The Glaxosmithkline Merger: Analysis

The Glaxosmithkline unification compendIntroductionMergers argon non juvenile in pharmaceutic manufacture in the recent years and the same for twain Glaxo Wellcome and SmithKline Beecham throughout each(prenominal) differents history. Considering the political, social and economic resistance, the general driving forces for these compoundrs in this industry be, to a greater extent firms showed affair in using strategic partnerships and join ventures to develop and market new products. though pharmaceutical progress tos a global market, the US market decided the product of the industry as it holds 45% of the global market. So not surprisingly the US political, social and economic resisted and de operatered a strong impact on the growth of the whole pharmaceutical industry.However Pfizers merger pushed Glaxo SmithKline to 2nd rank in the industry, they were number one flat after their merger. So the stemma changes of the organisation had a heavy impact on the whole pharm aceutical industry. So this paper had assessed the reason for the merger and extend the aims of the merger is achieved.Background of SmithKline BeechamSmithKline Beecham resulted from the merger of SmithKline Beckman (SKB) and Beecham. Beecham was well know for its traditional research strength whereas SKB was known for its aggressive sales force in US. Though the sour of merger was lengthy, the change from more laid British approach of Beecham to process oriented working was conquest. The new company tried to keep up with critical mass but they lacked in work outing RD, which was the real restrict for companys growth.Background of Glaxo WellcomeGlaxo Wellcomes birth was from Glaxos takeoer of Wellcome in 1995. Glaxo was well known for its strong marketing approach, commercial success of its RD efforts and blockbuster product Zantac whereas Wellcome is non-profit medical institution well known for its academic approach to pharmaceuticals. Though there were several clashes betwe en Wellcomes laid back commission style and Glaxos hard-nosed, commercial and control control culture, with the help of economic of scale in RD activities, Glaxo reduced the conflicts and resistance. However the companys growths in producing blockbuster products were lacking.1. Reasons for the Glaxo SmithKline MergerMerger of Glaxo Wellcome and SmithKline Beecham was a global one. The merger was a unique all over the world and various divisions of two the companies merged in around 170 countries in 2000, expect Pakistan. The merger came through after UK court of law order in January 2000 merely it happened in Pakistan only on 23rd October 2002. So the merger of Glaxo Wellcome and SmithKline Beecham in Pakistan was the off shoot of the global merger of the companies.There were six reasons which compelled both the legendary companies to go for the merge and to build a leading company in the entire pharmaceutical industry. The reasons for merging up unitedly wereTo reduce the Res earch Development pipeline.To reduce the Research Development make up.Drug reimbursement issues.Political atmospheric pressures and growing concerns over dose prices.Patent expirations / Generic challenger.Recent developments in biotechnology and the mapping of the human genome.The right point and idea backing the merger was, to improve quality of human life for enabling people to do more, feel better, live longer. As both the companies holds the strength in more similar kind of domain of a function that is, developing drugs for infectious respiratory neurological gastrointestinal and metabolic disease, they want to lead the way in providing treatment for the same. Apart from the above knowledge base, the join company appeared to be the worlds leading producers of prescription medicine, vaccine and consumer wellness care products. So they planned for exileing innovative medicines and products that help billions of people round the world live longer, wellnessy and happier life.The whole pharmaceutical industry was focusing and investing in RD as it delivers modern ways to wrap up prolonging problems and helps in the long term growth of the industry. The hunger to deliver medicines for new diseases do the join assort (GlaxoSmithKline) to pay more attention in RD and wished to reduce the number of products in the pipeline of RD. Though both companies produced similar kind of drugs and so integrating their products line was precise obvious, the process demanded more time and efforts. This was in the first place beca intent both had more number of products in the pipeline and hardly had blockbuster products in market. Still the management believed that the time for working on new diseases will be reduces by working together on lesser products. And in general all research and development evolves a risk of failure. Not that each compounds and all research towards developing new drugs for a targeted diseases comes out as success but in turn consumes h igh time, efforts and money. But the RD is the only answer for the long term growth of both the joint company and the industry. So sticking to mission and vision of the new company, GSK has decided to focus of RD but in a different way of approach .i.e. salute saving, economics of scale and licensing from other firms.Apart from these, a gent analysis on the pharmaceutical industry will give a clear envisage and highlight the hidden reason for the recent merger activities in industry and in particular GSK.PEST Analysis on Pharmaceutical IndustryPoliticalConsidering the Medicare in ground forces and UKs National Health Service, the train of political interest developed in this industry can be determined. In addition USA and European market hold the first and second place of industrys global market respectively. So its very clear that the industry has gained a massive political attention because of the increasing social and financial agitate of wellnesscare and safety.In the incr eased political attention on the industry, has kept the industry low to live up the foresight and their interference on most feigns of the industry was a really worrying the giants of the industry. overly the pressure of civil in rapid delivery of products has kept their quality and the industry finds hard in delivering effective products.EconomicThe economic growth of the industry was rapid in recent years and near to IT industry with nine geographic markets account for over 80% of global pharmaceutical sales these are US, Japan, France, Ger umpteen, UK, Italy, Canada, Brazil and Spain. Of the above listed markets, US market holds a major one and fastest too however there is down fall in 2009.The US Pharmaceutical Industry is one of the mainstays of the Economy of America. It has been observe that the US Pharmaceutical Industry is growing at a rapid pace and is showing no signs of slowing down. The US Pharmaceutical Industry Growth is also considered as a very evidentiary par t in the world pharmaceutical industry as well.Source http//www.economywatch.com/world-industries/pharmaceutical/us.htmlAccording to analysis, in 2009, global pharmaceutical sales increased by only 2.5% 3.5%, reaching a total of around 750 billion-760 billion U.S. dollars, which is lower than in October last year the growth rate of 4.5% to 5.5%, a total of 8200 the announce 100 million U.S. dollars. This growth rate is the lowest in the past 25 years.Sourcehttp//www.sourcejuice.com/1169843/2009/05/08/Growth-rate-global-pharmaceutical-industry-lower/ friendlyEvery industry tries to rescue a good social relation. But this industry is many move forward than the other industries because good health is an important personal and social requirement. All the companies of this industry hold and play a vital and unique role fulfilling conjunctions need for good health. And threat of some cleansing diseases like, AIDS, SWINE FLU, SARS etc. had not only attracted the attention of public and media but developed a more depending and demanding situation on the industry.This immense situation has made the industry to maintain direct relation with the society (consumers) with the help of media and government care.TechnologicalThe advance scientific technologies father increased the need for high pass in research and development in regards to encourage the innovation. The growth of technology drives the industry to responds faster to the expectation of the environment. This technology advancement evolves both risks and rewards.Legal EnvironmentHowever in current situation, government involves the industry in the proposal for regulatory outflows to encourage the innovation, these legal and regulatory affairs of US in spare was a speed beaker for the development of the industry. European pharmaceutical giants really struggled in this situation.Sykess statement summarized how Europes pharmaceutical companies have been locked in a high stakes multibillion dollar struggle with their US rivals to stay in business in the 21st century. This struggle is associated with increased takeover activity and pharmaceutical companies seeking economies of scale to finance escalating research and development budgets.Source Case study GSK a merger too far? Exploring integrated Strategy by Johnson, Scholes Whittington.2. To what extent have the aims of Glaxo SmithKline merger been achieved?Some of the aims of the newly licked Glaxo SmithKline were,Not to foster future earnings growth but actually to increase critical mass to really outperform the industry.To become the indisputable leader in the industry in legal injury of conquering the challenges that the industry faces.To deliver innovative products that helps millions of people in the world to live longer, healthier and happier.To achieve the aims, the management formed a new organise for RD, highlighting the cost reductions and breaking of pipeline. However, the lack of focus on general organisational s tructure and internal management structure resulted in low returns compared to the estimate one. To cross the situation, the all the long terms aims has left unfocused and the management tried to recover the company from the sudden-death syndrome.This clearly gives an evidence for Glaxo SmithKlines downfall form the pass judgment growth. The softness of GSK in producing blockbuster products, joint hand with the above described situation made things worse.Focusing on employees and other internal management issues in the later part helped the company to handle the global resisting issues and focus on their long term goals.Analysing GSKs stock market performance (1998 2003), tells that GSK failed to touch the anticipated heights and were only able to sail along with the industry growth. Based on the Lewins force field model, the driving forces of GSK were not too enough to overcome the resistance for change and thus failed to achieve the opinionated target.Evidence for GSK loses r ecordIn the first year of post-merger, GSK claimed 12% increase in pharama industry, with the help of cost savings and disposal of assets. The firm anticipated double the level of saving in the next year. The health care grew only 3%.They fail to record returns in RD in spite of combined RD budget and investment. It also failed to deliver blockbuster product to enhance the revenue. Instead to maintain the tempo, the management kept get 40 licenses from other companies.GSK has shed more than 15,000 jobs Managers were unable to retain the talent that resides on the firms. Instead of creating a powerhouse, research was split into smaller, autonomous units. (Abrahams, 1992 p.22)GSKs new radical structure was a response to a serial publication of failures in research at the two merger partners. (Dyer, G., 2002 p.3). The new radical structure resulted James Palmer (Head Development) submission in October 2002.At the AGM on 19 May 2003, GSK shareholders rejected a motion regarding a 22 million pay and benefits package for CEO, JP Garnier. This was the first time such a rebellion by shareholders against a major British company has occurred, but was regarded as a possible turning point against other so-called fat cat deals within executive pay structure.Source http//en.wikipedia.org/wiki/GlaxoSmithKlineIn November 2005, AIDS health care Foundation accused the company of boosting its short-term monopoly profit by not increasing production of the anti-AIDS drug AZT despite a surge in demand, hence creating a shortage that affected many AIDS patients in Africa. GSK announced that it had halted clinical trials of the CCR5 entry inhibitor, aplaviroc (GW873140), in HIV-infected, treatment-naive patients because of concerns about severe hepatotoxicity.27 In June 2006 GSK state it was further cutting, by about 30%, the not-for-profit prices it charges for some of these medicines in the worlds poorest countries.Source http//en.wikipedia.org/wiki/GlaxoSmithKlineTo analyse, ex tend the aims of the merger have been achieved SWOT analysis is done on the joint company, Glaxo SmithKline. Remuneration lenient explicitlySWOT Analysis Glaxo SmithKlineStrengthsHigh potential staffs and experienced managers.Wide-ranging set of documents in health sector. starchy platform in health care division.Strong market positionFocus to concentrate and develop leadership in Public relations i.e. to strengthen the social context of the environment.Modern hospital system, Clear public health and health care service purchasingBalanced finance in the health sectorStrong IT developmentProduct development track record. wakefulnessesLack of clear and wide perspective .goals to achieve the aimsWeak bond among health care, public health and social care.Inability to cope with the cost increases.Low note value for its products.Inefficiency in motivating the experienced leader and thus flunk to make maximum use of the potential staffs.Lack of viable training and management skills.Not an efficient HR strategy in retaining key professionals.Lack of right proposition of various competences.Co-marketing agreements can limit GSKs global presence.With mass RD, inability to produce blockbuster products.OpportunitiesTechnological developmentSocial changes and challenges.Economic growth of the industry (immediately next to IT industry). publish movement of goods, services, labour.Developing vaccines for persistent diseases chance to have craic.Empowerment of citizens and their greater engagementThreatsPatent expiry on drugs that generate strong incomeAgeing and demographic change.Safety issues surrounding the products.Ecological and public health threats.Expectations of the raising populationAs the RD of global rivals work on similar products in most of the cases, the competition is high and much demanding.Emerging of potential regional market like China and India.Political pressure in fixing the price for new drugs, which fails to fulfil even the research cost.Ever inc reasing cost of drug trials and ever higher standards imposed by national drug cheerss bodies (Aspirin would not get approval if invented today)ConclusionThought there are several giants in the industry, similar to the current situation, there was an uncertain situation during the period of early 90s. And to overcome that uncertain situation, most of the firms in the industry move themselves towards the strategy Mergers and acquisition. But, as there is always a saying that not all mergers works, most of the mergers in the industry fail to achieve the anticipated growth and I feel Glaxo SmithKline is the right example for the scenario. GSK believed that larger the size, bigger the growth and bigger earning. But it failed to realise bigger the size, bigger the expectation, bigger pressure and failing to handle the pressure and keep the expectation will reflect badly.Various merger analyse debated, though GSK claim some success through cost saving and pipeline synergies, the aimed a nd announced growth was not received in terms of market.So I conclude that, the merger served the company only in short term success and failed to achieve the aims of the merger.Reference and Sourcehttp//www.ucc.ie/quality/INTERNET/PESTAnalysis.pdfwww.gsk.comJohnson G, Scholes K and Whittington R (2008) Exploring Corporate Strategy, (Prentice Hall)http//en.wikipedia.org/wiki/GlaxoSmithKlinecite_note-43http//www.wikiswot.com/SWOT/4_User_Generated/GlaxoSmithKline.htmlhttp//www.allfreeessays.com/essays/Gsk-Swot-Analysis/114901.htmlMullins L.J. (2007), Management and Organisational Behaviour, Eighth Edition, Great Britain, Pearson education limited.http//www.pwc.com/us/en/issues/business-combinations/publications/snapshot-mergers-acquisitions-business-combinations.jhtmlhttp//www.startupbizhub.com/company-mergers-and-acquisitions.htm