Glaxosmithkline In South Africa

GlaxoSmithKline in South Africa Submitted to: Prof. Rahul Gupta Chowdhry

Submitted By: Group 8: Arpita Bahadur Gaurav Kumar Manish Gupta Pavan Kumar Ranjini K Ballal Vani Vyas

Q 2. How would you characterize patents using Porter’s industry analysis framework? Ans: A patent is a set of exclusive rights granted by a state to an inventor or

his assignee for a fixed period of time in exchange for a disclosure of an invention. The procedure for granting patents, the requirements placed on the patentee and the extent of the exclusive rights vary widely between countries according to national laws and international agreements. Typically, however, a patent application must include one or more claims defining the invention which must be new, inventive, and useful or industrially applicable.

a) Threats of entry posed by new or potential competitors – “LOW”:  High barriers to entry, here the company needs to put a lot of capital into research and development.  Lengthy approval process, marketing before it is able to receive any returns.  Companies that were able to build global operations are benefiting from economies of scale in terms of manufacturing. They are able to access low-cost supplies, as a result.  Patent expirations may lead to an entry of new competitors (generic competitions), resulting in decreased revenues. High rates of patent expirations are approaching in 2010 through 2012.

 The ability of a pharmaceutical company to offset loss of revenue from patent expirations depends on growth in existing products as well as successful execution from the new product pipeline.

b) Degree of rivalry among existing firms – “HIGH”:  Strong credit profiles: companies operate off of high margins (high 70%), healthy balance sheets, and good liquidity.  Industry benefits from strong demand from consumers.  Small companies usually go out of business if they have no potential blockbuster products in future pipeline. Others that have some significant research or valuable assets will be bought by big and strong pharmaceutical companies.

c) Bargaining power of suppliers – “LOW”:  Large pharmaceutical companies generally enjoy significant buying power.  Suppliers generally have little room for negotiation.  They can dictate the price they want to buy or take their business elsewhere.

d) Bargaining power of buyers – “LOW”:  Consumers have very little bargaining power.  Consumers will have to buy the drug at any given price if they need it.  Pricing pressure – The U.S. remains one of the few developed markets where drug manufacturers have significant pricing flexibility, and this is in jeopardy due to increasing pressures from consumers and legislators to control health care costs.  Shareholders continue to pressure the companies for increases in the share repurchase programs.

e) Closeness of substitute products – “MEDIUM”:  Customers can find substitute medicine if the original product has an expired patent.  Threat from generic competition.  Generic drug manufacturers face excellent opportunities for utilization and volume trends. Generic companies are increasing focused on establishing global operations in order to achieve a lower-cost of supplies, thus posing even more threat to non-generic drug manufacturers.