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.