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GlaxoSmithKline (GSK)Stock (Drug Manufacturers Industry, Drug Manufacturers - Major Industry, Pharma & Healthcare Industry)
 GlaxoSmithKline (NYSE: GSK) is the second largest pharmaceutical company in the world by revenue. It achieved sales of nearly $50 billion in 2007. The company's products include prescription medication, vaccines, and consumer health products, though it manufactures products for many different therapeutic categories even within these spaces. With dozens of potential drugs in the works, the company has a pipeline that includes twice as many late stage drugs as its nearest competitor. While the company will have to deal with major loses in patent protection in the next three to five years, its significant number of new launches should help offset these losses. GlaxoSmithKline's fortunes are further buoyed by several domestic and global demographic trends. As U.S. baby boomers and the U.S. population in general grow older, one can expect age related illness and the demand for medicines to treat them to increase. Furthermore, as obesity rises worldwide, the demand for effective treatments will continue to grow substantially. On April 23, GlaxoSmithKline announced an offer worth $720 million to acquire drug developer Sirtris Pharmaceuticals. Sirtris's research focuses on developing anti-aging compounds, such as the chemical resveratrol found in red wine which is thought to have anti-aging effects.
[edit] Corporate OverviewGlaxoSmithKline is headquartered in England and employs over 100,000 people in 117 countries. It is the second largest drug manufacturer, in the world and the largest in Europe, by revenue. Its large size allows it to invest large amounts into research and development. After-tax profits in 2007 were 5.2 billion pounds (GBP). The company, like many of its peers, was formed through the merger of several smaller pharma companies. In 2001 Glaxo Wellcome and SmithKline Beecham, merged to create GSK's current incarnation. 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 Aquafrech (toothpaste). GlaxoSmithKline's prescription products include medications to treat cancer, asthma, malaria, and depression among other maladies.
[edit] Business GrowthGlaxoSmithKline's first quarter revenues increased by 1.5 percent to GBP$5.69 billion and profit fell by 13.7 percent to GBP$1.3 billion from GBP$1.5 billion a year ago. This decrease was largely due to new generic competition and declines in sales of Avandia. Overall, pharmaceutical sales fell by 4% from a year ago. Sales of Avandia, a drug for type 2 diabetes, fell by 56 percent to $191 million pounds after it received a black box warning last November, due to concerns that it may increase the risk of heart attacks. A major study assessing this risk will not be complete until 2014. Heart medication Coreg fell by 77 percent and antidepressant Wellbutrin fell by 3 percent due to generic competition. Asthma drugs Seretide/Advair have increased by 10% to GBP$954 million in the quarter. On April 23, GlaxoSmithKline announced an offer worth $720 million to acquire drug developer Sirtris Pharmaceuticals. Sirtris's research focuses on developing anti-aging compounds, such as the chemical resveratrol found in red wine which may lower blood sugar in diabetics and extend lifespan. This offer represents a substantial investment from GSK on early-stage research of potentially very profitable drugs. In April 2008, GlaxoSmithKline CEO designate Andrew Witty presented plans detailing a new framework for the company's international business. Witty, who will assume the position of CEO in lat May when Jean-Pierre Garnier officially retires, emphasized a new focus on emerging markets. A new division will be created to focus specifically on emerging markets, an area that has hurt the company's profits in recent quarters. The emerging markets division will focus on operations in Brazil, Russia, India, China and the Middle East. Witty also plans to refine the current team structure for other geographic regions. A new Asian Pacific group will combine many Asian countries (excluding China) with the current group that manages Japan. Canada, the U.S. and Puerto Rico will be combined into the North American division. Witty has also created a new division, the Corporate Strategy and Development team, to focus exclusively on finding new places for expansion. The group's focus will include finding new business opportunities, partnerships and potential acquisitions for GlaxoSmithKline.[1] In July 2008, GSK entered into a licensing agreement with Aspen, a South African generics manufacturer. Exact details of the agreement are not available, but it licenses GSK drugs for Aspen to manufacture and includes profit-sharing clauses.[2] The company has stated that this was part of its effort to expand in the emerging markets, which are forecasted to grow by 13%, or 3 times more than the established Western markets.[2] [edit] Products and Revenue[edit] Prescription Medication ($37.1 Billion) The bulk of GlaxoSmithKline’s revenues- 80% in FY'06- comes from the sale of prescription medications. GlaxoSmithKline has medications in many different therapeutic categories, including cardiovascular, respiratory, and central nervous system. Some of its most important prescription products include:
[edit] Vaccines ($3.4 Billion)As mentioned above, GlaxoSmithKline currently produces nearly a quarter of vaccines sold worldwide. Its vaccines are used to treat a wide range of ailments including hepatitis, meningitis, influenza and various childhood diseases. Specific products include Havrix for hepatitis A, Engerix-B for hepatitis B, and the group Mencevax for meningitis. Although demand for vaccines has remained generally constant, there are several situations that could cause fluctuations. If the birth rate were to suddenly increase, more children would need vaccines against childhood diseases such as measles, mumps, and chicken pox. Additionally, an influenza outbreak would vastly increase demand for flu vaccines. There has not been a major outbreak in several decades, and the Center for Disease Control (CDC) expects that an outbreak could occur in the coming decades. A recent European study has shown GlaxoSmithKline's Rotarix, a new rotavirus vaccine, to be highly effective. Rotavirus causes severe diarrhoea in young children. Compared to the control group, children given Rotarix were 90% less likely to develop symptoms. Rotarix will be in direct competition with Merck's Rotateq, which is also in late clinical trials. [edit] Consumer Health Care ($6.4 Billion)GlaxoSmithKline's consumer health care products include over-the-counter medications, nutritional supplements, and oral care products. Some of the major products include Aquafresh, a well-known toothpaste brand, Sensodyne, a toothpaste specifically for sensitive teeth, Tums and Citrucel for gastro-intestinal ailments, and Nicorette products to help users quit smoking. Lucozade, a line of glucose energy and sports drinks, posted a 14% increase in sales between 2005 and 2006, bringing in $608 million in sales. Increased consumption of energy drinks and "health drinks" could mean even greater increases in sales of Lucozade. GlaxoSmithKline launched the first over the counter weight loss drug alli in June of 2007. [edit] Trends and Forces[edit] Aging Population Over the next decade the pharmaceutical industry should experience significant gains is the world's aging population. Increased life expectancy coupled with decreased fertility in developed nations has produced a population that is, as a whole, older. In the United States, Western Europe and Japan the median age has been on the rise for decades now and this trend is likely to accelerate with the upcoming wave of aging baby boomers. While a large portion of GlaxoSmithKline's drugs are not meant exclusively for late-age conditions, some of its new cancer drugs might find larger markets in an increasingly older population. [edit] Research and DevelopmentThe development process for new drugs is a risky and expensive business. In 2007, GlaxoSmithKline spent nearly $7 Billion on research into new treatments and products, nearly 15% of its total sales. The process from concept to market takes anywhere from 10 to 15 years. Most medications do not make it past the clinical trials phase of development. For every success there are multiple failures. The final product, once formulated, is protected under patent for generally less than 10 years after release. GlaxoSmithKline has one of the broadest pipelines, or group of potential products, in the industry. As of February 2007, there were 158 vaccine and pharmaceutical products in some stage of clinical development, and 31 products in Phase III (late stage) development. While many of these drugs will ultimately fail, the sheer volume of potential products is higher than many other pharmaceutical companies. Additionally, several of the products GlaxoSmithKline is developing are in therapeutic areas with high demand. Cervarix, for instance, is a vaccine for human papillomavirus (HPV). Recent studies have linked HPV to cervical cancer. The vaccine would eliminate the potential for getting the virus, reducing the likelihood of developing cervical cancer. The vaccine is currently undergoing clinical trails for a 10 month period which began in Jun. If successful it could be released in early 2008. Cervarix will face competition from Merck (MRK)'s HPV vaccine which is already out, but the market is not saturated so there is space for a new HPV vaccine. Another vaccine in late clinical trials is H5N1, a pandemic flu vaccine. Success of this product would position GlaxoSmithKline strongly in the flu vaccine market in the case of an influenza outbreak. Novartis AG (NVS) is also working on pandemic flu vaccines, and so GlaxoSmithKline could face competition in this area. Some other products likely to appear in the next few years include Coreg CR for cardiovascular conditions, Tykerb, a breast cancer treatment, Trexima for migraines, and Allermist to treat allergic rhinitis. [edit] Patent expirations
Due to Food and Drug Administration (FDA) regulations, pharmaceutical patents last 17 years, during which a pharmaceutical company has an exclusive right to manufacture a particular drug. The patent period begins when the company begins researching the drug and files a patent with the patent office. After clinical trials, the average patent is only in effect for an additional 11-12 years. After the patent expires, generic versions of the product can be produced and sold by competitors. Generic medication is cheaper than brand medication, and the lower cost is often a strong incentive for consumers to choose generic over brands. In addition, the presence of a generic alternative may prompt a decrease in the brand name medication price. GlaxoSmithKline is facing several patent expirations, including one of its major cardiovascular products, Coreg, in September of 2007. To retain the patent, GlaxoSmithKline, like many other companies, employs "life-cycle management" techniques such as improving the formulation of a drug. An example of this is Coreg CR, a once-a-day oral medication for heart failure based on the original Coreg. The drug can thus continue to compete without generic competition because it is "new." That said patent expirations can have a significant impact on sales. Wellbutrin XL, an anti-depressant, is facing high market share erosion from generic competition. It is estimated that GlaxoSmithKline will lose patent on 7 of its top 10 selling pharmaceuticals by 2009, which accounted for nearly 22% of its sales in 2006. These include Lemactil, Wellbutrin, Zofran, and Coreg. While generics take time to enter the market, and brand drugs do hold on to a significant market share, generic competition could start hurting GlaxoSmithKline within the next five years if they are not able to reformulate these drugs or successfully keep patients on branded products. [edit] Politics and InsuranceLike other global pharmaceutical companies, GlaxoSmithKline faces constant pressure from governments and activist organizations to increase access to medications by either lowering prices substantially or removing patent restrictions so generics can be manufactured. Medicare and Medicaid policies have an important impact on GlaxoSmithKline's sales. Medicare is the federal government's health subsidy plan while Medicaid generally falls to the states. Policies allow the government to bargain for lower prices; essentially the government caps prices for a large number of plans. This lowers revenues while increasing the amount of medications sold. Additionally, the government often requires rebates be paid at the end of the year. Over the past several years, many states and the federal government have begun suing multiple pharmaceutical companies because of alleged price fraud. The states are suing based on alleged defrauding of the state health care assistance program, Medicaid. If the states win, the pharmaceutical companies will be forced to pay hundreds of millions of dollars and change pricing schemes. While the first trial in these cases will not be finished for at least another year, this litigation could greatly affect GlaxoSmithKline. Additionally, changes in Medicare and Medicaid legislation could cut into revenues even more in the future, especially if nationalized or cheaper health care advocates come into office. There are currently no well publicized cases against GlaxoSmithKline other than these pricing cases, but just under a year ago the company settled for $63.8 million on claims that it promoted its antidepressant drug Paxil for use by children while withholding information about the medication's safety. The suit was a class action, and highlights the constant threat of litigation and the care that must be taken in marketing pharmaceutical products. [edit] Comparison to CompetitorsThe pharmaceutical market is a very competitive arena on several fronts. First is the generic competition and loss of patent, as discussed above. Other competition includes branded competition amongst drugs with similar indications . Advair, one of GlaxoSmithKline's biggest drugs for asthma (see above) faces competition from AstraZeneca's 's Symbicort, which is expected to launch in 2007. Additionally, Avandia, the diabetes drug discussed above, will likely face competition from Merck (MRK)'s new oral diabetes drugs Januvia and Janumet. If the FDA decided to require warnings on Avandia concerning heart failure, Merck (MRK) could very easily take a large portion of the type 2 diabetes market share. Successful competition requires diversification, size, investment in research (including a broad pipeline) and of course minimization of costs and high sales. GlaxoSmithKline is far ahead of the competition as far as new research. It has nearly double as many drugs in late stage development as its closest competitor, Pfizer (PFE). GSK, however, has significantly lower earnings than Pfizer despite having significantly similar sales. This is largely due to the company's higher operating costs and the costs associated with its recent acquisitions. GlaxoSmithKline's biggest competitors include Pfizer (PFE), Novartis AG (NVS), Merck (MRK), and Schering-Plough (SGP).
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