4

Competitive Advantage

Score

Industry Strength

Score

Market Share

-2

Growth Potential

Product Quality

-1

Profit Potential

Brand Awareness

-2

R&D costs vs. Risk

Information

-2

Patent protection

Average

-1.75

Average

X-Axis = -1.75 + 3 = 1.25

Y-Axis = 3.5 + (-4) = -0.5

Coordinate: (1.25, -0.5)

Strategies to follow as GSK fall in Competitive quadrant: Market Development

GlaxoSmithKline (NYSE: GSK) is racing for territory in emerging markets. The pharma giant is aiming to stake its claim in as many markets with as many products as it can--before its rivals do. "There's absolutely a land grab going on right now because obviously there's no growth in the U.S. and Europe, or very little growth," GSK's emerging markets chief Abbas Hussain, tells Bloomberg. "There's a real fight on for market share." Hussain tells the news service that GSK wants to outpace the industry average of 12 percent to 14 percent growth in developing country sales. The company has been working hard toward that goal; Hussain has been adding to his 13,000-strong sales force in emerging markets, while the company buys smaller firms--or makes deals with them--to get more share.

One of GSK's strategies for growth in the developing world is discounted prices. In some markets, prices are dropping by 70 percent. And the price cuts are boosting volume as they're designed to do, Hussain says: In some countries, volumes have grown as much as ninefold. As an instance, he tells Bloomberg about introducing the Avamys allergy treatment in Mexico at a 50 percent discount.

Product Development
"The old mindset at GSK would have been: Come in and launch it and have access only to the top 5 or 10 percent, the top people who can afford it," he explains. Instead, it now has won 50 percent of patients with that low low price. The question, analysts say, is whether the low-price strategy can be sustained. And whether GSK can indeed claim a big enough share of emerging markets where it's behind, such as China and Russia. "The next eight quarters will define who really is positioned in terms of the land grab that's going on," Hussain says. This page provides an outline of our drug development portfolio. The content of the drug development portfolio will change over time as new compounds progress from discovery to development and from development to the market. Owing to the nature of the drug development process, many of these compounds, especially those in early stages of investigation, may be terminated as they progress through development. For competitive reasons, new projects in pre-clinical development have not been disclosed and some project types may not have been identified.

Backward Integration:
For innovators, the imperative is clearly to reassess their traditional backward integration in full-scale bulk synthesis. This is reflected by the drive among them to divest a number of synthesis units - witness the examples of GSK or Pfizer, while companies such as Solvay Pharma appear to be moving toward a "virtual" bulk access model. In such a set-up, most - if not all -their bulk production network is either closed or divested, chemical requirements being instead sourced on the merchant market from thirdparty vendors.

On July 21, 2008, the British pharmaceutical company GSK Holding announced its intention to purchase the stock of the US biotech firm Genentech that it does not already own. GSK currently owns 56% of Genentech, which has a market value of about $100 billion. GSK is offering $44 billion for the remaining 44%. (Wall Street Journal, 7.21.08.) If the transaction is approved, it would end the independent existence of what is considered to have been the first biotechnology company that has since grown to become the most successful. Amgen has higher annual sales, but Genentechs market capitalization is higher.

The CEO of GSK (who assumed his position in March 2008) explained the reason for the proposed acquisition this way, We will be better able to share technologies and expertise in pharmaceuticals and diagnostics across the group and broaden the mutual access to the external innovation networks of both companies. The transaction will also unlock synergies by leveraging the scale of the combined operations in the US and improving operational efficiency.

Forward Integration
"The right pharma collaborators - and GSK is clearly one of the best can contribute exquisitely to our strategy of forward integrating to clinical validation and managing the risks and returns of drug discovery and development," said Les Browne, Ph.D., President and Chief Executive Officer of Pharmacopeia. "This new alliance with GSK's CEEDD, which is unlike anything we have done previously, is structured to leverage the existing capabilities at Pharmacopeia for discovery as well as evolving our development capabilities. Importantly, commensurate with our taking compounds further along in the development pipeline, the economics of the alliance reward us appropriately for success."

Joint Ventures 1. GSK and Daiichi 2. GSK and Pfizer

Quantitative Strategic Planning Matrix

The QSPM is designed to determine how feasible and attractive possible strategies are and to weight them against each other. It Co-insides with Internal and External Analysis as well as the SWOT Matrix.
Strategic Alternatives 1 Utilize all aspects of strategic Acquisitions for For maximum expansion and diversification Key External Factors Opportunities 1. Increasing elderly population worldwide. 2. Strategic Acquisition 3. Focusing on Research & Development for Chronic diseases vs. Acute diseases 4. Driving out competitors with lower prices 5. Potential drug revenues after a competitors patent expired. 6. Penetration of Vaccine and Biologics for emerging international markets (Gardasil) 7. Product Diversification through Acquisitions 8. Diversification into biologics, diabetes, oncology, and infectious market segments 9. Constant growth of pharmaceutical and Health Care Industry by 10% 10.Educate staff to promote loyalty through relationships from distribution channels Threats 1. Risk of expensive class action law suits 2. Loss of patent protection 3. Tightening of FDA Regulatory Oversight 4. Increased global competition 5. Price of prescription drugs increase which is reducing Medicaid drug benefits 6. Failure to identify risks due to lack of time & study of longterm effects 7. Compete with smaller generic company along with other larger firms 8. Expensive Research & Development costs 9. Industry marked by rapid advances 10. Hard to forecast external factors Total Strengths 1. Brand Image and Awareness 2. GSK Lobbies for healthcare reforms 3. Highest Profit Margin in the industry 4. High volume of product approval by FDA 5. Diversified Product Portfolio 6. Knowledge of benefits and risks 7. Sophisticated Online Search Tool (GSKsource.com) 8. IPhone application 9. Transparency Weight 0.03 0.09 0.07 0.03 0.03 0.04 0.07 0.06 0.08 0.07 AS 2 4 4 0 2 4 4 4 2 0 TAS 0.06 0.36 0.28 0 0.06 0.16 0.28 0.24 0.16 0 2 Better employee programs to heighten perceived Value of salary, benefits, and self-recognition AS 0 2 3 0 0 2 2 2 3 4 TAS 0 0.18 0.21 0 0 0.08 0.14 0.12 0.24 0.28

0.06 0.08 0.04 0.02 0.03 0.02 0.03 0.04 0.03 0.08 1

0 1 2 3 0 0 3 3 3 0

0 0.08 0.08 0.06 0 0 0.09 0.12 0.09 0 0

4 0 0 2 0 0 2 1 3 2

0.24 0 0 0.04 0 0 0.06 0.04 0.09 0.16 0

0.05 0.05 0.08 0.07 0.07 0.06 0.04 0.05 0.03

3 0 0 4 4 3 0 0 1

0.15 0 0 0.28 0.28 0.18 0 0 0.03

2 1 3 1 1 3 0 0 2

0.1 0.05 0.24 0.07 0.07 0.18 0 0 0.06

10. Expansion to developing countries (Access) Weaknesses 1. High Layoffs (Response to loss of revenues) 2. Vioxx - Product Liability ($750 million) 3. Highest R&D with historically increasing expenses 4. Low innovation in response to weak economy 5. High salary of skilled pharmaceutical representatives 6. Revenue drop at $347 million 7. Weak core portfolio (Overly dependent on joint venture) 8. Growth rate unstable (Hard to forecast future revenues) 9. Aggressive marketing open to scrutiny by government agencies 10. High institutional Ownership (IO) TOTAL

0.07

0.03 0.08 0.07 0.06 0.03 0.02 0.02 0.07 0.02 0.03 1

0 0 3 3 0 3 3 1 0 0

0 0 0.21 0.18 0 0.06 0.06 0.07 0 0 3.62

4 1 3 0 4 1 0 0 0 0

0.12 0.08 0.21 0 0.12 0.02 0 0 0 0 3.2

Strategic Alternatives 3
Increased research on growing epidemics and new illnesses

4
Human Resource restructure geared towards higher morale and loyalty

Key External Factors Opportunities 1. Increasing elderly population worldwide. 2. Strategic Acquisition 3. Focusing on Research & Development for Chronic diseases vs. Acute diseases 4. Driving out competitors with lower prices 5. Potential drug revenues after a competitors patent expired. 6. Penetration of Vaccine and Biologics for emerging international markets (Gardasil) 7. Product Diversification through Acquisitions 8. Diversification into biologics, diabetes, oncology, and infectious market segments 9. Constant growth of pharmaceutical and Health Care Industry by 10% 10.Educate staff to promote loyalty through relationships from distribution channels Threats 1. Risk of expensive class action law suits 2. Loss of patent protection 3. Tightening of FDA Regulatory Oversight 4. Increased global competition 5. Price of prescription drugs increase which is reducing Medicaid drug benefits 6. Failure to identify risks due to lack of time & study of longterm effects 7. Compete with smaller generic company along with other

Weight 0.03 0.09 0.07 0.03 0.03 0.04 0.07 0.06 0.08 0.07

AS 2 4 4 0 2 4 4 4 2 0

TAS 0.06 0.36 0.28 0 0.06 0.16 0.28 0.24 0.16 0

AS 0 2 3 0 0 2 2 2 3 4

TAS 0 0.18 0.21 0 0 0.08 0.14 0.12 0.24 0.28

0.06 0.08 0.04 0.02 0.03 0.02 0.03

0 1 2 3 0 0 3

0 0.08 0.08 0.06 0 0 0.09

4 0 0 2 0 0 2

0.24 0 0 0.04 0 0 0.06

larger firms 8. Expensive Research & Development costs 9. Industry marked by rapid advances 10. Hard to forecast external factors Total Strengths 1. Brand Image and Awareness 2. GSK Lobbies for healthcare reforms 3. Highest Profit Margin in the industry 4. High volume of product approval by FDA 5. Diversified Product Portfolio 6. Knowledge of benefits and risks 7. Sophisticated Online Search Tool (GSKsource.com) 8. IPhone application 9. Transparency 10. Expansion to developing countries (Access) Weaknesses 1. High Layoffs (Response to loss of revenues) 2. Vioxx - Product Liability ($750 million) 3. Highest R&D with historically increasing expenses 4. Low innovation in response to weak economy 5. High salary of skilled pharmaceutical representatives 6. Revenue drop at $347 million 7. Weak core portfolio (Overly dependent on joint venture) 8. Growth rate unstable (Hard to forecast future revenues) 9. Aggressive marketing open to scrutiny by government agencies 10. High institutional Ownership (IO) TOTAL 0.04 0.03 0.08 1 3 3 0 0.12 0.09 0 0 1 3 2 0.04 0.09 0.16 0

0.05 0.05 0.08 0.07 0.07 0.06 0.04 0.05 0.03 0.07

3 0 0 4 4 3 0 0 1 1

0.15 0 0 0.28 0.28 0.18 0 0 0.03 0.07

2 1 3 1 1 3 0 0 2 0

0.1 0.05 0.24 0.07 0.07 0.18 0 0 0.06 0

0.03 0.08 0.07 0.06 0.03 0.02 0.02 0.07 0.02 0.03 1

0 0 3 3 4 3 3 4 0 0

0 0 0.21 0.18 0.12 0.06 0.06 0.28 0 0 4.02

4 1 4 0 4 1 0 0 0 0

0.12 0.08 0.28 0 0.12 0.02 0 0 0 0 3.27

Strategic Alternatives 5
Higher staff salary to encourage learning and effectiveness

Key External Factors Opportunities 1. Increasing elderly population worldwide. 2. Strategic Acquisition 3. Focusing on Research & Development for Chronic diseases vs. Acute diseases 4. Driving out competitors with lower prices 5. Potential drug revenues after a competitors patent expired. 6. Penetration of Vaccine and Biologics for emerging international markets (Gardasil) 7. Product Diversification through Acquisitions

Weight 0.03 0.09 0.07 0.03 0.03 0.04 0.07

AS 2 4 4 0 2 4 4

TAS 0.06 0.36 0.28 0 0.06 0.16 0.28

8. Diversification into biologics, diabetes, oncology, and infectious market segments 9. Constant growth of pharmaceutical and Health Care Industry by 10% 10.Educate staff to promote loyalty through relationships from distribution channels Threats 1. Risk of expensive class action law suits 2. Loss of patent protection 3. Tightening of FDA Regulatory Oversight 4. Increased global competition 5. Price of prescription drugs increase which is reducing Medicaid drug benefits 6. Failure to identify risks due to lack of time & study of longterm effects 7. Compete with smaller generic company along with other larger firms 8. Expensive Research & Development costs 9. Industry marked by rapid advances 10. Hard to forecast external factors Total Strengths 1. Brand Image and Awareness 2. GSK Lobbies for healthcare reforms 3. Highest Profit Margin in the industry 4. High volume of product approval by FDA 5. Diversified Product Portfolio 6. Knowledge of benefits and risks 7. Sophisticated Online Search Tool (GSKsource.com) 8. IPhone application 9. Transparency 10. Expansion to developing countries (Access)

0.06 0.08 0.07

4 2 0

0.24 0.16 0

0.06 0.08 0.04 0.02 0.03 0.02 0.03 0.04 0.03 0.08 1

0 1 2 3 0 0 3 3 3 0

0 0.08 0.08 0.06 0 0 0.09 0.12 0.09 0 0

0.05 0.05 0.08 0.07 0.07 0.06 0.04 0.05 0.03 0.07

3 0 1 4 4 3 0 0 1 0

0.15 0 0.08 0.28 0.28 0.18 0 0 0.03 0

Weaknesses 1. High Layoffs (Response to loss of revenues) 2. Vioxx - Product Liability ($750 million) 3. Highest R&D with historically increasing expenses 4. Low innovation in response to weak economy 5. High salary of skilled pharmaceutical representatives 6. Revenue drop at $347 million 7. Weak core portfolio (Overly dependent on joint venture) 8. Growth rate unstable (Hard to forecast future revenues) 9. Aggressive marketing open to scrutiny by government agencies 10. High institutional Ownership (IO) TOTAL

0.03 0.08 0.07 0.06 0.03 0.02 0.02 0.07 0.02 0.03 1

0 0 3 3 0 3 3 1 0 0

0 0 0.21 0.18 0 0.06 0.06 0.07 0 0 3.70

Explanation for Weightages:

Recommendations

3 year strategic plan

Year 1
Ensure that we have marketing collateral which include knowledge based information geared towards our non-speaking English customers by translating the information in different languages or cultures. Provide easy to understand technology access towards non savvy customers. Implement the benchmarking procedures by integrating ideas and resources from both companies, GSK in order to utilize the different products for different market segments such as consumer health care, human health, animal health and manufacturing. Focus on researching top product sellers to keep up with product innovation in the health care industry. Stay ahead of the competition by finding replacements for products that face expiration of patents. Layoff Plan: Explain to employees 6 months in advance that they will be terminated which enable them to find a replacement job. To prevent employees from discrimination lawsuits, ensure that GSK hire the best law firm to protect their interest by explaining why they are chosen to be laid off.

Year 2
Focus on developing vaccines and increase research by working with medical experts on growing epidemics and illnesses. Focus on building employee morale by providing them training programs to acquire new skills and qualities. Provide a great working environment by encouraging employees to thrive by learning and providing leadership, management and communication skills. Eliminate cannibalizing of similar product categories. Plan for an effective and reliable inventory system Expand into newly develop countries and create partnerships in Europe.

Year 3
Use resources of its own laboratories to research new medical findings. Acquire smaller generic drug companies to stop them from competing with GSK product line. Prevent lawsuits by eliminating defected products from the market as soon as possible. Provide sophisticated online tools to educate customers which will increase market share and brand awareness. Reduced operating costs by carefully outsourcing labor or manufacturing goods in Asia Work with marketing department to enable consumers and employees to participate in the social responsibility programs by allowing the public to learn more about the causes and

allowing the public to donate.

BCG Matrix:

Johnson & Johnson has reached a critical point in its product portfolio which should see the company convert from cash cow (high market share; low market growth) to star (high market share; high market growth) status by 2010. This is reflected in J&J having not less than 6 late stage drugs that will either unveil phase III data or be filed with the FDA within 2008 culminating in strong impact on its P&L account by 2010. Likewise the other cash cow Pfizer, boasts of at least 17 disclosed products under late phase development, with launches in the post-2010 period, thus are likely to buoy double digit sales growth beyond Lipitor patent expiry.

GlaxoSmithKline on the other hand, has a product portfolio with a significant cash flow position this in turn has spurred on a meaningful gearing by GSK management. This puts the company

firmly in a star performing position for 2008-2011. With asset consolidation of $23.5bn USD over three years post-2009, the company is likely to attain double-digit earnings growth out to 2011 with mid digit growth in 2012 impacted by generic competition. In the same star category is Novartis with top-line growth driven by a combination of solid cash generating franchises (Diovan, Gleevec) revealing steady growth and an extensive and rich research pipeline with potential to generate as many as 4-6 new filings per year 2008-2011. Sanofi-Aventis strong 2008 second quarter performance qualifies the company as a star company however this status is likely to come under threat; key impacts are from the risk of generic Plavix during 2008-2011 and high investment phase III projects lacking in validated data with pivotal results for Acomplia for example awaiting on CRESCENDO study results not scheduled for release until 2010, thus potentially sliding the company into question mark (low market share; high market growth) status.

GSK BCG Matrix:

Ansoff Matrix The Ansoff matrix presents the products and markets available to an organization (markets are customers and products to be sold to those customers) Ansoff matrix suggests that a business attempts to grow depend on whether it markets new or existing products in new or existing markets. The Ansoff matrix entails four possible product/market combinations: market penetration, product development, market development and diversification. The four strategies entailed in the matrix are elaborated below:

In his first interview as CEO, GlaxoSmithKline's Andrew Witty told the Financial Times he intends to "diversify and derisk" the company. More emphasis on vaccines, non-prescription meds, and consumer health products; less reliance on the pipeline of branded products to come. Rather than divesting GSK's consumer health group--as some had suggested--Witty would expand the company's horizons. "I see absolutely no reason why we would not be in other proximate businesses," he told the FT.

So, Witty has told his team that he wants "ambitious increases" in sales growth for vaccines and consumer health. And he's asking for big targets in emerging markets including Brazil, Russia, India and China--which sounds like a different story, but Witty says it isn't. He believes that brand-building in emerging markets, whether to sell patented meds or generics or consumer health products, ends up benefiting the company across the board. But don't read this emphasis on diversity to mean that GSK will take its eye off branded drugs, Witty emphasizes. He's still bent on getting as many late-stage meds to market as possible within the next 12 months. GlaxoSmithKline (NYSE: GSK) is racing for territory in emerging markets. The pharma giant is aiming to stake its claim in as many markets with as many products as it can--before its rivals do. "There's absolutely a land grab going on right now because obviously there's no growth in the U.S. and Europe, or very little growth," GSK's emerging markets chief Abbas Hussain, tells Bloomberg. "There's a real fight on for market share." Hussain tells the news service that GSK wants to outpace the industry average of 12 percent to 14 percent growth in developing country sales. The company has been working hard toward that goal; Hussain has been adding to his 13,000-strong sales force in emerging markets, while the company buys smaller firms--or makes deals with them--to get more share. One of GSK's strategies for growth in the developing world is discounted prices. In some markets, prices are dropping by 70 percent. And the price cuts are boosting volume as they're designed to do, Hussain says: In some countries, volumes have grown as much as ninefold. As an instance, he tells Bloomberg about introducing the Avamys allergy treatment in Mexico at a 50 percent discount. "The old mindset at GSK would have been: Come in and launch it and have access only to the top 5 or 10 percent, the top people who can afford it," he explains. Instead, it now has won 50 percent of patients with that low low price. The question, analysts say, is whether the low-price strategy can be sustained. And whether GSK can indeed claim a big enough share of emerging

markets where it's behind, such as China and Russia. "The next eight quarters will define who really is positioned in terms of the land grab that's going on," Hussain says. This page provides an outline of our drug development portfolio. The content of the drug development portfolio will change over time as new compounds progress from discovery to development and from development to the market. Owing to the nature of the drug development process, many of these compounds, especially those in early stages of investigation, may be terminated as they progress through development. For competitive reasons, new projects in pre-clinical development have not been disclosed and some project types may not have been identified.

Industry Value Chain

Existing Value Chain Model The current pharmaceutical value chain model is demonstrated in Figure 8. The pharmaceutical value chain is described as a full range of activities which are required to bring a product or service from conception, through the different phases of production, delivery to final consumers, and final disposal after use. Moreover, the healthcare value chain as a chain of activities including patient presence, diagnosis, scrip, dispense, treatment, and assessment has some linkages with pharmaceutical value chain at some points. Accordingly, healthcare value chain analysis is a critical part in developing future pharmaceutical value chains. The industrial key actors have been categorised into three main groups of pharmaceutical key supply chain actors, sector institutional players including research, industry development and specialist firms and healthcare main supply chain actors. For respiratory products, components manufacturers come into play as raw material suppliers. Furthermore, due to sophisticated delivery platforms of respiratory products and the low

proportion of API costs, there is no third party involved in manufacturing. However, for HIV products, there are many Indian third parties involved in API manufacture. The distribution model of both case studies currently have moved away from direct to wholesalers model to direct to pharmacies. Therefore, the wholesalers are considered as logistics service providers as the stock in the wholesalers warehouses is owned by the manufacturer and they charge the manufacturers for the offered services. The institutional actors include research, industry development and specialist firms. Pharmaceutical companies which primarily work on basic research and development of biotechnology and pharma co genomic products and technologies of new delivery systems are called specialist in this context. The next key pharmaceutical value chain player is government playing three different roles of policy maker, regulator and payer. The key actors of the healthcare value chain are primary and secondary healthcare providers. However, the patients are considered as the end users of the pharmaceutical and healthcare value chains products and services who constitute the markets in terms of different levels of the pyramid. Furthermore, the treatment process of the existing respiratory products is drug therapy. There is no clinic therapy yet. However, there are some efforts for developing some biopharmaceutical products with the injection delivery system for the severe asthma treatment. GSK Value Chain:

Figure 9 demonstrates the GSK value chain model developed for the first scenario. Scenario I describes an environment in which technologically advanced (genomics and diagnostics, biopharmaceuticals, nanotechnology and ICT) and highly personalized medicine supported by adequate funding make pharmaceutical companies a branded service offering of personalized medicine and treatment. In fact, pharmaceutical companies could act as healthcare service providers that might provide information, diagnostics, and treatment and after care treatment in a complete package. However, the impact might vary in two selected therapy areas. This is where that the linkages between the service part of the pharmaceutical value chain and healthcare value chain is strengthened. As the pharmaceutical companies would offer additional or specialist services to healthcare providers, they need to be specialised in a disease area which result in a multi-tier approach to healthcare from the specialist down to self-care. Accordingly, the pharmaceutical companies will not only have to choose which disease areas they compete in but the tier within that area that

they wish to compete in as several tiers of service may emerge; The customers of the top tier demand highly advanced services, the next tier customers want good levels of treatment. However, this tier is not prepared to pay as much as the top tier. Finally, the last tier describes the customers demanding low cost solutions. Furthermore, in this model, the physicians role would be upgraded to specialist diagnostic tools prescriber offering rational diagnosis as a significant portion of primary care has moved from primary healthcare providers to self-care. Additionally, the role of clinics would be more highlighted due to the strong interest in stem cell therapy area from some big pharmaceutical companies. Moreover, the extensive use of biopharmaceuticals both in respiratory and HIV would lead to new delivery platforms like injection highlighting the role of clinics. In fact, the clinics play the role of an interface between the manufacturing companies and the end users as the role of pharmacies as a distribution channel would be blurred. Moreover, in order to make things work in this scenario, more connected and integrated systems are needed. Therefore, some IT specialists would be added to the chain. There would be an extensive use of ICT to integrate the whole system. A fundamental requirement for this scenario is excellent information management and decision making capabilities. As pharmaceutical companies transform to the integrators and service providers in this scenario, industry would be consolidated further and these companies need to have strong partnerships and acquisition settings to meet the requirement of the industry. However, the situation is not perceived in entire world. Moreover, in this scenario, the role of manufacturing is more providing some products with the specific features that are able to be integrated with the other products of the chain. Benchmarking As GSK continue to evolve towards integrating and restructuring of Schering-Plough to its main headquarters, it is important that both companies share ideas and their cultures in order to improve their line of business. This can be done by benchmarking in which GSK can compare its core business processes and performance metrics with best practices from other industries. Here are the steps to create a benchmarking methodology for GSK.

1. Identify the problem areas: Using focus groups, informal conversations with employees and customers, or vendors by using marketing research, surveys or questionnaires 2. Identify organizations that are leaders in the industry: Sometimes it is good to copy the wheel and improve on it instead of just reinventing the wheels. Seek out other competitors like Pfizer to analyze what they are doing in order to improve the business process. 3. Identify other similar industries with similar business process: Since the new acquisition with GSK will be a complementary business to one another, it is highly recommended that managers from the two different companies discuss how to improve their working efficiency by working together. 4. Implement new and improved business practice: Engage with employees and customers from GSK in order to find the best business practice that supports the core vision and culture of its workforce. Tata Consultancy Services G.G King

Bowman Strategic Clock

Position 1: Low Price/Low Value

GSK do not usually choose to compete in this category. This is the "bargain basement" bin and not a lot of companies want to be in this position especially the pharmaceutical companies. Rather it's a position they find themselves forced to compete in because their product lacks differentiated value.

Position 2: Low Price

GSK today announced that it has made a new offer to supply its rotavirus vaccine, RotarixTM, to the GAVI Alliance at $2.50 per dose, a small fraction of developed world prices. This announcement is part of the companys efforts to increase access to its medicines and vaccines in the worlds poorest countries.

 Position 3: Hybrid (moderate price/moderate differentiation)

GSK offer products at a low cost, but offer products with a higher perceived value than those of other low cost competitors. In order to compete in this category GSK has undergone various joint ventures such as the one with Pfizer to offer customers a differentiated product which was HIV vaccines at a moderate price so that low income group customers can also have access to the vaccine.

o Position 4: Differentiation
The CEEDD is a small dedicated team of business and scientific experts within R&D with a mission to bring differentiated medicines of value to patients. We seek out and collaborate with companies performing highly innovative and transformative world class science.

Position 5: Focused Differentiation

GSK has experienced a shift towards focus differentiation lately. A focus differentiation seeks to provide high perceived product benefits justifying a substantial premium price, usually to a selected market segment (Johnson et al., 2008). A typical example is the production of Avandia recommended only for diabetic patients and HIV drugs for African countries (Business Wire, 2009). Thus, GSK pursues a differentiation strategy with some attributes of focus differentiation.

Position 6: Increased Price/Standard Product Position 7: High Price/Low Value

GSK doesnt compete in this category as GlaxoSmithKline (GSK) has announced today that it will reduce the prices of essential drugs by as much as 50 percent as part of its strategy to improve patient access to medicine.

Position8: Low Value/Standardized price