Multi-Vision ConsultancyKristina Rocha MelloGiovanna HsuEi May HtaikKelly ToJonathan Lloyd

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 & DevelopmentCharge a high premium, as a rewardPatents provide a crucial period of exclusivity and protection

J, Gordon et al, JP Morgan

Weakening Patent Protection

Weakening Patent protection Challenges

•Widespread availability and issuance of genericsCheaper, 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 countriesStruggle 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.

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

•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

•Taking a closer interest in generic firms:Acquiring generic brands establishing their own generic drugs

•GSK:2008- acquired 16% stake of South Africa –

based Aspen2009-licensing and selling agreement of

Dr.Reddys generics 2009- acquisition of Bristol Myers Squibb

(BMS) in Lebanon, Jordan, Syria, Libya and Yemen

•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.

•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

Regulatory Challenges

Regulatory Challenges

•Different Environments

Have to satisfy a different set of regulations in each market

Need for harmonization of regulatory requirements

•Changing Regulations Stricter rules in US & EU

Patient Protection and Affordable Care Act (2010):

Impacts: 1.Annual Fee2.Generic Drug Approval3.Advertisement

Global Warming & Animal Rights Groups

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 functionsKey points:

1. Redirect savings to expansions in emerging markets, vaccines and consumer healthcare.2. Cover loss in sales to generics

GSK Annual Report, 2011

•Core Business Services (2011)Standardization of support functions

aimed at maximization of economies of scale and increased productivity.

Challenges Beyond the US Market

Group turnover by Geographic Regions

USA50%

Europe28%

Rest of the World

22%

2001

USA32%

Europe30%

Emerging Markets

19%

Asia Pacific, Japan and

Others19%

2011

Europe• Introduction of cost-benefit analysing stage to new drug

approval process: NICE

• Complexities in the approval and pricing procedures in individual countries125 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 4F. Reinaud, 2012

Emerging Markets• Diversity of the market –

The wealth pyramidDifferences 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.

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

Challenges in Research & Development

Challenges in Research & Development

• PipelinePatients expiringInsufficient drugs to fill current pipelinePressure for scientist developed

• Shifting R&D towards new innovationChange 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 approvalIncrease in average R&D cost $800m - $1bn

due to many failure of drugs during clinical trials

Rigorous testing for safety and effectiveness

• 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

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• Application is not increasing

Finding drugs for chronic disease is complex

insufficient Knowledge or understanding new diseases

Lack of Innovation

1 2 3 4 5 6 7 8 9 100

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15

20

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Application FiledApproved Drugs

•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

GSK’s Strategy

•Collaboration with academies Increasing GSK knowledge base enhancing the

ability to discoverBringing in the best minds to stimulate innovation

and entrepreneurship and speed drug discovery collaborated with University of Cambridge to

develop treatment for liver diseases

GSK’s strategy • ExternalisationGSK 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

New Entrants: Changing The Market

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.

Strategy: Collaboration and Control• Amgen: worlds largest independent Biotech company• Collaboration with GSK on commercializing antibody

denosumab.Amgen: USA and CanadaJoint commercialization: Europe, Australia, New Zealand and MexicoGSK: 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

New Entrants: Healthcare Technology

• Investments by non-pharmaceutical companies in healthcare technology (apps, internet) are massively outpacing those of pharmaceutical companies.Patient empowermentData drivenOutcome 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.

• 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

• 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.

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.

ReferencesPatent 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 

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, athttp://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+industry+challenges&source=web&cd=2&ved=0CDYQFjAB&url=http%3A%2F%2Frepository.upenn.edu%2Fcgi%2Fviewcontent.cgi%3Farticle%3D1032%26context%3Dod_theses_msod&ei=96WnUNuRO-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 athttp://pharmabiz.com/ArticleDetails.aspx?aid=69654&sid=9

•http://repository.upenn.edu/cgi/viewcontent.cgi?article=1032&context=od_theses_msod&sei-redir=1&refe 

•repository.upenn.edu

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/GlaxoSmithKline-to-buy-Cellzome-for-61m.html•http://www.bmj.com/content/345/bmj.e4348

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