Smithkline Beecham Essay, Research Paper
A) History SmithKline Beecham develops, manufactures and markets pharmaceuticals, vaccines, over-the-counter medicines and health related consumer products. SmithKline Beecham currently has operations in 160 countries and employs 58,000 people worldwide, as of June 1998 (SmithKline Beecham 1998). SmithKline Beecham s operations range from pharmaceuticals, which range from the sale of medicines, growth of R&D, expansion of managed healthcare, commercialization and marketing of drugs.In the 1830 s John K. Smith and his brother, George, created John K. Smith & Co., a drug distribution company established in Philadelphia. In the mid 1800 s, Thomas Beecham formed Beecham Pills based in England. Both these companies had success through the 19th century. As the 20th century progressed, both firms wanted to compete in the global market but could not do it alone (International directory of Company Histories 1991). Realizing the potential of each other s firm, negotiations for an alliance began. Then in July 1989, the merger between the two giants took place.SmithKline Beecham was formed in July 1989 to build the framework of one of the largest pharmaceutical companies. At the time, the merger signified the second-largest pharmaceutical company in the world (International Directory of Company Histories 1991). The merger was between the Beecham Group and SmithKline Beckman. The Beecham Group was a British based company that began as a small regional operation and later emerged as a multinational patent medicine corporation (International Directory of Company Histories 1991). SmithKline Beckman was a well-established firm based in the United States. SmithKline Beckman and the Beecham Group merged to become one of the largest and leading healthcare companies in the world (S&P Standard Corp. Description 1998).The jobs encompass research, testing, development, and production. This is just the broad overview of the diversification of SmithKline Beecham.SmithKline Beecham is broken down into three main divisions, the first is pharmaceuticals. This group primarily deals with prescription medicines. In 1997, SB has totaled a whopping $7.5 billion and $3.72 billion in the first half of 1998 (SmithKline Beecham 1998). The second category is consumer healthcare. Consumer healthcare focuses on over-the-counter medicines, oral care and nutritional drinks (SmithKline Beecham 1998). Sales worldwide grossed approximately $1.88 billion and continues to hold the number one position in oral care in Western Europe (SmithKline Beecham 1997). The final division is healthcare services. The goal of this division is to combine the efforts of SmithKline Beecham s clinical laboratories and pharmaceutical management businesses to provide answers through information-based products and services (SmithKline Beecham 1998). Meaning, drugs that are available through prescription or over-the-counter, are always manufactured with the consumer in mind. SmithKline Beecham not only wants to sell effective medication, but the knowledge of how and why each medication works. SmithKline Beecham s organizational strategy relies heavily on interaction of its specialized departments. Communication between departments is a necessity in running an operation smoothly. For example, SmithKline Beecham s R&D facilities is separated into six distinct classes (SmithKline Beecham 1998). Oral Healthcare Analegesics Gastrointestinals Nutritional Healthcare Respiratory Tract Dermatologicals, Vitamins & Naturals Each division has its own specific responsibility and must remain in contact with the other to insure that up to date information is available and used throughout departments. (Appendix A) As soon as a compound enters development, certain steps are taken to insure maximum profitability. This is described as life cycle management or continuous interaction of specialized departments. They also participate in many career development programs for its employers. SmithKline believes that compensation and a personal touch with the employee is the key to keeping morale up. Leadership Planning Process: Managers are assessed and development plans are devised to improve their skills. Leadership Exchange: This is a 3-day program held in different regions of the world for managers to get together and discuss current issues and topics. Stock Option Plan: SmithKline Beecham encourages employees to own shares. B) Mission in the Global Marketplace A few statements would describe SmithKline Beecham s purpose and goals concerning the global marketplace. The creation of SmithKline Beecham International combines Pharmaceutical and Consumer Healthcare operations in markets outside the U.S. and Europe. Its mission is to deliver alternative healthcare solutions at lower costs, without compromising quality. With the scope and depth of these resources, SB is able to meet existing customers requirements and build a strong foundation for expanding global healthcare efforts into new markets. The annual report summed it up best when it said, The Simply Better Healthcare Company as judged by all those we serve: customer, shareholders, employees and the global community (SmithKline Beecham 1997). As I noted before, there are six distinct categories to consumer healthcare. SmithKline Beecham forms a category management team that incorporates and unites all skills. Some of the responsibilities of the category management team is to determine global brand strategies, improve pending projects, and prioritizing R&D resources (SmithKline Beecham 1998).One of the important objectives of SmithKline Beecham is to remain a strong presence in the community. This is accomplished by building partnerships and relationships on a local, as well as, a global scale (Sprain and Talbot, 1995). In order to achieve this goal, SmithKline Beecham instituted Community Partnership teams in different regions of the world. Another strategy that SmithKline Beecham employs to stay atop the drug industry is constant development of their R&D program. In the last year, they increased spending by 17% to tally up $1.27 billion (Value Line 1998). The healthcare industry throughout the world is marred with movements and shifts (U.S. Industry and Trade Outlook 1998). This is why SmithKline Beecham believes that they must remain on the forefront of development to remain a big player in the global market.Industry analysts expect still more giant mergers among the drug makers as the pharmaceuticals industry reacts to pressures for immense research costs, government buyers, and managed-care insurers (Olmos 1998). Despite the failed merger between SmithKline Beecham and Glaxo Wellcome, SmithKline remains world s 5th largest drug company (Sprain and Talbot 1995). The purpose of many of the industry giants is described as going global or expanding beyond their borders to provide services in foreign markets (U.S. Industry and Trade Outlook 1998). C) Challenges One of the challenges SmithKline Beecham faces is that they cannot control the decisions of governmental agencies. Unfortunately, health care reform is always changing and hard to predict. SmithKline can only speculate how such reforms will affect the pharmaceuticals industry and prepare to meet such challenges (S&P CreditWeek 1998). From a financial risk perspective, such reform could drastically modify the spending and hamper future globalization efforts.Another challenge SmithKline Beecham is undergoing is the technological advances of medicines. With that in mind, ethical questions come into concern. For example, Zyprexa, an antipsychotic drug is one of the most potent of its kind. Although it may be successful, decreasing symptoms of schizophrenia it is often accompanies with severe side effects (Standard & Poor s Industry Survey 1998). SmithKline Beecham s approach to managing people is to create a workforce that reflects diversity of the world (SmithKline 1998). They realize that to maintain one of the world s foremost pharmaceutical companies they must continue to expand to new areas of the world. One way to accomplish such a task is through networking. With a community of workers covering the globe an increasing amount of potential employees and consumers will be reached. The majority of the 58,000 employees work in the United States with approximately 24,000, the United Kingdom with 8,400, Continental Europe with 8,700, and the rest of the world with 16,000 (SmithKline Beecham 1998). In chapter three of the text, it mentions how each employee is a unique individual. SmithKline Beecham understands that each employee have lives outside of work. To uphold the quality and standards of living to other firms in the workplace, SmithKline Beecham provides workplace drug tests. In the last decade, SmithKline Beecham has performed approximately 24 million tests on the American worker (Newsbriefs 1997). SmithKline Beecham faces many challenges in today s society. These are just a few methods that they have implemented to succeed in the 21st century. E) Global Economy SmithKline Beecham is aware of the changes in global economy. One method that they have implemented is their Worldwide Business Development (WWBD). The duty of the WWBD is to identify new opportunities and determine if it is worthwhile for SmithKline Beecham to invest in (SmithKline Beecham 1998). The WWBD is broken down into three divisions: Scientific Licensing: Their role is to make technical assessments. For example, when new or potential drugs are considered for acquisition or further development, the scientific licensing division will evaluate the structure of the drug. Business Development: This division is in charge of the commercial issues. Such as the marketing, financial, and economic issues brought about by new products. The scientific licensing and business development departments work in harmony to get products through the approval phase. S.R. One: This unit is evaluates and invests in potential endeavors (SmithKline Beecham 1998). The number of alliances jumped drastically in the past ten years. In 1986, 121 mergers scoured the market, but in 1997 an enormous 635 mergers were formed (PhRMA 1998). In the next century, we will continue to see more mega-mergers as well as developing firms joining forces with well-established firms. Much of this is due to increased competition and gaining market share.In 1997, SmithKline Beecham formed a co-partnership with Bayer to market the drug, Baycol. Baycol is a drug used to remedy hyperchloesterolemia or in general terms, high cholesterol. Another partnership formed was with Magainin. The alliance was formed to gain a U.S. license to sell Cytolex, a topical antibiotic (SmithKline Beecham 1998). In 1997, SmithKline Beecham formed diaDexus, with one of its collaboration partners located in Palo Alto, California (George 1998). SmithKline continues to pursue potential new markets by way of mergers and partnerships around the world. G) Technological Progress SmithKline Beecham has responded to the movements of the pharmaceutical industry. Their goal is to stay on the cutting edge in respect to new technology, drugs, and procedures.One such method that SmithKline Beecham has implemented is to develop a new business sector. In early 1996, SmithKline Beecham created a Healthcare Services Unit (SmithKline Beecham 1998). The Healthcare Services Unit consists of three primary divisions:
SmithKline Beecham Clinical Laboratories (SBCL) The role of the SBCL is to administer genetic testing and maintain relationships with other testing agencies (SmithKline Beecham 1998). SBCL performs over 100 million tests yearly to remain at the forefront of the pharmaceutical business. SBCL is one of the largest U.S. clinical laboratories and it currently serves more than 80,000 physician, hospital, and corporate clients (Standard & Poor s Stock Reports). SBCL is also the leading firm in substance abuse testing such as employee drug screenings and athletic competition events (Standard & Poor s). Diversified Pharmaceutical Services (DPS) The main task of the DPS is to provide management and prescription drug services to organizations such as insurance and managed care facilities (SmithKline Beecham 1998). DPS also provides a variety of benefit plans for an assorted number of corporations at a low cost without sacrificing quality. Research & Development (R&D) The goal of R&D to pursue potential discoveries, continue research collaborations, and program development (SmithKline Beecham 1998). The evolvement of these services will hopefully guide SmithKline Beecham into the next century and beyond. Recently, SmithKline Beecham has been concentrating in the area of DNA research. According to R&D Directions (January 1998), SmithKline Beecham is the leader in DNA research (p. 12). By better understanding human DNA, medication takes less time and is more easily developed. SmithKline is in the early stages of developing vaccines for diseases such as Alzheimer s and cancer (SmithKline Beecham 1998). In the past year, SmithKline Beecham has introduced four herbal remedies under the brand name, Abtei. Due to its recent introduction, SmithKline Beecham has not announced any dates that the products will be released (Hellmich 1998). Barfield and Beltz (1995) reported, A survey based on a random sample of 100 U.S. firms in different industries confirms that patent protection is essential for companies investing in pharmaceutical R&D (p. 43). Drug companies noted that 65% of medicines would not have been created if it were not for patent protection (PhRMA 1998). A major concern for SmithKline Beecham is the duration of patents and patent protection. If the drug in question is patent-protected then the firm is more likely to invest in its research and development. If not, the exclusivity of the product will be in jeopardy. A patent on a product does not grant a monopoly for finding a cure to a disease; it just prohibits others from using the patented formula without consent of the patent holder (PhRMA 1998). With numerous pharmaceutical related companies on the market, you commonly see firms merge with rivals just to survive. For example, Hoffmann La Roche and Syntex merged recently. In the pharmaceutical industry, most companies spend 15% to 20% of their revenue on research and development. Companies that create drugs that are inexpensive and first on the market are most likely to receive enormous amount of publicity. This normally leads to tremendous demand and financial gain. An example of such a drug is Viagra. When Viagra first hit the market, consumers could not get enough of it and Pfizer was on top of the world. Although the hype may have subsided, breakthroughs like this is what fuels companies to constantly strive for that new discovery. I) Global Industry The pharmaceutical industry s growth rate is remains positive and continues to grow each year. The increased competition and technology will push firms to create better quality and more effective medications into the 21st century. International sales of pharmaceutical products are expected to reach $315 billion in 1998, up $17 billion noted in 1997 (S&P). The United States pharmaceutical companies expect to sell $124.6 billion or 40% of pharmaceutical commodities in 1998 according to the Pharmaceutical Research and Manufacturers of America (PhRMA), a Washington, D.C. based trade group. (S&P). Growth in the pharmaceutical industry is anticipated to be 6% to 7% in the next three to five years (Standard & Poor s Stock Report 1998). This is due to the climbing population of the over 65 and over demographic. Since research and development have created drugs that can nearly cure every type of ailment or disease, preserving life for people into the later years of life has become an easier task. Another element that will affect growth is the growing population in third world countries. The rise in populations in these regions will significantly increase demand, thus expanding growth in the drug industry (Standard & Poor s Industry Survey 1998). About 60% of the worldwide sales are accounted by international firms, such as SmithKline Beecham, Astra, and Novartis. The pharmaceutical industry is divided into two classifications: The first group of the industry is the ethical or prescription drugs. These drugs are normally available only through prescription. The prescription sector can then be broken down into two divisions, which consist of brand name and generic drugs. Brand-name drugs accounted for approximately $72 billion in 1997, and generic drugs totaled $12 billion (S&P). The disparity between the two figures can be attributed to the costs associated with brand name and non brand-name products. The second group of the pharmaceutical sector is the over-the-counter (OTC) or nonprescription industry. This group consisted of roughly $16 billion of sales in the United States (S&P). OTC products primarily target minor and temporary ailments as well as coughs and allergies. A third division that I consider important, but has not been regarded as a mainstream issue is the orphan classification. The orphan classification involves drugs that companies create strictly for goodwill affecting fewer than 200,000 people. The purpose of conceiving an orphan drug is to treat rare diseases affecting fewer than 200,000 people. In January 4, 1983, the Orphan Drug Act was passed (FDA). Some local examples of orphan drugs in progress is the treatment of cystic fibrosis. For three years, Targeted Genetics Corporation, based in Seattle, has been developing a remedy to combat cystic fibrosis. The generic name of their product is Adeno-associated viral-based vector cystic fibrosis gene therapy. Since January 1996, SmithKline Beecham have advanced their research of epilepsy, racemose (cysts in spinal fluid), and chemotherapy. The drug that is in development is Albenza. The United States accounted for 40% of all sales for prescription drugs. Europe was not far behind with 32%, Japan 24%, and the remaining 4% consists of other regions (Standard & Poor s Industry Survey). According to recent figures, Glaxo Wellcome accounted for $11.6 billion dollars of worldwide sales with Merck a close second with $11.4 billion. SmithKline Beecham was ranked 10th with $7.4 billion (IMS America). In the United Kingdom, they practice a form of profit control known as the Pharmaceutical Price Regulation Scheme. This type of regulation limit prices capping profits that pharmaceutical companies make on the capital they invest in plants for research, development, and manufacturing (PhRMA 1998). Unfortunately, for SmithKline Beecham this regulation introduces nonmarket factors into capital investment decisions.The pharmaceutical industry is one of the leading spenders in the research and development category. The predicted industry expenditures for R&D in 1997 totaled $18.6 billion and that is expected to increase to $20.6 billion for 1998 (FDA 1998).SmithKline Beecham seeks to gain their ambitious dominance through creativeness, modernization, and development. By employing these factors, SmithKline Beecham hopes to stay competitive in the dog-eat-dog world of the drug industry.In 1997, SmithKline Beecham spent $1.27 billion alone, on R&D, an increase of 17% percent from the previous year (SmithKline Beecham 1997). In Harlow, UK, SmithKline Beecham opened a massive $410 million Science Park. The goal of this research center is to invent and discover new drugs for the next century (SmithKline Beecham 1997).One product that has been successful for SmithKline Beecham is the chewing gum designed to help smokers kick the habit . The name of the gum is Nicorette. A complement to Nicorette is NicoDerm CQ or better known as the patch . These two products have been the driving forces that catapulted SmithKline Beecham into the top echelon of the OTC market. The success of these products gave them a 90% share of the OTC market in the United States and accounted for $448 million (SmithKline Beecham 1997).Another product expected to do well is Memric, an Alzheimer s disease treatment. It is currently in Phase IIIa clinical trials, which means it is in the final step before actually being available to consumers. Before Memric actually hits store shelves, more large-scale dose ranging studies are needed to verify its safety, efficacy, and pharmacoeconomics (SmithKline Beecham 1998). It is predicted to have approximately $250 million in sales by the year 2000 (PharmaBusiness 1998).In 1998, SmithKline Beecham and Glaxo Wellcome were in negotiations to form a partnership. Although months of discussions passed, the deal fell through. If the merger were successful, it would have formed the largest drug company in the world (Wall Street Journal 1998). From a business risk perspective, the merger of the two giants would have combined two players in similar industries with rather favorable risk attributes and improved both their positions through a larger portfolio of products and increased marketing power (Standard & Poor s CreditWeek 1998). There are numerous prospects the future of the pharmaceutical industry can bring. Here are three reasons why it will most likely occur. First, the population of the world is not getting any smaller. The rate of growth for Earth is growing at an exponential rate. SmithKline Beecham and the pharmaceutical industry cannot ask for anything better. The 65 and over demographic is increasing due to the advancement of healthcare and medication. Healthcare for this demographic is a billion-dollar industry and will continue to grow. As population grows, as does potential health concerns which lead to likely business. Secondly, technology is progressing at an alarming rate. Everyday there is a breakthrough that could cure numerous diseases. The journey into the next century could provide cures for AIDS, cancer, and other diseases with high mortality.Finally, pharmaceutical firms have, and are generating more capital and revenue. Thus, it is more feasible for them to achieve goals faster. The firms have much more financial possibilities compared to 50 to 100 years ago.The pharmaceutical industry has only one direction to go and that is up. With the latest technology, drugs are much cheaper than previous years. The onset of mega-mergers has provided firms with the financial freedom to pursue leads that would be otherwise unattainable due to lack of capital. Finally, the growing number participants in the industry push each firm to compete at a much higher standard.These are just three points that optimistically support my claim of the great possibilities of pharmaceutical industry. The future is bright for the pharmaceutical industry and I hope it continues to shine.