The document discusses the evolving challenges in the pharmaceutical industry, particularly focusing on the dangers of the traditional blockbuster model due to weakening patent protections and the rise of generics. It outlines GlaxoSmithKline's (GSK) strategies to adapt, including diversifying into new markets, collaborating with generic firms, and restructuring for operational excellence. The document also highlights the shift towards digital healthcare technology and the need for pharmaceutical companies to innovate to remain competitive in a changing market landscape.

1. Multi-Vision
Consultancy
Kristina Rocha Mello
Giovanna Hsu
Ei May Htaik
Kelly To
Jonathan Lloyd

2. Negative Implied Value of Growth
Pharma 1.0: The Blockbuster Model
• Blockbuster drug: Revenue>$1 billion per year
• Traditional Blockbuster model:
 High sunk cost i.e. Research & Development
 Charge a high premium, as a reward
 Patents provide a crucial period of exclusivity and protection
J, Gordon et al, JP Morgan

3. Weakening Patent Protection

4. Weakening Patent protection Challenges
• Widespread availability and issuance of generics
Cheaper, due to absence of R&D costs
• Increase in patents being challenged by
1. generic manufacturers
Due to increase in demand for generics from cost
constrained healthcare providers.
2. developing countries
Struggle to afford the prices, and therefore exert pressure
on pharmaceutical companies
• There isn’t an inexhaustible supply of potential
blockbusters to sustain revenue streams once
existing patents expire.

5. GSK’s Patent strategy
• Diversifying risk:
Moving from blockbusters to markets with quicker,
more certain revenue streams:
Healthcare and biopharmaceutical:
Oral care products (Sensodyne) UK energy drink (Lucosade)
Nutritional Supplements (Horlicks)
GSK Annual Report, 2011

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

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

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

9. • Increasing efficiency and the in the time taken
to develop a new innovation.
GSK introduced in 2008 a restructuring
program- Operational Excellence
• Focus on brand alliance & heritage for existing
medicines

10. Regulatory Challenges

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

12. • Changing Regulations
 Stricter rules in US & EU
 Patient Protection and Affordable Care
Act (2010):
Impacts:
1.Annual Fee
2.Generic Drug Approval
3.Advertisement
Global Warming & Animal Rights Groups

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

14. • Core Business Services (2011)
Standardization of support functions aimed at
maximization of economies of scale and
increased productivity.

15. Challenges Beyond the US Market

16. Group turnover by Geographic Regions
USA
50%
Europe
28%
Rest of
the
World
22%
2001
USA
32%
Europe
30%
Emerging
Markets
19%
Asia
Pacific,
Japan
and
Others
19%
2011

17. Europe
• Introduction of cost-benefit analysing stage to new drug
approval process: NICE
• Complexities in the approval and pricing procedures in
individual countries
125 drugs approved by EMA (2009-2012):
 50-60% available in Germany and the UK
 30-40% available in Spain, France and Italy
10 sample drugs:
• Impact of Eurozone crisis on sales and supply chain: €7 billion
in 2010 and 2011
Country Price Highest Price Lowest
Germany 7 0
Italy 2 3
UK 1 4
F. Reinaud, 2012

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

19. GSK’s strategy
• Asia Pacific, Japan, and Emerging Markets (APJEM) R&D group (2009).
 Branded generics – Dividing the R&D process between GSK and Dr
Reddy’s Laboratories in India
 Intra-regional business development – partnership with Amgen to take
over the complete process of development of denosumab in emerging
markets
 And local regional development – medical need or commercial
opportunity
• Contribution of emerging markets to overall sales and growth
• Expansion of Japanese business:
 Sales in GSK grew by 14% to 2 billion
 4 new compounds approved

20. Challenges in Research & Development

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

22. • Drug Discovery: From molecules that can become a drug to core
diseases or illnesses
• Preclinical Trials: Lab and animal testing to determine if drug is safe
enough for humans
• Clinical Trials
 Phase 1: Perform human testing on small group of volunteers
 Phase 2: Test on small group of patients
 Phase 3: Test on large group of patience for safety and efficiency
http://www.innovation.org/drug_discovery/objects/pdf/RD_Brochure.pdf

23. NumberofApplicationfiledandApproveddrugsFor
NMEs
Year 2001-2010
http://www.fda.gov/downloads/AboutFDA/Transparency/Basics/UCM247
465.pdf
• Application is not
increasing
 Finding drugs for
chronic disease is
complex
 insufficient
Knowledge or
understanding new
diseases
Lack of Innovation
0
5
10
15
20
25
30
35
40
1 2 3 4 5 6 7 8 9 10
Application Filed
Approved Drugs

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

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

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

27. New Entrants: Changing The Market

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

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

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

31. • Strategy: Collaborate as a third party (2010).
• 1 of 137 oncology apps on iTunes.
• MedTrust Online, with GSK input.
• Locates clinical trials close to the
patients location.
• “Capture, organize, analyse, integrate
and present the most up to date
medical facts from a vast array of
sources.” – MedTrust
• “Provide simple yet highly effective
information-based solutions to the
cancer community” – GSK

32. • Control: First party technological products (2011) .
• Pharmaceutical companies investment
in healthcare technology rose 78% in
2011.
• Leading iTunes Pollen app is produced
by GSK.
• Offers pollen information, forecasts,
and medical routines to end users.
• Directs users to Piriton, GSK’s allergy
relief medicine.
• This strategy provides revenue streams
and ensures no other firm claims this
segment.

33. The Changing Market
• Pharma 1.0 - Blockbuster Industry was a ‘rewarding place to play.’
 High barriers to entry; the reward of high revenue streams.
• Pharma 2.0 - Changed the industry from within
 Age of weakening patent protection, regulation, the need to enter
emerging markets, and challenges in research and development.
• Pharma 3.0 – The digital environment
 GSK need to ensure they remain relevant and secure a prime place
in these new product and information channels.

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

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

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

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