GlaxoSmithKline Pharmaceuticals (GSK): Harvesting the “Pharm”(a) With its Two-Pronged Sickle

Posted on February 20, 2011 in Business and Economy

By Pradyut Hande:

The Indian Pharmaceutical industry is presently witnessing a period of steady holistic growth as companies are looking to shore up their businesses to cater to an increasingly health conscious domestic and international market and maintain reasonable profit margins. The highly fragmented Indian Pharma industry has grown from strength to strength, logging healthy growth rates year-on-year over the past decade. It is now the third larges pharma industry in the world in terms of volume and fourteenth in terms of value. India’s domestic pharmaceutical market is valued approximately at US $ 12 billion in 2010, and has shown a strong growth of 21.3% for the 12 months ending September 2010, as per consulting firm Pricewaterhouse Coopers (PwC).

It estimates that over the next 10 years, the domestic market will grow to US $ 49 billion, at a compounded annual growth rate (CAGR) of 15 per cent. Presently growing at a more than respectable rate of 12%, the industry is touted to further scale the growth rate charts propelled by enhanced demand.

In their quest to achieve greater market share and capitalization whilst maintaining an international foothold, MNC pharma firms are looking to step up their Indian operations to tap into the existing latent demand. In light of Abbott Laboratories’ Rs. 17000 Crore acquisition of Piramal Healthcare’s domestic formulations business, pharma firms have realized the need to adopt and embrace a more proactive approach in order to safeguard and further their business interests with regards to the Indian market. Abbott’s recent big money acquisition of Piramal Healthcare’s assets has catapulted them to the Numero Uno position in terms of sales in India. The other major players in the mix that have been pushed down the pecking order courtesy Abbott’s ascendancy to the top include; Cipla, Ranbaxy and GlaxoSmithKline Pharmaceuticals (GSK) at positions two, three and four respectively. Other global players attempting to gather a greater foothold in the market include the likes of Pfizer, Sanofi Aventis and Novartis among others.

Set in this background of hyper-competition, GlaxoSmithKline having taken cognizance of the prevalent market realities is embarking on a twin-pronged strategy of acquisitions and differentiated product launches to consolidate its position in India. Hence, by adopting a calibrated amalgamation of organic and inorganic growth plans, GSK hopes to make up lost ground on its competitors. Market penetration is still very low and the increasing accessibility in a heterogeneous market environment offers GSK ample opportunity to further cement its position.

As per company sources, compared to their CAGR of 7.5-8.0% between the period of 2002-07; GSK has been growing at over 10%. The merits ensuing from well-thought out acquisitions stand a firm in good stead considering the fact that pure organic growth in India takes greater time owing to its highly fragmented market dynamics. Consequently, acquisitions assume even greater significance and aid a firm’s rise up the ladder; as is evident from the fortunes of Abbott. However, firms ought to keep in mind the fact that acquisitions ought to make strict financial sense and form a strategic fit over a protracted period of time. As far as GSK is concerned, plausible targets include established or emerging names in vital segments such as antibiotics, cardiovascular and central nervous system (CNS) related ailments and metabolic disorders. What deserves attention at this juncture of time is the fact that valuations have increased manifold after the Abbott-Piramal Healthcare deal that attaches a veritable degree of risk with regards to acquisition propositions. Firms ought to tread with the greatest of care on the “acquisition tightrope”, adopting a balanced approach infused with keen business sense and long term vision. The risks maybe higher but the rewards that accrue when the risks come to fruition are even higher.

Apart from their inorganic growth plans, GSK is all set to launch a brand new range of products including patented drugs and branded generics. They are on the cusp of launching branded generic products in select segments that include antibiotics and cardiovascular ailments. GSK is also looking to expand their presence in the Skincare segment by bringing products from Stiefel Laboratories to the Indian market. Based in the USA, Steiefel was purchased by GSK in 2009. The launch of Synflorix, their pneumoccocal vaccine and two other cancer drugs remain in the pipeline and ought to further their cause; depending on their prospective success per se. This twin-pronged strategy looks good on paper but only time will tell whether GSK is able to capitalize on its success thus far and move towards a more profitable future.

Opportunities abound aplenty… it is the ability to hone down and capture the most promising ones that differentiate the dominant players from the also-rans.