University of Manchester: GSK Risk Assessment and Shareholder Value

This report provides a comprehensive analysis of GlaxoSmithKline (GSK), focusing on its risk assessment strategies concerning product development and sales, and how these strategies impact shareholder value. The report begins by outlining the context of the pharmaceutical industry, including t...Read More

RUNNING HEAD: BUSINESS ANALYSIS
Title: Analysis of Glaxo Smith Kline
Name of Student:
Name of University:
Author Note:

1BUSINESS ANALYSIS
Executive Summary:
The responsibility of discovering, developing, producing and marketing of
pharmaceutical drugs rests on the pharmaceutical industry. Since these drugs are essential for the
medication purpose to be given to the patients for curing them, or producing vaccination or to
reduce the symptom, the pharmaceutical industry holds a strong importance globally and thus,
the maintenance of standard of various companies is highly essential. The companies generally
deal with the brand and/or the generic medication as well as medical devices. The companies
must have a strong base for governing the intellectual property, safety, patenting, efficacy and
the marketing of the medical drugs. GlaxoSmith Kline is one such leading pharmaceutical
company, which has it,’s headquarter in Brentford, London and has several subsidiary all over
the world. The current report deals with the analysis of the GSK Company and their various
strategies in assessing the risk of product development keeping in mind their ability to enhance
the shareholder value. The existing research on the finance and the shareholder values upholds
the fact that there is a high impact on the increasing demand of the stock market for the returns
on the behaviour of the corporate. The Glaxo Smith Kline Company has set the strategy of using
high prices in the innovations and the profits are being used in creating the short term returns to
the investors. The current report will analyse the various risks that the company faces in their
sustenance and will take into account the effective measures taken by GSK in ruling out those
risks. As the evidences of the success or failure rate in managing the risks, the report will also
provide hard data on the various sales aspect of the company.

2BUSINESS ANALYSIS
The Pharmaceutical Industry:
Fig 1. The position of GSK and other pharma company; source International Business Analysis
S.A.Reheman 2018
The pharmaceutical Industry generally spends a large amount on the research and
development process, as they believe that this essentially is the most beneficial investment in the
business. The expenditure in the will eventually lead to the recycling of profits that would in turn
sustain innovation and improved customer satisfaction. Any company would yield a high margin
of profit from the ethical drugs and also has the scope of procuring a strong year on year growth
as they has the chance of charging premium prices for those drugs that help to recoup the cost

3BUSINESS ANALYSIS
spent on the research and development. The shareholder value in any business refers to the value
that is delivered to the equity owners of the business that can be made possible due to the ability
of the management to enhance earnings and sales. However, the companies face several
challenges in creating the shareholder value, as there is always a compulsion of the regulation of
prices for the drugs. Moreover, it is a risk for the pharmaceutical industry to increase the prices
as that would lead to the loss of loyal customers.
The Blockbuster Model:
The Block Buster model is referred to the method by which a company spends much of
the amounts in the research and development of the products. This is done with the aim of
creating a blockbuster that would help in accelerating the annual sales. In the case of Glaxo
Smith Kline the most successful blockbuster that was launched was Zantac, in 1983. The
medicine was successful in capturing the anti ulcerant segment till 1997 and contributed for over
fifty percent of the overall revenue for the sales. The medicine helped in the year to year organic
growth to the company with unexpectedly high return. The increase in the market value of the
company was noted to reach by 59% and there was the maximum return of sales till 28% in
1988.
The blockbuster product can never happen incidentally or without any preparation. This
has to be created by means of a proper scientific as well as marketing effort. With the innovation
of Zantac by GSK more experts were employed in the research and development of the product.
The stock market focuses in the forthcoming of future similar prospective products that will be
able to produce another blockbuster.

4BUSINESS ANALYSIS
Fig 2. The 59% hike after the manufacturing of Zantac
Challenges and changes in Pharmaceutical Industry:
1. Dearth in innovation: One of the major problem in the pharmaceutical industry is the
lack of the fundamental innovative ideas after certain extent of time. Improved remedies have
been developed for various minor medical situations that has procured cures for major
degenerative illness and contagious diseases like Alzheimer’s, arthritis or aids. It is further
suggested that further cures or a development of any blockbuster is difficult to find. Evidence
produced by the FDA shows that the number of new molecular entity approvals have been
virtually static between 1980-2001, with only a minor leap in 1996-7. Post 2001, NMEs fell quite
considerably to a new low in 2007 (just 18 in that one year).
2. New Entrant: Various companies in the pharmaceutical industry is venting out the licence
from the small biotech companies in order to discover new compounds. The research director of
the GSK speculated the prospect and feasibility of maintaining the integrated model. Of late, the

5BUSINESS ANALYSIS
biotech firms are becoming more powerful and can pose threat to a large extent to the larger
pharma companies.
3. Revenue Problems outside: US has always been a profit area. However, the pharma industry
has been facing a decline in the areas outside US. Europe’s share of the overall pharmaceutical
market has fallen from 30% in 1981.
GSK’s Strategies for meeting the Challenges:
In order to sustain their existence as well as look after the maximisation of the
shareholder value, the company has adopted various strategies
1. the improvement of the R and D pipeline: the company has set up the strategy of improving in
the research and development for effective solution of the various health conditions and disease.
2. Drug focused portfolio: GSK has mainly focused its concentration on leveraging form the
various units that the company has at present. The needs to be substantiated by in liscensing
agreements in order to contracting externally of their research and development section.
3. Differentiation: the company also set up their strategy by using the integrated market channels
to effectively design the products.
4. Commercial operations: the company is keen on investing much on the bringing of affordable
solutions in the pharma fields and healthcare problems. The research and development efforts
are in turn linked with the commercial operations.

6BUSINESS ANALYSIS
Fig 3 the annual lobbying of GSK
Market Penetration: At present, the Glaxo Smith Kline is accounting for over nine percent of the
European OTC pharma market value. it is also accounting 7 percent of the global market share.
The company is focusing presently on the penetration of the markets in various levels.
Assessing of the risks and current situation by Glaxo Smith Kline:
During the blast time of the 1980s Glaxo's reaction was to delve deep into the market
openings that introduced by dropping every single other movement and concentrating
exclusively on moral pharmaceuticals. Glaxo was insightful enough to understand that it was not
important to have the best analysts to create the most benefit and set about effectively focusing
on helpful and geographic territories with great volume potential. This was done by hitting an
arrangement with the advertising arm of Hoffman La Roches in the US and zantac was forcefully
pushed to the almost same form of SKB's Tagamet ( Wright et al 1996). This technique
demonstrated exceptionally effective, empowering Glaxo to build up itself among the principal

7BUSINESS ANALYSIS
five pharmaceutical organizations inside 10 years of presentation by Zantac.. By the mid 1990s
Zantac represented over half of Glaxo's income, enabling the organization to accomplish normal
genuine yearly income development of at any rate 10% through the 1980s and the majority of the
1990s. This thusly made Glaxo a prime stock for financial specialists since it has the intention
and purposes that ensured a high profit yield and offer value appreciation.
The approaching end of the overwhelming sale of Zantac and compounding outside
condition during the 1990s represented a risk to cost recuperation in the future of the Glaxo
Company. Glaxo's main aim behind the reaction was to utilize guarded merger and securing
action to attempt to keep up its development rate and the appreciation of the offer value. The
obligation of 1995 supported takeover of the main british rival of the company, wellcome was
Glaxo's first endeavour at keeping it going. The 1995 takeover accomplished two things: it
permitted Glaxo Wellcome to keep up to the maximum development after Zantac deals fell and
eventually the company permitted an adjustment of edges through cutting the cost: the likeness
roughly 66% of Wellcome's representatives lost their positions following the merger.
The merger with Wellcome prevailing in the present moment as the comparatively newer
streams of income from Wellcome balance that were mainly loss after the termination of the
licence of Zantac. However, with the dearth of any new and blockbuster medication in the
pipeline, a necessity of the new merger was felt by 2000. This time the merger was with an a lot
bigger organization, SmithKline Beecham (SKB). While there were constrained open doors for
cost slicing because of the pruning of a pre merger in the work industry by SKB, it allowed
Glaxo to enhance into new restorative zones and grow further into the worthwhile US advertise.

8BUSINESS ANALYSIS
Notwithstanding, in spite of the size and assorted variety of GSK, it has still not so much
intrigued the financial exchange as speculators and investigators can see that there is still almost
no in the pipeline, while conventional producers keep on testing their licensed medications in the
courts.
Late improvements during the money related emergency have vague results. The
endeavour by the Obama rule to change the US medicinal services framework has questionable
ramifications for the pharmaceutical business. Obviously, there might be a few endeavours to
control pharmaceutical costs, which have verifiably consistently been higher in the US. Again,
the objective of across the board open arrangement may open up a much bigger market for the
greatest pharmaceutical organizations.
Fig 4. Dividend and retained profits of GSK to show the current market.
The company also shifted its product variety to the selling of consumer products. The
company in 2008 organised the researchers into small teams under drug performance unit and

9BUSINESS ANALYSIS
they were instructed to research on the various diseases. JP Morgan analysed the working
conditions in small units and recommended that the selling of sucjh stocks can improve the long
term growth of the business. the company has now focused on the share holders and at the same
time they are also making smaller and less risky products like sanitary napkins, toothpastes etc.
The risk in patent life of a drug is also an important issue in the pharma industry.
generally the patent life lasts for twenty years. The first risk that a company faces is the risk of
acceptance of the new product. There are high possibilities that the patent ship suffers a great
deal as the product is rejected by the customer. in turn the maximisation of the shareholder is
also affected. In the end of the patent ship the common risk is the upcoming of various
competitors as the particular company can no longer hold the exclusivity of the formula. GSK
has followed the following steps in order to reduce the patent ship problems.
 The approaches to the intellectual property are adopted keeping in mind the economic
condition of the shareholder country
 Have the right to grant licence to generic manufacturers
 The company will outline their intent of committing future oncology product
 The company also makes commitment to make the patent portfolio information freely
available.
Conclusion:
The company assessed the various risks and challenges of the development of their
products and sales in order to ensure the maximisation of the shareholder values. It can be said
that the planning for a long term future is not viable for the pharma industry with the growing
and changing needs and risks. After the blockbuster of Zantac, the company has given out for the

10BUSINESS ANALYSIS
inorganic growth. The company has the mission of the maximisation of the shareholder but also
looks into the fact that the profit is mainly done through the financialisation channels rather than
the core business. The company allocates the profit in the buyback and payback of the dividend
mode in order to give a manipulative boost to the stock market.

11BUSINESS ANALYSIS
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industry. In Industries and Globalization (pp. 92-128). Palgrave Macmillan, London.
Montalban, M. and Sakinç, M.E., 2013. Financialization and productive models in the
pharmaceutical industry. Industrial and Corporate Change, 22(4), pp.981-1030.
Doyle, P., 2001. Shareholder-value-based brand strategies. Journal of brand Management, 9(1),
pp.20-30.
Wangari, J., 2008. Growth through merger: a case study of Glaxosmithkline PLC (Doctoral
dissertation, University of Nairobi).