Transcript Slide 1

Class Exercise
on GlaxoSmithKline
Agenda
External Environment
• GSK Overview
- Fundamentals and business mix
- Stock brokers assessments
• Industry Drivers
- Changes in industry structure
- Future Trends
• Problems and risks (backup)
• Recommendations
- New approach to marketing and
others
- Follow on activity
- Financial perspectives
Competitive
Advantage
Finance
Value Based
Management
Strategy
Fundamentals and Business Mix
Business Segment & Geographic Revenue Mix
By Business Segments
Consumer Health
14%
Pharma
86%
By Region
Europe
30%
International
22%
US 48%
Challenges – Stock Broker’s Assessment
• Negative outlook of Avandia (10% decline
in sales per year)
• Few upside catalysts
• Possibility of withdrawal from the market
• Strong pipeline: phase II and phase III
• Marketing: recent restructuring for
marketing team
• Share buyback (?)
Avandia (6%) of the total
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•
•
•
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•
•
•
•
•
Seretide/Advair £3,313 million 11%
Zofran £847 million, up 3%
Vaccines products £1,692 million, up 23%
Valtrex £845 million, up 24%
Avandia group of products £1,645 million, up 25%
Coreg £779 million, up 38%
Lamictal £996 million, up 19%
Imigran/Imitrex £711 million, up 3%
Wellbutrin £900 million, up 24%
Flixotide/Flovent £659 million, up 5%
Comparison
Highest RoE among peers
Company Share price,
name last close
AZN
2,574.00 GBp
GSK
1,330.00 GBp
MRK
53.51
Novartis
54.30
Pfizer Inc 25.58
Roche
211.80
Sanofi-Aventis
43.03 USD
EPS
(NTM)
(LTM)
3.45 e
3.86
98.53 e GBp 94.54 GBp
NA
NA
3.23 e
2.96
NA
NA
10.66 e
8.98
2.64 e
2.61
Price to
earnings
(NTM)
15.2 e
13.5 e
NA
16.8 e
NA
19.9 e
11.5 e
Dividends per share,
excluding special
dividends
(LTM)
(NTM)
(LTM)
13.9
1.78 e
1.42
14.2 50.15 e GBp 47.76 GBp
NA
NA
NA
19.4
1.12 e
0.87
NA
NA
NA
24.3
4.05 e
3.44
13.4
0.88 e
0.76
Return on
equity (ROE)
(%)
(NTM)
16.7% e
21.1% e
NM
18.0% e
NM
19.1% e
10.1% e
(LTM)
20.7%
22.7%
NM
20.7%
NM
18.3%
10.5%
Return on net
operating
assets (RNOA)
(%)
(NTM)
20.2% e
17.9% e
NA
16.7% e
NA
23.9% e
9.6% e
Total payout
ratio (%)
(LTM)
(NTM)
(LTM)
22.7% 123.5% e 89.0%
19.5% 118.4% e 66.4%
NA
NA
NA
21.1% 81.3% e 18.2%
NA
NA
NA
20.1% 37.6% e 10.1%
9.2% 46.4% e 24.6%
Industry Drivers
– Product in the Pipeline
– Marketing: Moving strength to strength
– Regulations: tighter controls and tougher business
environment (FDA in USA)
– Increasing number of generic claims
– Declining number of approvals
– Shorter lifetime for ethical drugs
– Increase in M&A : winner or loser
– Globalization
New Trends in Pharma
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Socio economic impacts (Macro factors)
- Change in population and age structure (10% of 08 - 40% of 50)
- Increase of medical PMT in GDP (OECD 8.5%)
IT
Impact and fusion from High Technology in IT, LS and NT
Innovative products and equipment
Pharmaceutical
- Electronic pills
Industry
- Cutting edge equipment for surgery
NT
LS
- Synthetic body Replacement
Advent of QOL (quality of life) products
- election, obesity, hair treatment, etc.
Stem cell research : paradigm change in medical treatment
Recent M&A between Pharmas and Bios
Buyer
Pharma
Company
Bio
Company
Target
Payment ($B)
Bayer AG
Schering AG
19.9
Merck KGaA
Serono S.A.
13.3
Abbott
Kos Pharma
3.7
Eli Lilly
Icos
2.5
Schering Plough
Organon Bio
14.4
AstraZeneca
Cmb. Antibody
MedImmune
1.32
15.6
Mitsubishi Chem
Tanabe Seiyaku
4.3
Shire Phama
New River Pharma
2.6
Gilead
Myogen
2.3
Amgen
Abgenix
2.2
Genetech
Tanox
0.92
Millipore Corp
Serological Corp
1.4
Biogen Idec
Conforma
0.25
Beckman Coulter
Biosite
1.7
Year
2006
2007
2006
2007
Pharmaceutical Companies in past decade:
A Clear Divide of Winner & Loser
Competitive
Market Environment
Change in
Business structure
Sustainable
Growth
Performance
業績格差
Gap
Accelerating
Improvement the
overseas
operation efficiency
of operations
積極的な海外展開
経営効率化
Profit
Concentrated
investment
研究開発への
on R&D
重点投資
Innovation
Recommendation : Approach by the IncomingCEO
• Positioning :
‘Front Runner in the global Health Care industry’
• Securing Strong Next Growth Engines
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M&A and Strategic Partnership : new technology
Pipeline (patents) management : R&D outsourcing
Emphasizing on the emerging markets (China and India)
• New market strategy and branding
- Developing the vaccine market as major target
 B2B Value added community
- Creation on life time value to customers
• Set-up Vision with stakeholders :
’The Most Admired Company in Ethical Market by 2010’
Positioning in Strategic Map
H
Group D
F6
Pharmaceutical
F
7
Group C
F5
Group B
GSK
Barrier of movement
F3
F4
Group A
Group F
F1
F
8
F2
• Economy of Scale
• High Technology
• Marketing / Brand
• Corporate Reputation
L
L
H
Bio Technology
Financial Perspectives in 2010
Gaining market efficiencies through the B2B network
– Reduced marketing costs
– Restructuring R&D and new market potential
– Enhanced supply chain management
• Supply side : mix optimal supply with long-term
relationship
• Demand sides : direct link and extra growth margin
Utilizing New Pipelines (patents) : 20% upward in sales
Operational Efficiency by BPR : 5% (Globally)
Thank you
Ways to Create B2B VAC
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Buying Power : price discount by scale, providing
detailed information on suppliers and manufactures
Increasing Process Efficiency : cost savings by
transaction, and work process
Consolidation of Supply Chains : process consolidation,
logistics improvement, inventory reduction, no mediate
process
Accumulation Contents and Community : best practice,
KMS, VM, forum, news letter
Efficiency of Market Research : e-catalogue, auction,
exchange, bidding (cyber-market usage)
Value Added Communities
Supplier
Supplier
Buyer
B2B Platform
Supplier
Buyer
Buyer
VAC
(Value Added Communities)
Investment in World Health
Problems and Risks
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Possibility of late stage trial failures
Expiration of patented drugs (pipelines) :$13B in 10 yr
Lack of next Growth engine : M&A $2B over 02-06
Corporate ethics :
- Rejection of benefits package for CEO (Fat Cat)
- Customer of animal testing companies (FETA)
- Short-term monopoly profit anti-AIDS drug AZT
- Avandia issue: Case pending
• Competition from generic drugs and quick
• Change in the industry structure
• The New Chairman
– Debunking : from the stories to the global capital market
(abundant liquidity)
Major development – Potential Revenue
Major NCEs and vaccines in phase III development:
ambrisentan – for hypertension
Lymphostat-B* – for lupus
casopitant* – for post-operative and chemotherapy-induced
vomiting and nausea
pazopanib* – for prevention of tumour growth
mepolizumab – for hypereosinophilic syndrome
Promacta* – for patients with low platelet count
New generation ‘flu vaccine*
• Globorix – a new combination paediatric vaccine against
hepatitis B,
diphtheria, meningitis A and C
• New meningitis vaccine against meningitis C and Y and
Hib*
• Synflorix – vaccine to prevent pneumococcal disease.
(* entered late-stage in the last 12 months)
Major NCEs and vaccines filed:
• Allermist/Avamys – for hay fever; US
approval expected in first half
of 2007
• Altabax/Altargo – for skin infections;
approval expected in 2007
• Entereg – for post-operative ileus,
approval expected in 2007
• Tykerb – for breast cancer; US approval
expected in first half of 2007
• Cervarix – vaccine to prevent cervical
cancer; European and
International launches expected in second
half of 2007
• H5N1 pandemic vaccine.
Late-stage assets in-licensed during the
last 12 months:
• Hu-Max-CD20 – for the treatment of
leukaemia and non-Hodgkin’s
lymphoma
• gepirone ER – for major depressive
disorder
• XP13512 – for restless legs syndrome
and treatment of neuropathic
pain.