This paper elaborates that the case of GlaxoSmithKline's (GSK's) novel strategy and new business model from 2008 under Andrew Witty as chief executive officer will enable GSK to "navigate the coming years successfully"(GSK, 2008) by improving their financial performance with less risk, and keeping their forward position as a pharmaceutical corporation worldwide able to achieve stakeholder credibility by meeting customers' (patients') and healthcare providers' expectations and needs into the future in the first part.(GSK, 2008) And the next part presents evidence mainly drawn from GSK's annual reports involving necessary financial information to evaluate its success based on the new strategy, by using SWOT analysis and ROCE analysis.
GlaxoSmithKlineTrying to Be Different
Along with the incremental demand of new drugs and health products from the whole world market, and also grievous problems in patent expiries, huge cost in Research and Development (R&D) and commercial marketing, and increased pressures from regulatory authority and healthcare providers, "the pharmaceutical industry is experiencing a time of unprecedented challenge". (GSK, 2008) The competition among the pharmaceutical industry is fiercer and stiffer than ever before. Specifically, it will never be easier for the so-called "good pharma" GSK to face with such arduous tasks, though it owns the dominant position in the global pharmaceutical industry with a market share of 5.6 per cent in the world pharmaceutical market, and 9 per cent in U.K, in 2007, respectively. Hence, the CEO, Andrew Witty, attempted to transform GSK, which is facing with the severe problem in lower growth and higher risk, into a diverse, growth-oriented and R&D focused pharmaceutical company with totally bran-new business model, setting out three new key strategic priorities, namely "grow a diversified global business; deliver more products of value, and simplify the operating model" to achieve the goal in GSK, "helping people do more, feel better and live longer." (GSK, 2008) Undoubtedly, those three key strategic priorities are presented in every part of the company, and permeate the whole GSK, aiming to improve GSK's long-term and sustainable financial performance and meeting their key stakeholders' expectations. Thus what actions is GSK taking to balance its business profile and Fchange its operating model from the past? (Research and Market, 2008)
To begin with, the CEO and managers looked to the three strategic priorities for GSK's competitive positioning. The market research in 2008 indicated that GSK's core target market remained in "the small molecule pharmaceutical sectors of larger markets such as the USA, UK, France, Germany, Italy and Spain" (Annual Report 2008) in the pharmaceutical business, expecting to drive growth by strengthening the core pharmaceuticals business; supplement and diversify the marcket into new and growth product areas with increased R&D investment in vaccines, biopharmaceuticals, and consumer healthcare through a portfolio of powerful brands such as over-the-counter (OTC) medicines; and also exploit the fast-growing emerging markets in Asia. (GSK, 2008) Additionally, what the report described as the "hard factors" of product, price, cost, risk, time, market and location had become their top considerations in the strategic planning. In contrast, "soft factors" relating to intellectual property rights (IPR), management (flexibility), technology (validity), image and people (employees, suppliers and customers) served as the basis for differentiation, specifically, "building a Least Developed Country (LDC) 'patent pool', recognizing that we achieve more in partnerships than we do alone, looking at how we can move from being a supplier of medicines to being a partner in delivering solutions", "exploring a more flexible approach to IPR to incentivize much needed research into medicines for 16 neglected tropical diseases where there is a severe lack of research", and "being more flexible on pricing, aiming to research new products and make them more available and affordable in the developing world". (GSK, 2008)
The CEO felt that the "genuine interest" component of GSK's values dictated a shift from a traditional blockbuster focused pharmaceutical manufacturer to a more ethical company aiming to deliver more products of value to people through the world, by improving productivity in R&D which areas people need better care in, such as the creation of an Oncology R&D unit, "ensuring patients have access to medicines, even in the poorest parts of the world", acting a role as "being human".
Finally, the way they were delivered changed. This required significant change in the old pharmaceutical business model, especially in the internal working environment and management system, as well as the redesign of the pipeline, simplifying their operating model, "changing the way we work, removing unnecessary processes and structures which slow us down and distract us from our mission." (GSK, 2008)
Our business performance and development are driven by three strategic priorities which are supported by our corporate responsibility activities.
Running our business in a responsible way is fundamental to our success and inseparable from our strategic priorities.
We want to work in way that reflects our values, seeks to understand and respond to stakeholder views and connects our business decisions to ethical, social and environmental concerns. In this way we aim to minimize the negative impacts and maximize the positive benefits of our business.
Only by clearly demonstrating our commitment to building a transparent and fact based relationship with our stakeholders will we continue to be able to help patients do more, feel better and live longer.
They are reducing risk by broadening and balancing their portfolio, for example there is an option that is a Least Developed Country (LDC) 'patent pool' in to which they would put their relevant small molecule compounds, process patents or other knowledge, and which would allow others access to develop and produce new products.(GSK, 2008) This new flexible approach will make GSK more efficient and less risky in researching and developing new products in the future, because under the old pharmaceutical business model, for instance, the net result in 2004 was that the management at Glaxo Wellcome and then at GSK had suffered a loss of credibility, while the market appreciated GSK's management focus on cost-cutting and margin-improvement which delivers the numbers in the short run, as Morgan Stanley acclaimed GSK's solid Quintile 1 2004 results which, despite 'lighter' than anticipated sales, managed better than expected profits due to reduced R&D and sales, general and administration costs (Morgan Stanley 2004b: 1). But as Morgan Stanley recognize, this is not a recipe for longer term growth (Froud et al, 2006). Thus, GSK has been changed into the long-term strategy, investment in R&D into new medicines and vaccines in 2008 being the core of their business. In 2008, they spent 3.7 billion on R&D, and over 80 per cent of this expenditure was in pharmaceutical R&D with the remainder in vaccine and consumer healthcare R&D. (GSK, 2008) Also, they renewed their support for the University of Dundee's Division of Signal Transduction Therapy (DSTT), in collaboration with the Medical Research Council and a consortium of other pharmaceutical companies.
It is time for a new mindset in our industry and a new contract with society. With the support of other pharmaceutical companies and partners outside the industry, I believe significant improvements in human health can really be achieved.
Increasing access to medicines is important to our business for ethical, reputational and commercial reasons because:
It is morally the right thing to do and is valued by our shareholders, employees and other stakeholders. It is aligned to our corporate mission and contributes to GSK's reputation and ability to attract and retain talented employees
Our business objective is to increase the proportion of the world's population that has access to our medicines - currently around 20 per cent. The successful pharmaceutical companies of the future will serve a bigger proportion of the world's population
Our business relies on the intellectual property (IP) rights system which encourages medical innovation and progress. By taking measures to counter claims that IP is a major barrier to access, and by looking for ways to improve availability and affordability, we can help to increase access while maintaining support for intellectual property rights in our key business areas
We are, diversifying into new product areas that show potential, while also fully capturing opportunities for our products across all geographic boundaries. (2008 summary)
By creating a patent pool of these basic patents, businesses can easily obtain all the
necessary licenses required to practice that particular technology concurrently from a single entity. This, in turn, can facilitate rapid development of new technology since it opens the playing field to all members and licensees of the patent pool.
Investment in global R&D: growth of R&D China
in line with our aim to access the best science and to ensure GSK is a truly global company, we announced in 2007 the creation of R&D China. In 2008, this group grew to 200 employees focusing on neurodegeneration and has created three DPUs during the year. R&D China is currently focusing on discovery, but as the unit grows and the pipeline matures, it will expand its capabilities to be a fully integrated R&D centre.
Our current late-stage pipeline includes products targeting diseases including many forms of cancer, infections, respiratory diseases, autoimmune disorders, metabolic and cardiovascular disease, psychiatric disorders and neurological diseases.
We invest in research capabilities at universities, fund leading-edge academic research projects and support science students. We have more academic collaborations than any other UK-based company, providing support of more than 24 million in 2008. Running our business in a responsible way is fundamental to our success and inseparable from our strategic priorities
Continued research and innovation is essential.
Major opportunity in oncology - creation of an Oncology R&D unit in 2008
In 2008, we created an integrated Oncology unit, spanning from drug target identification through to late stage development. Its strong pipeline of cancer medicines, as well as unique aspects of oncology medicines development, were behind the creation of the Oncology R&D unit. Oncology is an important investment area for GSK and 2008 has seen its late stage pipeline flourish.
Everyone at GSK has a part to play in putting these plans into action, to contribute to our challenging and inspiring mission - enabling people to do more, feel better and live longer.
Every second, we distribute more than 35 doses of vaccine;
Every minute, more than 1,100 prescriptions are written for GSK products;
Every hour, we spend more than ?300,000 to find new medicines, and
Every day, more than 200 million people around the around the world use a GSK branded toothbrush or toothpaste.
- Corporate Responsibility Report 2008, GSK
- Patent pool, Wikipedia, 2006