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GlaxoSmithKline plc (GSK)

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Emily Wang

on 15 September 2012

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Transcript of GlaxoSmithKline plc (GSK)

primary areas of business R&D Pharmaceutical discovery and development process 31.7% 30.3% 38% Simplifythe operating model
Turnover by region Since 2008, its business has been re-shaping to capitalise on the higher growth potential of markets outside Europe and the USA. The process of discovering and developing new medicines and vaccines is long and expensive and requires innovation and creativity. Industry development times are typically 10–15 years for new medicines and vaccines, with costs of up to £1 billion for each approved product. The R&D process often involves thousands of patients in trialsto investigate the safety and efficacy of potential new treatments. Patent protection for prescription medicines – as for other inventions– is around 20 years in most Western countries. However, by the time a new medicine is approved for use in patients, a significant proportion of this exclusivity period will have passed. Patents onour products also do not prevent the protection being challenged beforethey expire. Once patent protection expires, a medicine is often subject to competition from generic manufacturers who donot have the same R&D overheadsand so are able to offer their productsat considerably lower prices. Declinesin sales following patent expirationsare particularly rapid in the USA and Europe. Generic pressures are different in emerging markets, where brand allegiance has a greater influence. In these markets, a known heritage or brand for existing medicines – whether on-patent or not –is valued and provides an opportunityto withstand generic competition. £27.4 bn Group turnover Our business is sustained through investment in R&D.In 2011 we spent £3.9 billion before major restructuring*, £4.0 billion in total, in our search to develop new medicines, vaccines and innovative consumer products.
We allocate our R&D investment based on our view of the scientific opportunities in different disease areas, our ability to provide significant improvements on existing treatments and the level of returns we can generate.We also have dedicated research programmes for diseases that affect the developing world. We are one of the few healthcare companies researching both new vaccines and new medicines for all three of the World Health Organization’s priority diseases: HIV/AIDS, malariaand tuberculosis. Legal costs of £157 million (2010 – £4,001 million) primarily arose from additional charges in the year for product liability cases regarding Paxil, Poligrip and other products and various government investigations and reflect the best estimates of the additional amounts expected to be necessary to resolve those disputes. SG&A costs were 32.2% of turnover compared with 46.0% in 2010. Excluding legal costs, SG&A costs were 31.7% of turnover, 0.2 percentage points lower than in 2010. This reflected lower restructuring charges and ongoing cost savings, including from the Operational Excellence programme, partly offset by the impact of the reduction in sales of pandemic related products, Avandia and Valtrex and the US healthcare reform levy of £100 million, and continuing investment in growth businesses and new product launches.Advertising and promotion declined 5%, selling and distribution declined 7% and general and administration excluding legal increased 2%. Collectively these items accounted for a 3% decline in SG&A before legal costs. Selling, general and administration The proportion of Pharmaceuticals R&D investment made in the late-stage portfolio continues to grow from 49% of the total Pharmaceuticals R&D costs in 2009 to 54% in 2011.
R&D expenditure was 14.6% of turnover compared with 15.7% in 2010, reflecting lower restructuring costs, efficiency savings and lower intangible asset impairments, partly offset by increased investment in the late-stage pipeline. In commercial organisation, to have pioneered new sales models to align with the changing market and expectationsof our customers, e.g. to introduce a new remuneration system for US sales representatives based on the service they deliver to healthcare professionals rather than on individual sales targets. to provide broadly-sourced sales growth and provide greater resilience in the face of market challenges, such as the loss of patent protection or government austerity measures. to have broken up the traditional hierarchical pharmaceutical R&D business model, creating instead smaller units to encourage greater entrepreneurialism and accountability for scientists.
...one of the few companies researching treatments and vaccines for malaria, TB and HIV.
In 2011, positive initial results was reported for malaria vaccine which if successful, would be the world’s first vaccine against this deadly disease. Grow a diversified global business Deliver more products of value to have implemented a global restructuring programme which has delivered significant savings, over the past four years.
to streamline production processes to improve efficiency and eliminate waste, including reorganising global support functions such as facilitaing real estate, IT and procurement into one centralised group. £2.2 bn-economies of scale
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