Glaxo Wellcome Pakistan – Managerial Policy Report & Case Study

GSK Pakistan

GSK Pakistan

COMPANY OVERVIEW

Glaxo Wellcome plc is one of the world’s leading research-based pharmaceutical companies. The Group was formed in March 1995, following the integration of Glaxo and Wellcome. Both companies had long traditions in the field of prescription medicines – and the merger of their operations created the second largest pharmaceutical company in the world. Glaxo Wellcome has 76 operating companies and more than 50 manufacturing sites worldwide – and seven products in the world top 50. In Pakistan, it is the largest pharmaceutical company with the highest share of the local pharma market and annual sales of Rs. 3296 million in value.

CORPORATE MISSION:

Glaxo-Wellcome Pakistan Limited is a subsidiary of Glaxo Wellcome plc, a research-based company, whose people are committed to fighting disease by bringing innovative medicines and services to patients in Pakistan and to the health-care providers who serve them. The strategic intent of Glaxo Wellcome Pakistan is to be an ethical, enterprising and aggressive company seeking long term business opportunities

To serve its mission, the company has a broad and well-balanced product portfolio with five major product lines in gastro-intestinal, respiratory, dermatological, antiviral and antibiotics. Glaxo Wellcome also plays a leading role in the export of pharmaceutical raw materials.

FUNCTIONAL DEPARTMENTS:

The departments at Glaxo Wellcome are broadly classified into:

  • Human Resources and Corporate Affairs unit: This department includes:
  1. Human resources Administration                 3. Legal and Corporate Affairs

The HR function is actively involved in planning frequent training and development programs, recruitment, career planning, performance appraisals, and job evaluation. The administration department looks after issues like discipline, safety and security, transport and catering facilities, etc. The legal and secretarial activities are handled by the Corporate Affairs unit.

  • Technical Unit: This includes the following departments:
  1. Production Production Control         3. Quality Assurance       4. Projects   5. Stores
  2. Research & Development 7.Engineering 8.Procurement      9. Health, Safety &Environment

These departments are involved in maintaining smooth functioning of plant and machinery, quality assurance, strict adherence to predetermined standards and specifications for raw and packing materials, bulk and finished products, health audits, and development of new products.

  • Finance Unit: This unit is involved in maintaining books of accounts, preparing budgets, reporting variances, managing taxation, providing timely management information, and carrying out feasibility studies of major projects. These functions are the responsibility of :
  1. Information Systems Planning & Management Accounting     3. Cost Information
  2. Financial Accounting Payroll & Risk Management      6. Internal Audit & Business Systems
  • Commercial Unit: This unit is involved in conducting training and development courses for the sales force, monitoring adherence to marketing strategies in the field, and to benchmark the company’s promotional activities in relation to competitors. It includes:
    Sales          2. Marketing         3. Distribution       4. Sales training    5. Advertising and Sales Promotion
  1. Medical & Regulatory Affairs

 

INDUSTRY STRUCTURE

Pakistan Pharmaceutical industry can be classified into Multinational Pharmaceutical Companies and National Pharmaceutical Companies. In 1997 the top 31 multinationals in the industry control accounted for around 70 % of the local market. Currently there are 36 multinational and 573 local pharmaceutical companies currently operating in Pakistan. Local companies cannot compete with these MNCs due to resource constraints, so there is no major expansion in the product lines of the local pharmaceutical companies. MNCs expend huge amounts to promote their products in the market. However, only 54 companies are actively manufacturing pharmaceuticals the rest of local companies have licenses to import pharmaceutical products. Traditionally, Pakistani pharmaceutical industry has been a highly fragmented industry where 609 companies currently vie for the total market. Glaxo-Wellcome has the biggest market share of almost 7% of the total market.

 

REPORT OBJECTIVE & METHODOLOGY

This report aims to conduct value chain analysis of all functional departments of Glaxo-Wellcome, to determine its core capabilities, identify areas of strengths and weaknesses, and assess the relevance and adaptability of its strategies to the environment. During the process, we also propose to identify the internal and external problems faced by the organization at various functional levels and how they hinder the overall efficiency.

Primary data: For this purpose, we will visit the company’s facilities and interview the heads of each department as well as one or two middle-level managers in order to better grasp the unique value drivers operating there. An environmental scan, including competitor analysis, will be conducted to assess the position of the company with respect to the industry and the effectiveness of the strategies pursued by it in face of the environmental forces which impact on it.

Secondary data: (a) financial statements  (b) printed reports of brokerage houses and stock exchange

(c) IRS (d) News papers and magazines as PAGE, Business Recorder, The News and DAWN etc.

(e) Information Medicine Statistics  (f)  Pharma Bureau reports (g) Economic Survey.

 

PROBLEMS

  1. Major Problems
  • Adverse Pricing Policy and Impact of Foreign Exchange Policies: There has been no increase in prices for regulated drugs for the past three years, reducing the profitability of the sector in face of increasing costs. The last price increase of 6% for controlled medicines was in 1996 against a cost increase of 21.73%. There was no adjustment in prices for 1997 onwards, against constant increases in costs related to devaluation, import duties, investment in technology, inflation, etc. Total impact of all inputs has been over 200%. Whereas all the other industries are allowed to pass on the burden to the consumer, the pharmaceutical cannot do so due to rigid price controls.

2.       Minor Problems

  • Lack of adequate infrastructure for environmentally harmful wastes disposal setting up covered drainage systems for effective and environmentally viable disposal purposes requires high investments by the company, a task which should have been performed by the government. One of the Wellcome factories located in Karachi faced a lawsuit and had to be closed down due to some related issue;
  • Threat of Fake Products: The company faces threats of lawsuits / lost sales due to damage inflicted by use of fake products which are packaged in its name.
  • Acquisition of Wellcome in 1996 has not significantly enhanced the combined value of the company as was anticipated, due to non-materialization of certain expectations of hidden values (in terms of research activities). The joint company is still in the process of streamlining operations and creating synergies from the acquisition. 1700 people have been laid off. There are, in total, four factories in Karachi of Glaxo-Wellcome. The company is carrying out manufacture of different lines of products at each factory due to lack of infrastructure connecting all of them and transport and communication problems. This has also created certain duplication of processes at each. There is also evidence of cultural clashes between the employees of the merged companies.
  • The multinationals and local companies face cultural problems in the country. The level of awareness of health related issues are very low and people visit unqualified doctors who are unable to diagnose the disease and prescribe the right drugs to the patients. Moreover in the rural areas, people depend on herb to cure diseases. Thus a large market remains unavailable.
  • The Pakistani market is not a viable market for a large presence for any multinational pharmaceutical, due to its low GDP and low per capita income and growth which eliminates the possibility of fair pricing of medicines. Over the past few years, the government expenditure on health has been declining. Pakistan is among the group of countries where the expenditure on health as a percentage of the GDP is the lowest in the world. The company has been considering reducing its portfolio of 187 drugs of the combined Glaxo and Wellcome, particularly in Pakistan. Moreover, The high inflation rate has eroded the purchasing power of the consumer, thus negatively affecting the sales of the specialty drugs in the local market
  • Intense competition: Although MNCs control a total of 75% market share, however no company controls more 7% of the market. Glaxo-Wellcome has the highest share of 6.8% of the total market. The intense competition refrains pharmaceutical companies from increasing prices on their own.
  • Training of Personnel: Pharma is a very specialized sector and the management at all levels has to be informed of the specifics and synergies associated with the sector. Hence, the company faces high training costs. Consequently, the cost of any turnover can be high.
  • Adverse Impact of Law & Order Situation and shutdown of plants and operations due to strikes creates delays in production and delivery.

 

COMPANY OVERVIEW

Glaxo Wellcome plc is one of the world’s leading research-based pharmaceutical companies. The Group was formed in March 1995, following the integration of Glaxo and Wellcome. Glaxo Wellcome has 76+ operating companies and more than 50+ manufacturing sites worldwide – and seven products in the world top 50. In Pakistan, it is the largest pharmaceutical company with the highest share of the local pharma market and annual sales of Rs. 3296 million in value.

CORPORATE MISSION:

  1. Glaxo-Wellcome Pakistan Limited is a subsidiary of Glaxo Wellcome plc, a research-based company, whose people are committed to fighting disease by bringing innovative medicines and services to patients in Pakistan and to the health-care providers who serve them. The strategic intent of Glaxo Wellcome Pakistan is to be an ethical, enterprising and aggress                                                                                                                                                                                                                                                                                                                                                                                                                                                     nistration                       Legal and Corporate Affairs

The HR function is actively involved in planning frequent training and development programs, recruitment, career planning, performance appraisals, and job evaluation. The administration department looks after issues like discipline, safety and security, transport and catering facilities, etc. The legal and secretarial activities are handled by the Corporate Affairs unit.

  • Technical Unit: This includes the following departments:
  1. Production            2. Production Control         3. Quality Assurance       4. Projects   5. Stores
  1. Research & Development  7.Engineering       8.Procurement        9. Health, Safety &Environment

These departments are involved in maintaining smooth functioning of plant and machinery, quality assurance, strict adherence to predetermined standards and specifications for raw and packing materials, bulk and finished products, health audits, and development of new products.

  • Finance Unit: This unit is involved in maintaining books of accounts, preparing budgets, reporting variances, managing taxation, providing timely management information, and carrying out feasibility studies of major projects. These functions are the responsibility of :
  1. Information Systems Planning & Management Accounting     3. Cost Information
  2. Financial Accounting Payroll & Risk Management      6. Internal Audit & Business Systems
  • Commercial Unit: This unit is involved in conducting training and development courses for the sales force, monitoring adherence to marketing strategies in the field, and to benchmark the company’s promotional activities in relation to competitors. It includes:
    Sales          2. Marketing         3. Distribution       4. Sales training    5. Advertising and Sales Promotion
  1. Medical & Regulatory Affairs

 

INDUSTRY STRUCTURE

Pakistan Pharmaceutical industry can be classified into Multinational Pharmaceutical Companies and National Pharmaceutical Companies. In 1997 the top 31 multinationals in the industry control accounted for around 70 % of the local market. Currently there are 36 multinational and 573 local pharmaceutical companies currently operating in Pakistan. Local companies cannot compete with these MNCs due to resource constraints, so there is no major expansion in the product lines of the local pharmaceutical companies. MNCs expend huge amounts to promote their products in the market. However, only 54 companies are actively manufacturing pharmaceuticals the rest of local companies have licenses to import pharmaceutical products.

EXTERNAL ENVIRONMENTAL ANALYSIS

Economic

The economic conditions prevalent in the country have a huge impact on the pharmaceutical sector. During the last few years, the country has experienced a high inflation rate and a low GDP growth rates. The high inflation rate has eroded the purchasing power of the consumer, thus negativley affecting the sales of the specialty drugs in the local market

 

The foreign exchange reserve position has deteriorated over the past few years. Due to the lack of forex reserves and the uncertainty of  economic deals with the IMF and World Bank, pharmaceutical sector has to import raw materials at the composite rate which is higher than the official rate at which the companies in this sector have been importing over the past few years.

Health watch has never been a priority in Pakistan. The current state of health facilities and expenditure on health leaves much to be desired. Health outlays in government policies have been much below the desired level. Total proposed government outlay (federal plus provincial) on health in FY 1997-98 is Rs. 19.7 billion, which is a paltry 0.72% of the total GNP. WHO recommends that 7% of the GNP should be spent on health. This means that on an average a Pakistani gets Rs. 141 from its government for health.Over the past few years, the government expenditure on health has been declining. Pakistan is among the group of  countries where the expenditure on health as a percentage of the GDP is the lowest in the world. This is due to the fact that the governments over the previous years have budget deficits mainly due to the inability to generate revenues from the source of taxation.  Moreover, majority of the revenue collected is spent on debt financing and defense due to which the amount spent on health has declined considerably.

Government, Political and Legal

The price in the pharmaceutical sector are closely monitored  by the government. Over the past few year,  the government has not allowed an increase in the prices of drugs. For the Multinational Pharmaceutical companies, who import up to 90% of the raw materials from the parent company[1], this is the major area of concern. The dollar devaluation of around 10% per annum  and the an inflation rate of around 12% p.a. has eroded the profits of the many companies in the sector. Moreover after the nuclear detonation, the pharmaceutical sector was removed from the list of essential items and the companies have to import raw material at the composite rate (rather than the official rate) and provide a 30% Letter of Credit opening margin. Most companies are forced to borrow the margin from the banks and thus incur heavy interest cost whenever raw materials are imported. As a result since November 94, the cost has increased by 56%  against which a price increase of only 25% has been allowed, thus leaving a gap of 49% to be filled.[2]

The lack of a parallel petrochemical industry for making raw materials for pharmaceuticals, and the relatively small size of the domestic market (US $ 680 million compared to the world market of US$ 220 billion [3]), has encouraged a bias in the industry towards a formulation and packaging facilities as opposed to total basic manufacturing. Import of raw material; therefore constitute the largest cost factor  – approximately 80% of the total manufacturing costs. To save foreign exchange and promote transfer of technology, the government has provided fiscal incentives for total basic manufacture locally. However, very few companies have taken up the challenge, Glaxo and Wellcome being two notable exceptions.

With the other major cost being manpower (typically 10 % of sales), the bottom line is highly sensitive to fluctuations in Pak-Rupee as well as, of course, rising operations. With annual devaluation historically in the region of 10 %, and double-digit inflation, the Pharma companies would ordinarily look to price increases to maintain their margins. But the political and social sensitivity of this industry has necessitated its heavy regulation, particularly in this region.

 

The government has imposed a customs duty of 10% on the import of manufactured drugs and  a duty ranging between 30%-50% on the import of raw materials, thus discouraging the manufacturing of drugs in the country. Similarly a sales tax of 10% has been imposed on the drugs sold in the country which further increases the burden on the consumers.

 

Successive governments have issued licenses for manufacturing drugs  far in excess of the requirements in the country. As a result, the industry is operating at 33% of the installed capacity[4], and  with the current conditions, there is a very low probability that the utilization would improve in the near future. The excess capacity could be utilized by exporting drugs in the neighboring countries.

The pharmaceutical sector is highly controlled in the country. The government controls the prices of 821 drugs which comprises around 71% of the market. According to the WHO standards, only 200-300 drugs should be placed on the controlled list, far below the level of drug prices controlled in Pakistan.

Social, Cultural, Demographic and Environmental

The social and cultural issues also have an impact on the pharmaceutical industry. The local companies are involved in unethical practices to the extent that they produce drugs that are protected by patents[5]. Such practices discourage MNCs to bring new molecules in the country. Moreover, the legal system is such that even if the MNCs decide to go to court over patent issues, the procedure is so lengthy that it takes many years before the decision is taken.

 

The other aspect of unethical practices is concerned with the middlemen or the distributors. These distributors who supply drugs for both the multinational and local companies, hoard drugs so as to create an artificial shortage in the market to enable them to charge exorbitant prices from the consumers. Multinationals feel that if the middlemen are removed and if the companies set up their own distribution channel, such a problem can be overcome. However, over the years only a few multinational companies have set up their own distribution network to overcome this problem.

The multinationals and local companies face cultural problems in the country. The level of awareness of health related issues  is very low and people visit unqualified doctors who are unable to diagnose the disease and prescribe the right drugs  to the patients. Moreover in the rural areas, people depend on herb to cure diseases. Thus a large market remains untapped, where if the awareness level is increased, companies would be able to increase sales revenues mainly from the generic.

 

The industry does not contribute much to environmental pollution. However, a little bit of pollution is created during chemical processing resulting in:

  • Water and sewage impurity
  • Toxic wastes
  • Chemical infection of workers

 

The regulatory framework consisting of the Inspection services, Licensing system, Quality control, and Registration are well equipped to handle pollution problems. Also, the practice of following the Good Manufacturing Practices guidelines, environmental awareness in the industry is relatively high in the industry.

Technology

Glaxo-Wellcome does not have a technological aspect because of the fact that the research and development activities are carried out by the parent company. Research for the new products is carried out by the parent company. The company believes that the Pakistani market is not large enough for it to carry out research activities in the country and neither does Glaxo-Wellcome have ample resources for it to carry out research in Pakistan. Therefore, research in Pakistan for the company is done to the extent of product testing the basic molecules and compounds are prepared by the parent company.

Competitors

The main competitors of Glaxo-wellcome are Abbott, Novartis, Hoechst, Smith Kline and Beecham and  Cynamid/Wyeth.

Threat of new entrants

The single most important barrier to entry in the industry is Research and Development facility. Local companies can only enter the market for generics because of the lack of expertise and resources to develop molecules. In product patents the entry becomes difficult for new players local companies find it difficult to compete with established MNC brand names. The high fixed cost of plant and equipment also serves as a deterrent to enter the market. Inconsistent and unfavorable government regulations regarding pricing and registration of drugs is another barrier.

Availability of substitute of products

The pharma market is divided into two main categories: patent and generic drugs. As regards to patent drugs, there few substitutes available due to the nature of the drug molecule which is protected by patents. Even if another MNC brings in a similar drug, it might not have the same characteristics and thus not as effective as the competitor. Therefore such drugs would not be prescribed by the consultants and practitioners. The MNCs do not face any competition from the local companies in this segment of the market.

As far as the generic segment is concerned, MNCs face tough competition from the local companies. This is due to the fact that the local companies compromise on the quality of raw materials which is purchased locally. On the other hand, the MNCs which  have to comply with quality requirements set down by the parent company, import around 90% of the raw material and thus higher cost due to the devaluation of the rupee.

Moreover, substitute products in form of non-drug therapies like nature cure, herbal therapy are also widely used in pakistan.

Bargaining Power of Suppliers

The suppliers to the industry have little power as most of the firms are vertically integrated, all the multinational companies import raw materials from the parent companies. Only a small of raw material for the drugs is procured locally. However a majority of the packaging material is purchased locally and suppliers are fragmented in the local market and therefore the suppliers have little bargaining power. For the locally procured materials MNC’s usually have a number of suppliers, thus taking advantage of the price competition among the suppliers.

Bargaining power of Consumers

The consumers can be classified as hospitals/drug stores and the individual consumers/patients. Hospitals have some influence over prices and sales, hence get price discounts. The patients are not concentrated and do not buy in volumes, therefore they do not represent a major force. The local market is such that the products are differentiated and therefore the consumers do not have negotiating power over prices. Another point to note is the fact that drugs are price inelastic therefore, consumers do not have a choice but to buy the products at whatever prices they are available in the market. Moreover, the larger size due to mergers gives more bargaining powers to the companies and allows them to subside their marketing efforts.

Rivalry among competing firms

According to one estimate there are around 609[6] licensed units in Pakistan which are overseeing the manufacturing and marketing of 13,188 drugs and other related products. In 1997 the top 31 multinationals in the industry control accounted for around 70 % of the local market. However the industry remains highly fragmented with no one manufacturer having more than 7 % share. These MNCs have set market segments and even in volume products they do not infringe upon each other’s markets. Due to the nature of the pharmaceutical industry, there are many niche markets(patent drugs)where the MNCs control a majority of the share. The local companies have 30% of the market and have gained this share over a period of seven years before which they were a very small part of the market. They mainly concentrate on the generic drugs and face fierce competition from MNCs and other local companies, however with the expiry of copyrights of several leading drugs the price factor favors the local companies.

 

VALUE CHAIN:

The value chain of the industry consists of the raw material sourcing, intermediates, bulk drug production, formulations, marketing and distribution.  Research and development as a support activity is very important but in Pakistan its role is underplayed.

The cycle of investment and growth in pharmaceuticals is as follows

( Draw the profits Þ research Þ patents Þ development Þ marketing Þ profits cycle )

FINANCIAL ANALYSIS

Pharmaceutical companies are characterized by low asset base. Companies in the industry have very low operating asset base, since the industry is not highly capital intensive in its current situation. The companies take up no large capital expenditure plans. Pharmaceutical companies import all of their raw material requirements. This requires them to maintain a plant that can convert the raw materials into finished goods. Consequently, current assets consist of a large portion of the total assets. The low asset base allows pharmaceutical companies to enjoy high asset turnover ratios.

Profitability analysis:

Starting with the bottom line, Glaxo-Wellcome has made half yearly profit for FY ’99 of Rs 189 million and Rs.  356.8 million (FY 1998), thus showing a EPS of Rs.2.8 per share which is 23% lower than that of 1996. This result could be attributed to zero price increase, substantial inflation, unfavorable exchange rates, loss in value of Pak Rupee as compared to other currencies. Comparing Glaxo-Wellcome profitability with  the key players, it seems that Glaxo-Wellcome has performed well above the industry. It is he market leader in terms of market capitalization, sales and profit. Glaxo-Wellcome has shown a Net Profit Margin of 9.5% (FY ’98), whereas Heocst had a  6%  margin, Novartis –7.5% and  American Home Products (Cynamid/Wyeth) had a –7.2% net profit margin the overall industry average was 5.2%.

Since the merger (1995-1998), the company has shown a tremendous growth in terms of sales, 165.5% and the net profit margin for the same period has grown by 96.5%. however the increase in profits for FY 97-98 can be attributed to the gain of 262.9 million from the sale of Glaxose-D to Rafhan foods.

 

Liquidity Ratios

The company enjoys above average liqidity. However, large portion of its current assets comprise of inventory stock , being built up as a contingency plan for the Y2K compliance project.

 

Activity ratios

The company’s asset utilization and activity ratios have declined and are presently below the industry average, (fixed asset turnover for FY ’97 Glaxo-Wellcome 1.79x whereas industry average 4.99x). This is  due to the merger of Glaxo-Wellcome and a subsequent increase in fixed asset base.

Glaxo-Wellcome’s debt ratios reflect its degree of conservatism, as seen by a declining long term loan amount and healthy debt coverage ratios.

 

INCOME STATEMENT

Unlike the other players in pharma industry Glaxo-Wellcome has not diversified its income base, concentrating on its core competence _ pharmaceuticals. With the pharma industry facing declining profit margins due to severe price controls and escalating costs, Glaxo-Wellcome has to depend on increases in production units to gain economies of scale (capitalize on its large base of fixed assets) and consequently increase revenues. Due to an un-diversified business, Glaxo-Wellcome faces a threat of increasing cost of goods sold which are higher for the company as compared to the industry average (Glaxo-Wellcome’s CGS 74.1% industry average 68%)

 

The future outlook for the company is not encouraging at all; industry growth is declining and costs are rising due to economic conditions in the country. Furthermore, for almost two years no price increases has been allowed despite government promises made in this regard.

 

ORGANIZATIONAL STRUCTURE

Glaxo-Wellcome’s structure is characterized by shorter span of control and greater flexibility. This structure encourages informality and communication between hierarchical levels.  However, presently the company is in the process of adaptation due to the marked difference between the structures of the two companies merged to form Glaxo-Wellcome. The company’s objective is to achieve a structure which would facilitate delegation.

Critical success factors

Growth Potential

Pakistan’s explosive population growth rate (3 % p.a.) and rapid urbanization (5 % p.a.) ensure a rising marketing demand for pharmaceutical products. It has grown at a compound rate of 23.7 % over the period 1993-97. According to an estimate the contribution to GDP is gradually increasing. The per capita consumption in the country has increased from Rs. 95 in 1987-88 to Rs. 141 in 1996-97[7].

Basic Manufacturing facility

In fact, there is no real basic manufacturing in Pakistan although Glaxo is the closest to operate under comprehensive basic manufacturing plants for all its therapeutic categories. Wellcome and Wyeth have also set up semi- basic manufacturing plants for the manufacture of intermediary components of a small number of products (primarily for the respective classes of antibiotic and antacid). Hoechst has recently completed a  base-manufacturing unit for Haemaccil (a plasma suspension).

Quality standards

The biggest factor keeping the national companies from fixing comparable prices is the low faith of doctors and the patients in the pharmaceutical products made by these companies. The public believes that the national companies do not follow the  same strict quality control measures which the multinational companies follow. The difference in quality standards is an outcome of the attitude of the local manufacturers towards quality control. Since the multinational companies are more concerned about their corporate image, they make extra efforts to maintain quality by following the procedures and guidelines provided by the parent company. In this regard, another edge that the multinational companies’ have is an extensive detailing of the doctors, including the free sampling. This has helped them develop the ‘brand loyalty’ of the doctors and building their confidence in the efficacy of the products. Detailing is less practiced by the national companies.

 

GENERIC PRODUCTS

Glaxo has not take advantage of the favorable government policies towards generic products. This is highly important as generic products are the fastest growing segment, and favorable government policies would greatly help in bringing in new products and capturing this growing market. Glaxo-Wellcome does not have a active share generics sector.

Parent Company

We believe that the support of parent company is a critical success factor (CSF) because of the research and development and financial support provided by the head office. Glaxo-Wellcome has strong support of Glaxo-Wellcome International both financially and in the field of R&D.

Trained workforce

Medically qualified and trained workforce is important due to the nature of specialty products sold in the market. Qualified product managers help train the sales representatives and thus have a direct impact on the sales volume for specialty drugs. Product managers are preferably medical graduates and the Medical and Medical Services help train the sales representatives.

Market leader in Patent products

Patent products are the new innovative drugs formed as a result of the R&D activities of the firm. These molecules are an important source of revenues due to the mass volume of sales involved. Glaxo-Wellcome is world wide leader in patents, due to its strong R&D the company introduces a number of patent products every year in the market and increasing market share in the segment.

Distribution network

Glaxo-Wellcome out-sources its distribution requirements. This can be viewed as a critical success factor as the company could integrate forward and acquire a distribution firm, thereby increasing its profits. This eliminates the possibility of unethical practices followed by several distribution agencies (as already discussed earlier) thus any chances of harming the brand loyalty.

High Market Share

A high market share is a critical factor in specialized drugs where niche markets are targeted by the players in the industry. High market is necessary to be able to serve the market segment. The company has been able to maintain higher market shares than it’s competitors.

Wide Product Line

In most product category, the company has more products as compared to the competitors. The company has been trying to decrease its product line and has withdrawn a number of products from the market.

Introduction of new products

In the this field of medical science, research in diseases common to the developing countries is import to maintain and improve market share in developing nations. Research carried out by the parent company is mostly applicable to diseases common in the developed countries. Glaxo-Wellcome is unable to directly influence the research program of the parent company. Introduction of new products in the market is critical for the survivor of players in the market. Competitors in the industry come up with new products every year, thus making the industry highly dynamic in terms of competition.

Untapped rural market

The second most important critical success factor is the untapped rural market. Currently the pharmaceutical market is mainly located in urban areas. If the companies start marketing and selling in the huge rural market they will have strong sales growth. Glaxo-Wellcome is aware of the opportunity of this segment and they are educating the rural population of the benefits of their products.

Increasing health consciousness

The increasing health consciousness is the next most important factor. The market is becoming more aware of the problems of heart disease and other illnesses other than that there is increasing consumption of vitamins, this increased consciousness will only continue to grow and will prove to be an important source of growth of sales for companies. Glaxo-Wellcome has presently introduced a new vaccine for hepatitis B, a growing concern in Pakistan. Therefore Glaxo-Wellcome is actively trying to tap this growing awareness of health consciousness.

Available Niche market of life saving drugs

Currently many essential life saving drugs are missing from the market. This represent a niche market and any company which introduces these products will be able to capture these markets. The company is not doing anything about bringing these drugs in to Pakistan even though they are aware of the potential of this niche market.

Export market

The industry is currently producing at 33% of its capacity therefore by producing at full capacity not only will it be able to benefit from economies of scale but will also be able to export the surplus. Therefore the export market is an important critical success factor. The export market is being ignored by Glaxo-Wellcome, they are not trying to develop this market and are not doing anything to tap this market even though they are aware of its potential.

Continuous devaluations

Continuous devaluations are the most important critical success factor. These devaluations have led to a continuous increase in the cost of raw materials for the company of which 90% are imported. Leading to an increase in the cost of production. With control on the prices of drugs, the increasing cost of production have led to falling margins for the pharmaceutical companies. Glaxo-Wellcome is unable to influence policies regarding devaluation, foreign exchange controls and LC opening. They are aware of this problem but cannot influence these policies.

Inconsistent government policies

Inconsistent government policies continue to be a hinderance for the pharmaceutical market. The government continues to control prices which is the cause behind the falling profitability in the industry. Glaxo-Wellcome cannot respond to poor government policies and change them. They have however made the government aware of the problems they are facing due to inconsistent policies.

Poor economic conditions

Poor economic conditions continue to pose a strong threat for the industry. These have led to a fall in the purchasing power of consumers and therefore a fall in the sales of the pharmaceutical companies. Glaxo-Wellcome can do little about the poor economic conditions in the country. The company is aware of this problem but is unable to change the situation.

Unethical manufacturing practices

Unethical manufacturing practices of local companies are a strong threat to MNCs, these companies flout patent laws and manufacture drugs whose patents are still valid, whereas MNC companies cannot carry out such practices. This gives the local companies an unfair advantage in capturing market share in patented products. The company is trying to counter these practices by informing patients as to the danger of consuming low quality drugs, the company is also trying to educate doctors as to the unethical manufacturing practices of local companies.

 

Herbal medicines

The rural market only uses herbal medicines which are sold by hakeems.  The hakeems do not prescribe drugs manufactured by pharmaceutical companies. This practice poses a great threat as the rural market is the largest segment of the population. The company can only spread the use of their medicines but they can do little to influence the decision of hakeems who will only prescribe herbal medicines.

 

HUMAN RESOURCES & CORPORATE AFFAIRS UNIT

This department includes:

  1. Human Resources Administration                 3. Legal and Corporate Affairs
  2. The HR function is actively involved in planning frequent training and development programs, recruitment, career planning, performance appraisals, and job evaluation.
  3. The administration department looks after issues like discipline, safety and security, transport and catering facilities, etc.
  4. The Corporate Affairs unit handles the legal and secretarial activities.

 

The major function of the Human Resource Department is to obtain , maintain and retain a satisfied and motivated workforce. It is the job of the HR head to travel to all the cities in the country and solve any problems that the workforce might be encountering.

 

After the merger took place between Glaxo and Wellcome’s Human Resource Department was given the responsibility to redefine the various jobs as the organization structure in both the companies was considerably different. The task of integrating the organizational cultures of both the companies poses the major problem for the department. To counter this the head of the department is thinking of hiring an outside consultant who will revise and integrate the job analysis and job design information.

An efficient and a motivated sales force is of prime importance to any pharmaceutical company. GlaxoWellcome realizes the need for providing training and other learning opportunities to its sales force, which is one of the major functions of the HR department.

The major strength of the HR department has been its success in creating  informal communication among the staff and different departments, the company organizes a number of social events in which all employees and the top management participate actively.


TECHNICAL UNIT

Technical Unit: This includes the following departments:

  1. Production Production Control         3. Quality Assurance  4. Projects  5. Stores
  2. Research & Development 7.Engineering 8.Procurement 9. Health, Safety & Environment

These departments are involved in maintaining smooth functioning of plant and machinery, quality assurance, strict adherence to predetermined standards and specifications for raw and packing materials, bulk and finished products, health audits, and development of new products.

 

1. PRODUCTION
2 PRODUCTION CONTROL
3 .ENGINEERING
4 .STORES
5 .HEALTH, SAFETY & ENVIRONMENT
6. PROCUREMENT
  • GW does not believe in changing its suppliers often because of the nature of the products, as the product and raw material consistency has to be according to the standard.
  • The local suppliers are Rafhan for glucose, Lever Brothers for glycerin. The raw materials are mostly imported from two companies, BASF and Rhodia, who have these materials as a part of their primary manufactures and supply them to GlaxoWellcome
  • The criteria for selecting suppliers is quality, cost and consistency of supply.
  • The company keeps a safety stock of between two to four weeks.
  • The packaging material is supplied mostly by local sources- 80% is supplied by the local firms and 20% is imported.

 

  • SWOT:

The company has extensive experience and market knowledge, both on a local and international level.  The opportunity is that China and India provide materials at a lower cost, but this is a threat to the present suppliers, and to developing long term relationships with them. Another opportunity is the development of local industry as more and more firms are entering the industry to manufacture basic chemicals.

 

  • The JIT system is not employed because of the political setup – there are too many strikes and power breakdowns that disrupt supply.
  • The rates with suppliers are set at the beginning of the year because of recurring business.
  • The procurement effectively adds value by utilizing the company’s assets to add to overall profitability. It ensures that production gets the materials on time so that the finished product can be promptly brought into the market.

Overview of the Procurement Department

The Procurement department is involved in the purchase of raw materials such as glucose, glycerin and sugar, along with certain packaging materials. Local glucose is supplied by Rafhan, while glycerin is supplied by Lever Brothers and Kohinoor, imported supplies are provided through BASF and Rhone-Poulenc (Rhodia) – also the primary suppliers to GlaxoWellcome. As far as packaging material goes, 20% is imported while 80% is procured locally. Imported packaging material includes aluminum foil, PVC film, components of inhalers etc. The local packaging material includes boxes, tubes, ampoules, glass bottles etc.

GlaxoWellcome does not change suppliers frequently because of the nature of the product, requiring only the best of ingredients and processes. All suppliers need prior approval and monopolies in supplier terms of supplier clout are not allowed to form. Specifications according to which suppliers are judged are:

  • Quality of material
  • Cost of material
  • Timely delivery of material

Suppliers are given a long-term schedule, which may be tentative, but GlaxoWellcome tries its best to stick to the initial game plan. Safety stock is kept on a consumption basis. The more certain items are used in the production process the longer the duration of their stock in safety batches. Such commodities on average are kept in a two to four week usage quantity. The company cannot adhere to the JIT system because political uncertainty in Pakistan requires that stocks be kept in advance to counter the threat of cut-off future supply owing to political turbulence.

The management of the department is run with close ties to principles of ethics such as stringently dealing with approved suppliers. As far as management decision-making goes, lower level employees are allowed to take decisions regarding the fulfillment of orders, while vested authority rests with top management with regard to matters such as choosing new sources of supply.

Strengths and Weaknesses

S: Experienced personnel, knowledge of market (local and international)

W: Time lag involved as a product has to be tested for 6-month stability, currently the procurement department has taken on a new chemical supplier

O: Local industries are developing basic chemicals such as sulphametaxazol

T: Suppliers will face price competition from Indian and Chinese imports, customs stall goods when documentation is not at par with requirements. Such documentation is at times difficult to get hold of on time e.g. Forms 7 and 3 which give the date of manufacturing and country of origin respectively if not reproduced at the right time can lead to spoilage of imports.

Value-Chain Analysis

The Procurement department expenses the company’s assets which is why it is all the more cautious of providing value to the end product. As procurement deals with the ultimate external customer, it is very conscious of value-addition.

Internal/External – Customer/Supplier

Internal Customer: Planning department, R&D department

Internal Supplier: IT department, marketing department

External Customer: End consumer, doctors, and medical organizations

External Supplier: Supplier of materials, government

 

  1. RESEARCH AND DEVELOPMENT

The mission statement just about wraps up the importance eof research and development for GlaxoWellcome in a nutshell. “GlaxoWellcome is a research-based company whose people are committed to fighting disease by bringing innovative medicines and services to patients throughout the world and to the healthcare providers who serve them.” The research and development laboratories of GlaxoWellcome are engaged in developing new products for the local market and for other group companies, along with being associated with the country’s premier research institutions.

At GlaxoWellcome, new product development over the course of the 1998 – 1999 period has seen both the development and launch of the following:

  • Wellcodox injection
  • Floxy infusia
  • Calpol Plus tablets
  • Dicofen Emulgel

The birth of a drug technically is an eight to twenty-eight year process. The break-up is done on the following basis:

This is followed by considerations in selecting the activity in various dimensions be they acute toxicology or general pharmacology amongst others. The candidate drugs are then arrived at of which first detailed, technical and economic appraisal is conducted. This appraisal is inclusive of the development of formulations, bio-availability of the formulations, a stability test, devising of quality control methods, process development, detailed animal pharmacology, synthesis of radio-labeled ingredients, blood level methods developed, acute and six-monthly toxicity studies are conducted, followed by reproduction studies, absorption, excretion and metabolism in animal species, and finally the outlining of the clinical trial program.

The appraisal is linked to the Safety in Animals phase, which lasts for a period of 2 – 3 years. More specifically, preceding this phase firstly is documentation, internal approval of proposals for clinical studies; and secondly the submission of data to health authorities. Linking these two prerequisites to the appraisal are volunteer studies.

The appraisal then links itself to the third phase, that is, Safety and Efficacy (in man) which lasts for a period of 3 – 5 years through the carcinogenecity factor. If one goes by order though, the phase starts off with open studies, safety activity, dose finding and absorption, going on to initial controlled trials and then subsequently the second detailed technical and economic appraisal, which in turn links it factors to the carcinogenecity studies. The factors are: establishment of the manufacturing process, plant design and building, development of sales formulation (local and internal), bio-availability studies, packaging development, stability studies, international clinical trial, detailed absorption, excretion, and metabolism studies, and overseas pharmacy, pharmacology, and toxicology when necessary. Medical publications then follow, and finally the submission for sale to committee on safety of medicine is made.

Submission then proceeds to the Marketing phase, where data sheets, packaging, leaflets, and promotional literature are created, followed by a local launch, then basic documentation is made to overseas health authorities, after which an overseas launch takes place, followed by continuous monitoring and further clinical studies.

The marketing department raises a request for a new product, then after acquiring raw material for the product development, the crux rests with stability studies in the lab where the effect of temperature is monitored as well as the impact of humidity after which the type of packaging required for the product is formulated.

Strengths and Weaknesses

S: Nine High-Pressure Liquid Chromatography (HPLC) in R&D along with a couple others in other departments;

Three PhDs amongst the personnel, along with countless MScs and Bpharms.

W: More equipment;

Nuclear Magnetic Resonance (NMR) helps in combining structure of compounds and formed due to decomposition;

Funds largely controlled by finance department and stalled during austerity drives.

O: Initiative in product development through application of latest techniques.

T: High amount of government regulation in terms of registration with the Ministry of Health.  

Value-Chain Analysis

Internal/External – Customer/Supplier

Internal Customer: Marketing department

Internal Supplier: Procurement department, finance department

External Customer: End consumer, doctors, and medical organizations

External Supplier: Market research analysts, doctors, medical organizations, and government

 

FINANCE UNIT

  • Finance Unit: This unit is involved in maintaining books of accounts, preparing budgets, reporting variances, managing taxation, providing timely management information, and carrying out feasibility studies of major projects. These functions are the responsibility of :
  1. Information Systems 2. Planning & Management Accounting 3. Cost Information
  2. Financial Accounting 5. Payroll & Risk Management 6. Internal Audit & Business Systems

  1. INFORMATION SYSTEMS SERVICES
2. PLANNING AND MANAGEMENT ACCOUNTING SERVICES
3. INTERNAL AUDIT AND BUSINESS SYSTEMS SERVICES

 

 

MAJOR PROBLEMS:

  1. Requirement of a an accurate sales forecasting system. This system is the starting point of the planning process in the Finance Department, and as demand for products is not known to a great degree of accuracy, sales forecasting becomes dependent on guesswork. Scientific data is not easily available in Pakistan, and there are not many institutions that provide data of this nature. The pharmaceutical industry is so heavily dependent on the IMS, an international medical journal, that at times there is a tendency to make sweeping generalizations on the basis of extrapolating past figures and trends, and even basing present market forecasts on foreign markets.
  2. There are many people in various departments who are responsible for planning with respect to their department’s requirements in general. However, there is a severe need for an effective planning system along the lines of an MRP System.

Finance is a service department, which serves the company as a whole. The Finance Department deals with a whole range of inter-firm activities be it budgeting, investing in certain levels of stocks, or conducting feasibility analysis amongst other things. It is a customer-oriented department that ensures the release of analytical information to departments, in the forms of budgets, profit and loss statements and balance sheets, and cost-benefit analysis. The responsibility to tell the Marketing Department which products ought to be pushed and which areas are adding value or for that matter are eroding value for the company also at times rests with the Finance Department.

With regard to the Control and Audit Areas, there are internal control systems in the company for the safeguarding of procedures, for ensuring that management policies are followed, and that ethical standards are adhered to. An internal efficiency control program seeks to improve systems within the organization, and encourages new ideas from company employees to improve efficiency, so much so that ideas regarding the thickness of packaging are also highlighted meetings and review programs on a monthly basis. The Finance Department tries its best to reduce response time to people within the company and releases needed information to a great degree of precision in timing and accuracy.

Value-addition by the Finance Department is done through pointing out to other departments how and where costs can be cut or processes shortened. At times the department is makes a thorough analysis of suppliers on the basis of price and if deemed necessary, goes on the lookout for additional sources. There is a special mention of purchase prices of materials here, because they are a major chunk of the company expenses. The bottomline is to provide guidance to management to maximize profit. Where community service is concerned GlaxoWellcome continues to produce loss-making products as they under the head of lifesaving drugs e.g. Zeffix (for Hepatitis B).  The company engages in short-term in small volumes, there are times however, when there are overdraft problems to pay interest on.

Management is made aware on a monthly basis of the needs to take corrective actions in their areas of concern by the Finance department.

With regard to the implications of the recent change in government, the GM Finance expects there to be a price increase in the near future, perhaps in the first quarter of the next year.

SWOT of Company:

S: Quality of products, personnel, R&D, affiliation with GlaxoWellcome International, strong financial standing.

W: Improving planning system to become more efficient.

O: Increasing population that gives an expanding market base, increasing awareness levels regarding health issues which results in increasing sales for quality medicines.

T: Price control, currency devaluation, government duties, (GST), national companies providing cheaper products and capitalizing on illiterate markets, law and order deterioration.

SWOT of Department:

S: Well qualified personnel (CMAs, MBAs, CAs), Business Planning and Control System (BPCS) implemented, automation in many areas, training personnel in computers, management and individual development programs.

W: Improving upon the planning process.

Annual objectives are set by all senior officials of the company and they are set in terms of automating the company, the budgeting process, automating the accounts payable systems etc. The personal annual objective of the GM Finance this year is to automate the management reporting system by December entirely in the company and all over Pakistan. Consultancy services are hired from the likes of Sidhat Haider, Nobel Computers, Shah Rehman and Co. and others. The entire process of setting objectives can be defined as a cycle to be broken down into the following components. It all begins with a sales plan made by the marketing department on which basis each department sets their own budget, which in turn is sent to the Finance department for approval. Adjustments are made on the basis of resources by the Finance department. The objectives are set in unit terms require the provision of resources to subsequent departments, thus purchases are made, manpower allocated and the process gets under way. Short-term objectives are set in terms of constant game plans that are studies meticulously before being given the go ahead. If corrective actions are required the people involved in the process come back to the department heads who in turn also require status reports from them at regular intervals. As far as the devising of policies goes, it is done at the Group level, and at the senior management and director level.

Internal Customer: Every department

Internal Supplier: Entire company

External Customer: Group officers, tax authorities, and bankers

External Supplier: Auditors, consultants

The Finance and Control department carries out three major functions: Planning, Budgeting and  Operational control.

 

Before a new product is launched, the companies are required to get an approval from the Ministry of Health. However, due to Government red tape and inefficiencies it takes approximately 2 to 3 years to get the product approved. This procedural delay is the major problem faced by this department. Slow growth of the pharmaceutical sector coupled with unethical practices of the local companies are also hindering the growth of the company and posing a problem to this department.

 

The department works in close contact with the marketing and finance department when it comes to making annual budgets, acquisition of new machines and product feasibility.

COMMERCIAL UNIT

  • Commercial Unit: This unit is involved in conducting training and development courses for the sales force, monitoring adherence to marketing strategies in the field, and to benchmark the company’s promotional activities in relation to competitors. It includes:
    Sales        2. Marketing         3. Distribution       4. Sales training    5. Advertising and Sales Promotion
  1. Medical & Regulatory Affairs

MARKETING DEPARTMENT

The pharma market in Pakistan is Rs. 38 billion and is growing at a rate of 7% per annum. In this market, the share of GlaxoWellcome is 7%, about Rs. 2.8 billion. At present, the goal is to consolidate and maintain the position of the existing portfolio and new products.

  • GlaxoWellcome is present in 55 segments and in 60% of these segments it is the market leader. Where the rest of the market, that is, the remaining 40% is concerned, GlaxoWellcome is merely servicing the market.
  • Four to five new products are developed by GlaxoWellcome per year, and versus their nearest local competitor, that is, Abbot, the ratio of new product development per year is similar.
  • Both worldwide and in Pakistan, GlaxoWellcome is the number one company. It is one of the top 5 companies in Pakistan, with the other four being SmithKline and Beecham, Wyeth, Cynamide, Hoechst Marion Rusell and Novartis.
  • The organization of the marketing department is such that the General Manager, Marketing has three Group Product Managers under him. There are ten Product Managers, each having a portfolio of between Rs. 200 to 400 million.
  • The function of the Group Product Managers and the Product Managers under them is planning. In the marketing department, the long-term plan is for a period of five years, while the marketing plan is for one year. The marketing plan depends on the season for example, medicines for coughs and colds are promoted more during the winter season.
  • The marketing plan contains the following elements-marketing background, marketing objectives, both qualitative and quantitative, promotional strategies, advertising plan, etc. The marketing plan is based on the overall corporate plan and is consistent with the marketing budget.
  • The Product Managers work with the medical sales representatives as a method of market research to get feedback to see that  strategies are being implemented and check any deviations between the expected and the actual results.
  • Cycle meetings are conducted on a six-monthly basis through which the performance of the field force is reviewed. In these meetings, performance evaluation is done and guidance is given for the next six months.
  • The corporate and annual objectives and the strategies and policies to achieve them are laid down by the top management, but feedback is taken from the lower level staff since it comprises the front line people. This is especially important in the case of the sales managers and the field force( the largest for a pharmaceutical company in Pakistan), which is in direct contact with the customers. Currently the annual objective revolves around sustaining the level of profitability and the product portfolio in the face of decreasing profits and increasing prices. There is a renewed emphasis on cutting down promotional expenditure and decreasing sales of products that drag the rest f
  • A major source of information about the players in the market is the IMS, (Information Medical Statistics). At present, there are 476 pharmaceutical companies in Pakistan, of which 27 are multinationals. The IMS gives volume sales, value, market shares and growth rates of products on a company-wise basis.
  • The Regional Index (RI), gives the unit-wise sales of products in units and value.
  • The Medical Index (MI) contains prescription data on the sixteen segments, product-wise and indicator-wise.
  • Another source of research are management trainees and internees.

 

 

SWOT ANALYSIS

STRENGHTS:

  1. The company has well-qualified people with plentiful experience, so there is a blend of youth and experience.
  2. The marketing department has creative and innovative individuals who come up with unique promotional strategies to market the products effectively, while at the same time utilizing the company’s resources efficiently.
  3. The coverage of doctors is one of the largest in the country since about 20-25,000 doctors are called upon by the sales force per quarter.

 

WEAKNESSES:

  1. Since GlaxoWellcome is a British concern there are communication barriers due to which the flow of communication, both internally and externally, is not up to the mark.
  2. Another weakness is the conflicting objectives of the marketing department and the finance department. While marketing wants an expansive budget for greater promotional expenditures, finance is more interested in curtailing these expenses.

 

OPPORTUNITIES:

 

  1. There are new products in the pipeline, which shall be introduced, in the next five years. These are breakthrough products that will provide a competitive edge to the company, especially if it has a first-mover advantage.
  2. The current economic situation is that there is a recession, but the management has forecasted that the situation will improve in the next two years.

 

THREATS:

 

  1. The biggest threat are the competitors, both the existing ones and the potential entry of new ones, who can introduce new products faster and gain market share. This is a threat especially so because survival in the pharmaceutical industry depends on introducing new products on a timely basis.

 

  • GlaxoWellcome deals with the potential entry of competitors through benchmarking, whereby it compares itself with the competition and sees how it can improve. Differentiation of the products is also used whereby the unique selling proposition of a new drug is highlighted. For example, antibiotics are promoted by saying that they are to be taken twice daily instead of the normal three times a day.
  • The introduction of new products in Pakistan is not always effective as evidenced by the fact that a Trans-dermal patch was introduced, which was not accepted locally.
  • Brand loyalty is encouraged by giving reminders to them through the field force like gifts, product literature, etc.
  • Promotional techniques include conducting clinical meetings with 8-10 doctors at a time, where the functioning of the product(s) is discussed extensively. In addition, the company arranges symposiums in which 200-300 doctors take part. Lectures are imparted by both local and foreign speakers. These symposiums generate goodwill and enhance the corporate image.
  • It takes, on average, 2-3 years to introduce a new product in Pakistan, since they have to be registered with the Ministry of Health.
  • DIVESTITURE:

Galaxies-D, a business worth Rs. 260 million, was divested because the top management wanted to concentrate on the core businesses- pharmaceuticals. So it was sold to Rafhan – 10 years.

  • Animal Health division is a separate business unit, having a value of Rs. 160 million and a separate field force comprising 27 individuals.
  • PRODUCT DEVELOPMENT:

The company has introduced tablets for the treatment of Hepatitis B as opposed to vaccines that are produced by companies like SmithKline & Beecham. Pakistan is the fifth country in which GlaxoWellcome  has introduced these tablets.

 

  • MARKET PENETRATON:

Some products now have a broadened indication base and the company has developed new uses for the some products like Zantac, which is used for both ulcer and dyspepsia.

 

PROBLEM:

The research and development department takes a long time to develop a new product, and competitors may introduce it first and have a first mover advantage in the form of patent rights. In 1997, GlaxoWellcome launched Floxy, but if it were launched in 1995, the sales would have been larger since there was a growing market.

The Group Head Office takes plenty of time to approve launch of mew products in Pakistan. Further, there are time lags involved in acquiring patents and threats of infringements of patents owing to rampant counterfeiting in the local market. Local doctors are also price conscious in Pakistan, which means that products launched locally have to priced competitively.

The government has no regular health policy, the time required to register new products is very long. If the patent of another company has not expired, a new product cannot be launched.

 

  • Antibiotics account for 25% of the total pharma market.
  • GW operates in 11 out of 16 segments.

 

From theme booklet “Moving On” given to the sales force every quarter.

E.G. Dicofen

  • Objective: Establish brand identity by highlighting image as a quality drug available at an economical price.
  • Theme: The key to freedom is Dicofen.
  • Strategy: Select Voltaren-minded doctors and offer them Dicofen at economical price. Target all orthopedic surgeons, “A” class general practitioners, and selected dental surgeons.
  • Literature brief: A two-page drop card in which the first page depicts the human body with all major joints where pain and inflammation is generally reported.

On the second page two characteristics of Diclofenac sodium are mentioned which highlight why Diclofenac is such a good drug for arthritis and other pains.

  • Model detail: Doctor, you must be getting many patients who complain of arthritic pain, dental pain, and muscoskeletal sprains and aches. The key to freedom is Diclofen. Doctor, Diclofen has a prolonged duration of action. Doctor, we offer you these qualities of Diclofen in the shape of Diclofenac at a much more economical price. May I request you to prescribe Diclofenac to all your patients requiring a potent anti-inflammatory agent.

 

 

 

  1. SALES DEPARTMENT
  2. DISTRIBUTION
  3. SALES TRAINING
  4. ADVERTISING & SALES PROMOTION

 

  • The sales department has yearly marketing budgets, which are to be accomplished and to achieve these the department sets up half-yearly, quarterly, and monthly sales budgets so as to set short-term objectives to reach long-term goals.

 

  • The department holds meetings with Production department once every month.

 

  • The Sales Department comprises of different divisions. The reason for this is that owing to diverse product portfolios, one team is not enough. Thus the many divisions. Salesmen in each division are trained for specific GlaxoWellcome products thoroughly because each salesperson on an average gets ten minutes to sell his product to so many prospects and he must be well-versed with all the products in the group in order to do a good job.

 

  • The total strength of the department comprises 397 Medical Representatives, 50 Area Managers, 5 Division Sales Managers, 2 General Sales Managers and a Unit Head.

 

  • There are three basic types of products namely Prescriptional, Bonus and Over-the Counter drugs categorized as A, B and C respectively. The A category products are the ones prescribed by doctors and they contributes 86% of total market share of the company. The B category products for example Calpol offer discounts and bonuses to push sales and contribute 2% towards the market share. Category C consists of products for example multivitamins that provide after sales service to achieve incremental sales. Out of the total, 3% of market share is derived from imported products example Tracrium injection that is used in anesthesia.

 

  • GlaxoWellcome has an edge because it’s the leading company in the areas of supply, distribution and market knowledge. There are forty-five distributors in the major towns all over Pakistan:

– Karachi               RC Distributors

– Lahore                 Paras Distributors

– Islamabad          Nasim Traders

– Quetta                 Qasim and Sons; Nadeem Traders

 

Through this distribution network the company reaches 27,000 chemists all over the country.

 

  • The company provides first class training for its sales force. During the training period that lasts for about six months, monthly expenditure of Rs. 50,000 is incurred on each trainee.

 

 

  • At the time of the merger, GlaxoWellcome had too large a field force and the company had to reduce the number in order to cut down the high costs it was incurring. This problem took two years to resolve since the company had to decide which product category needed how much field force strength.

 

  • Basic company problem stems from the inability to increase prices. GlaxoWellcome had entered into an agreement with the government five years ago according to which it was allowed to increase prices on certain categories of products. The terms of the agreement were adhered to for two years but for the past three years the company has not been allowed to raise prices. As a result of this GlaxoWellcome has been unable to make desired profit margins, increments to personnel have been inadequate while simultaneously the R & D costs have risen due to inflation. Since it cannot sell at the desired prices, the company is making efforts to increase sales and cut unnecessary expenditure, that is, it is trying to work towards achieving volume sales and at the same time culminating huge amounts spent on promotional expenses.

 

  • The sales department receives input from suppliers and provides output to customers. The function’s Internal and External Supplier-to-customer chain is as follows:

 

Internal Customer               Accounts Department

Production Department

Internal Supplier  Marketing Department, Sales force

External Customer              Doctors, distributors

External Suppliers               Doctors

 

 

Currently the department’s major source of problem stems from the company’s inability to charge higher prices on their products. As a direct repercussion of reduced profit margins, in the past the department has faced cost cuts on its expenditure on sales promotional activities. Besides this the size of medical representatives had to be reduced because the company was not expanding at the rate where it could sustain such an elaborate field force.

 

The Sales department of GlaxoWellcome is a function, which comes in direct contact with the customers through the many medical/ sales representatives and thus largely influences their perception of overall quality of the company’s products. The department has its major strength in the medical representatives it trains to perform the required tasks. To reduce high turnover the field force gets sufficiently paid. However, the training expenses are very high since during the period that the training lasts, the company has to bear expenses for the trainee’s accommodation, meals and training sessions and stipend which is also given over the six months period. Even after the training has ended and during the course of job, all travelling expenses are borne by the company.  However, these expenses are partly justified by minimal turnover of the sales reps.

Internally the Sales department’s customers are the accounts department while the suppliers are the Production department and the sales force. Their external sets of customers include the doctors and the distributors with the doctors also forming the major external suppliers. The department’s interrelationships are critically important since it takes input from the production department and from the marketing function regarding the sales targets to be achieved for the year. Marketing function provides for the sales targets while production is given the volumes that need to be produced based on these targets.

 

 

 

DEPARTMENT: RESEARCH AND DEVELOPMENT

Overview of the R&D Department

The mission statement just about wraps up the importance eof research and development for Glaxo Wellcome in a nutshell. “Glaxo Wellcome is a research-based company whose people are committed to fighting disease by bringing innovative medicines and services to patients throughout the world and to the healthcare providers who serve them.” The research and development laboratories of Glaxo Wellcome are engaged in developing new products for the local market and for other group companies, along with being associated with the country’s premier research institutions.

At Glaxo Wellcome, new product development over the course of the 1998 – 1999 period has seen both the development and launch of the following:

  • Wellcodox injection
  • Floxy infusia
  • Calpol Plus tablets
  • Dicofen Emulgel

The birth of a drug technically is an eight to twenty-eight year process. The break-up is done on the following basis:

 

This is followed by considerations in selecting the activity in various dimensions be they acute toxicology or general pharmacology amongst others. The candidate drugs are then arrived at of which first detailed, technical and economic appraisal is conducted. This appraisal is inclusive of the development of formulations, bio-availability of the formulations, a stability test, devising of quality control methods, process development, detailed animal pharmacology, syntheis of radio-labelled ingredients, blood level methods developed, acute and six-monthly toxity studies are conducted, followed by reproduction studies, absorption, excretion and metabolism in animal species, and finally the outlining of the clinical trial program.

The appraisal is linked to the Safety in Animals phase, which lasts for a period of 2 – 3 years. More specifically, preceding this phase firstly is documentation, internal approval of proposals for clinical studies; and secondly the submission of data to health authorities. Linking these two prerequisites to the appraisal are volunteer studies.

The appraisal then links itself to the third phase, that is, Safety and Efficacy (in man) which lasts for a period of 3 – 5 years through the carcinogenecity factor. If one goes by order though, the phase starts off with open studies, safety activity, dose finding and absorption, going on to initial controlled trials and then subsequently the second detailed technical and economic appraisal, which in turn links it factors to the carcinogenecity studies. The factors are: establishment of the manufacturing process, plant design and building, development of sales formulation (local and internal), bio-availability studies, packaging development, stability studies, international clinical trial, detailed absorption, excretion, and metabolism studies, and overseas pharmacy, pharmacology, and toxicology when necessary. Medical publications then follow, and finally the submission for sale to committee on safety of medicine is made.

Submission then proceeds to the Marketing phase, where data sheets, packaging, leaflets, and promotional literature are created, followed by a local launch, then basic documentation is made to overseas health authorities, after which an overseas launch takes place, followed by continuous monitoring and further clinical studies.

The marketing department raises a request for a new product, then after acquiring raw material for the product development, the crux rests with stability studies in the lab where the effect of temperature is monitored as well as the impact of humidity after which the type of packaging required for the product is formulated.

Strengths and Weaknesses

S: Nine High-Pressure liquid Chromatography (HPLC) in R&D along with a couple others in other departments;

Three PhDs amongst the personnel, along with countless MScs and Bpharms.

W: More equipment;

Nuclear Magnetic Resonance (NMR) helps in combining structure of compounds and formed due to decomposition;

Funds largely controlled by finance department and stalled during austerity drives.

O: Initiative in product development through application of latest techniques.

T: High amount of government regulation in terms of registration with the Ministry of Health.  

Value-Chain Analysis

Internal/External – Customer/Supplier

Internal Customer: Marketing department

Internal Supplier: Procurement department, finance department

External Customer: End consumer, doctors, medical organizations

External Supplier: Market research analysts, doctors, medical organizations, government

 

DEPARTMENT: PROCUREMENT

Overview of the Procurement Department

The Procurement department is involved in the purchase of raw materials such as glucose, glycerin and sugar, along with certain packaging materials. Local glucose is supplied by Rafhan, while glycerin is supplied by Lever Brothers and Kohinoor, imported supplies are provided through BASF and Rhone-Poulenc (Rodia) – also the primary suppliers to Glaxo Wellcome. As far as packaging material goes, 20% is imported while 80% is procured locally. Imported packaging material includes aluminum foil, PVC film, components of inhalers etc. The local packaging material includes boxes, tubes, ampules, glass bottles etc.

Glaxo Wellcome does not change suppliers frequently because of the nature of the product, requiring only the best of ingredients and processes. All suppliers need prior approval and monopolies in supplier terms of supplier clout are not allowed to form. Specifications according to which suppliers are judged are:

  • Quality of material
  • Cost of material
  • Timely delivery of material

Suppliers are given a long-term schedule, which may be tentative, but Glaxo Wellcome tries its best to stick to the initial game plan. Safety stock is kept on a consumption basis. The more certain items are used in the production process the longer the duration of their stock in safety batches. Such commodities on average are kept in a two to four week usage quantity. The company cannot adhere to the JIT system because political uncertainty in Pakistan requires that stocks be kept in advance to counter the threat of cut-off future supply owing to political turbulence.

The management of the department is run with close ties to principles of ethics such as stringently dealing with approved suppliers. As far as management decision-making goes, lower level employees are allowed to take decisions regarding the fulfillment of orders, while vested authority rests with top management with regard to matters such as choosing new sources of supply.

Strengths and Weaknesses

S: Experienced personnel, knowledge of market (local and international)

W: Time lag involved as a product has to be tested for 6-month stability, currently the procurement department has taken on a new chemicals supplier

O: Local industries are developing basic chemicals such as sulphametaxazol

T: Suppliers will face price competition from Indian and Chinese imports, customs stall goods when documentation is not at par with requirements. Such documentation is at times difficult to get hold of on time e.g. Forms 7 and 3 which give the date of manufacturing and country of origin respectively if not reproduced at the right time can lead to spoilage of imports.

Value-Chain Analysis

The Procurement department expenses the company’s assets which is why it is all the more cautious of providing value to the end product. As procurement deals with the ultimate external customer, it is very conscious of value-addition.

Internal/External – Customer/Supplier

Internal Customer: Planning department, R&D department

Internal Supplier: IT department, marketing department

External Customer: End consumer, doctors, medical organizations

External Supplier: Supplier of materials, government

 

MARKETING

From theme booklet “Moving On” given to the sales force every quarter.

E.G. Dicofen

  • Objective: Establish brand identity by highlighting image as a quality drug available at an economical price.
  • Theme: The key to freedom is Dicofen.
  • Strategy: Select Voltaren-minded doctors and offer them Dicofen at economical price. Target all orthopedic surgeons, “A” class general practitioners, and selected dental surgeons.
  • Literature brief: A two-page drop card in which the first page depicts the human body with all major joints where pain and inflammation is generally reported.

On the second page two characteristics of Diclofenac sodium are mentioned which highlight why Diclofenac is such a good drug for arthritis and other pains.

  • Model detail: Doctor, you must be getting many patients who complain of arthritic pain, dental pain, and muscoskeletal sprains and aches. The key to freedom is Diclofen. Doctor, Diclofen has a prolonged duration of action. Doctor, we offer you these qualities of Diclofen in the shape of Diclofenac at a much more economical price. May I request you to prescribe Diclofenac to all your patients requiring a potent anti-inflammatory agent.

 

 

  1. EXTERNAL ENVIRONMENTAL ANALYSIS
  2. Governmental, Political and Legal Aspects
  3. Economic Aspect
  4. Social, Cultural, Demographic and Environmental Concerns
  5. The Element of Technology
  6. Tabs on Competitors
  • Inhibiting Entry
  • Substitutability of Glaxo-Wellcome Products
  • Extent of Supplier Clout
  • Customers’ Bargaining Power
  • Rivalry Amongst Competing Firms

 

  1. GLAXO-WELLCOME’S INTERNAL ASSESSMENT OF STRENGTHS & WEAKNESSES
  • Departmental Analysis
  1. Operations
  2. Procurement
  3. Marketing
  4. Finance
  5. Administration
  6. Human Resources
  7. Value-Chain Analysis

 

  • FINANCIAL OVERVIEW

 

  • CONDUCTING A FACTOR ANALYSIS
  1. External Factor Evaluation (EFE)
  2. Internal Factor Evaluation (IFE)

 

  • APPENDIX
  • Summation of Findings
  • A Statement of Contribution

 

  1. BIBLIOGRAPHY
  • The News – October 13, 1998
  • Pakistan & Gulf Economist – October 5-11, 1998
  • Business Recorder – January 16, 1997

October 18, 1997

November 13, 1997

December 29, 1997

January 9, 1998

 

CORPORATE CULTURE

Glaxo-Wellcome’s people are its pride and source of initiative. Operating in the competitive and fast-moving pharmaceutical industry, the company ensures its people are dedicated to the entrenched values of the company. Though the lapse of time since the merger has been short, the management norms widely shared by the company personnel are as follows:

§  Glaxo-Wellcome should hire people committed to the welfare of mankind;

  • Glaxo-Wellcome must encourage enterprise and innovation in individuals and their work;
  • Glaxo-Wellcome should capitalize on long-term business opportunities based on commitment by individuals to the organization;
  • Glaxo-Wellcome and its people must keep pace with changing times and needs of the market.

The company’s formal management systems stem from these shared beliefs. General evaluation of performance of employees is carried out on the basis of leadership, organizing, communication and technical abilities. The company values continuous growth in the industry, and stability within the company. Promotions are made from within, and top management is chosen from the ranks of the Glaxo-Wellcome people as opposed to hiring from external sources.

 

Management

Glaxo-Wellcome lays considerable emphasis on research and development, and its operating principles and management policies are geared towards this. Considering Glaxo-Wellcome to be in a business where ii-conceived new product development is very expensive, and at times apt to be unsuccessful, integrated strategic planning amongst the functions is of vital importance.

 

Distribution of Authority

  • GROUP OFFICE

The parent company Head Office is located in the United Kingdom, while the Group Office for Asia-Pacific operations is situated in Singapore. The strategic direction for the company is provided by the Group Office. On the whole, the parent company provides the entire gamut for research and development through transfer of technology, as well as financial support for such activities.

 

  • PAKISTAN OPERATIONS

The provision of strategic direction through the Group Head Office preempts the direction to be taken by Glaxo-Wellcome Pakistan. For product launches and introductions, approval has to be given by the Group Office. Such interventions are also required in matters of retrenchment  – such as the recent shut down of the Lahore set up.

As far as functional departments are concerned, they are semi-autonomous units with the authority to set their requisite budgets as well as co-ordination amongst the other departments.

 

Organization Chart

Glaxo-Wellcome is headed by Sir Richard Sykes, who is the company chairman. The next-in-command is the chief executive, Mr. Bob Ingram. Directly under the chief executive’s supervision fall the Functional Group Directors and Regional Group Directors. The country chairman or regional group director for Glaxo-Wellcome Pakistan Ltd is Mr. Alan Eldridge.

Mr. Eldridge has been appointed as the managing director of Glaxo-Wellcome Pakistan from September 1, 1997 and deputy chairman from September 8, 1997. Mr. Eldridge first joined Glaxo-Wellcome in Australia, in 1979 and has since held a number of positions of increasing responsibility within the Asia-Pacific region, including senior appointments in Korea and Hong Kong. He also served as chairman and managing director of Glaxo-Wellcome new Zealand from January 1994 till his appointment in Pakistan.

Serving under Mr. Alan Eldridge are the functional directors of Glaxo-Wellcome Pakistan. These include Mr. S. Riaz Ahmed – Commercial Director; Mr. Masood Ahmed – Financial Director; Mr. Muzaffar Iqbal – Technical director; and Mr. Shahid Mustafa Qureshi – Human Resources & Corporate Affairs Director / Company Secretary.

 

 

 


LIVE CASE

 

Glaxo Wellcome Pakistan – The Marriage Between Two Giants

 

On the cool and pleasant evening of August 8, 1999, a long service award giving ceremony was held in the throngs of the Banquet Hall at the Sheraton Hotel, Karachi. The auspicious hosts, being the management of Glaxo Wellcome Pakistan Limited. Twenty awards for auspicious service were given away by Mr. Alan Eldridge, the Country Chairman, Glaxo Wellcome Pakistan Limited.

Speaking on the occasion, Mr. Eldridge congratulated the recipients on their achievement, and emphasized the need for all Glaxo Wellcome employees to work with even greater zeal for the company’s progress. He had good reason to broach the topic too. As the ending words of his speech were drowned by thunderous ovation, Alan Eldridge thought back to the news items coming from time to time that had hung over his head like a cloud.

“…It is estimated that it takes an average 15 years from patent filing to the launch of a major innovative medicine at a total cost of around U.S. $500 million, as compared with US $100 million in 1985. Even so there is no guarantee of success in a highly competitive market where novel products are constantly and rapidly made obsolete or entirely replaced by innovations.”

“…In addition to disease, we must also contend with the shifting sands of Government policies around the world, the escalating costs of Research & Development, the slow pace of regulatory approval, and the tough new realities of the marketplace – all of which threaten our ability to keep up the flow of innovative medicines”.

“…Here in 1998, our industry is in crisis. Inconsistent government policies towards the pharmaceutical industry in recent years, the dramatic fall in value of the Rupee together with stringent and punitive price controls since June 1993, have dramatically eroded profitability and brought the industry to its knees.”

“…The inevitable result of these misguided policies will be to undermine the viability of all those companies who are committed to investing in quality, both multinational companies and national companies, so that the high quality products will eventually disappear from the market, leaving the field clear for those who only manufacture the cheapest, poor quality and even spurious medicines. The losers will be the people of Pakistan.”

He swiveled the fruit punch in his hand and recalled his secretary taking down his own remarks to be recorded in the Annual Report 1998.

“With no price increase in sight, at least in the near future, the Company will continue to attempt to minimize pressure on profitability by achieving high sales volume and holding down costs through sustained efficiency improvement measures”. (Alan R Eldridge, Chairman Glaxo Wellcome, in Annual Report 1998)

“The Company will continue to focus on our core Pharmaceutical Business”. (Alan R Eldridge, Chairman Glaxo Wellcome, in Annual Report 1998)

Everything was in black and white, solid print. Ironically, Glaxo Wellcome, the company that has built its success on the “gi-normous” size and health care-for-all idealism, now finds itself in a haze of rose tint.

 

Glaxo Wellcome – A Panoramic View

The newly found company has a blue blood of discovery in the field of prescription medicines. It is one of the world’s leading research-based pharmaceutical company. The Group was formed in March 1995, following Glaxo’s acquisition of Wellcome. The two companies date back to a long history of success stories. Joseph Nathan founded Glaxo in 1873 as a general trading company in New Zealand. Two American pharmacists, Henry Wellcome and Silas Burroughs established Burroughs Wellcome & Company in London in 1880 which was later changed to Wellcome plc in 1985.

By the 1980s, both Glaxo and Wellcome were both highly successful with strong and well-developed research capabilities. Glaxo had grown through the acquisition of smaller companies and the discovery and commercialization of revolutionary treatments such as a novel anti-ulcer treatment which was to become the world’s best selling prescription medicine. Wellcome plc had become the home for Nobel prize-winning research in areas such as HIV.

The histories of the two companies merged when on January 23 1995; Glaxo launched a takeover bid for Wellcome. The Group was formed in March 1995. In September, the same year, the new group is launched worldwide. The logic for the Glaxo Wellcome merger was simple; combining drug discovery processes to improve the fight against disease. Both, Glaxo and Wellcome had long traditions in the field of prescription medicines – and the merger of their operations created the second largest pharmaceutical company in the world. It allowed the integration of world class research and business skills, it also created a £12 billion medical and scientific trust, the largest in the world.

“I Hereby Pronounce You … Glaxo Wellcome”

Glaxo Wellcome PLC and its subsidiaries operate an international pharmaceutical company engaged in the creation and discovery, development, manufacture and marketing of prescription medicines. It has 76 operating companies and more than 50 manufacturing sites worldwide. With global annual sales of around £8bn in 1998 Glaxo Wellcome currently ranks as one of the top 3 pharmaceutical companies in the world, with a market share of 4.5%. The leading companies have a relatively similar share of the world market which reflects the tough competition faced by the Group. Seven of their products are ranked in the world top 50 for sales. These are Zantac, Imigran, Zovirax, Zofran, Zinnat, Flixotide and Serevent. In all, Glaxo Wellcome has some 48 principal prescription medicine products, these can be grouped into nine therapeutic areas: respiratory, bacterial infections, viral infections, central nervous system disorders, gastrointestinal, oncology, cardiovascular, dermatologicals, and anaesthesia. It spends around pounds 1.2 billion in research every year, which is the largest budget in the pharma industry.

Winds of Change

In 1996 Glaxo Wellcome announced a new regionalised organization structure, setting the stage for the next chapter of global growth. It is designed to take advantage of emerging global business opportunities. Glaxo Wellcome Pakistan is part of the Asia Pacific Region Division with headquarters in Singapore.

 

 

GLAXO WELLCOME PAKISTAN – A COMPANY PROFILE

Glaxo Wellcome Pakistan in the Scheme of Things

CompanyMarket share
Glaxo-Wellcome6.28
Smith Kline Beecham5.62
Abbott5.47
Pharma Specialities4.12
American Home3.79
Merck Marker3.15
Hoechst3.41
Bristol Myers Squib3.02
Roche2.32
Pfizer2.07
Others60.75

 

In Pakistan, it is the largest pharmaceutical company with the highest share of the local pharma market, i.e. 6.8% and annual sales of Rs. 3,296 million in value. The country headquarters are in Karachi. Pre-merger Glaxo was engaged in the manufacture of bulk actives and formulations & markets pharmaceuticals for human and veterinary use, and fine chemicals, whereas Wellcome manufactured & marketed bulk actives & formulations for human use. These capabilities are now being capitalized in the combined entity. Sales and distribution is also managed through their combined network of distribution points across the country. 

 

Management at Glaxo Wellcome

The company’s formal management systems stem from these shared beliefs which are also transferred to all its subsidiaries. General evaluation of performance of employees is carried out on the basis of leadership, organizing, communication and technical abilities. The company values continuous growth in the industry, and stability within the company. Promotions are made from within, and top management is chosen from the ranks of the Glaxo-Wellcome people as opposed to hiring from external sources.

Glaxo-Wellcome lays considerable emphasis on research and development, and its operating principles and management policies are geared towards this. Considering Glaxo-Wellcome to be in a business where ill

conceived new product development is very expensive, and at times apt to be unsuccessful, integrated strategic planning amongst the functions is of vital importance.

The parent company Head Office is located in the United Kingdom, while the Group Office for Asia-Pacific operations is situated in Singapore. The Group Office provides the strategic direction for the company. On the whole, the parent company provides the entire gamut for research and development through transfer of technology, as well as financial support for such activities.

The provision of strategic direction through the Group Head Office preempts the direction to be taken by the subsidiaries, including Glaxo-Wellcome Pakistan. Such interventions are also required in matters of retrenchment  – such as those required in order to streamline the facilities of both Glaxo and Wellcome as one operation. For product launches and introductions, approval has to be given by the Group Office, which is mostly a procedural requirement only. The year-to-year operations and management of the company is the responsibility of the board of directors and is left at their discretion. As far as functional departments are concerned, they are semi-autonomous units with the authority to set their requisite budgets in co-ordination with the other departments.

Organization Chart – Those Who Rule The Roost

Glaxo Wellcome is headed by Sir Richard Sykes, who is the company chairman. The next in command is the chief executive, Mr. Bob Ingram. Directly under the chief executive’s supervision fall the Functional Group Directors and Regional Group Directors. The country chairman for Glaxo-Wellcome Pakistan Ltd is Mr. Alan Eldridge.

Mr. Eldridge was appointed as the managing director of Glaxo-Wellcome Pakistan on September 1, 1997 and deputy chairman on September 8, 1997. Mr. Eldridge first joined Glaxo-Wellcome in Australia, in 1979 and has since held a number of positions of increasing responsibility within the Asia-Pacific region, including senior appointments in Korea and Hong Kong. He also served as chairman and managing director of Glaxo-Wellcome New Zealand from January 1994 till his appointment in Pakistan.

Serving under Mr. Alan Eldridge are the functional directors of Glaxo-Wellcome Pakistan. These include Mr. S. Riaz Ahmed – Commercial Director; Mr. Masood Ahmed – Financial Director; Mr. Muzaffar Iqbal – Technical director; and Mr. Shahid Mustafa Qureshi – Human Resources & Corporate Affairs Director / Company Secretary.

A Prescription List of Business Segments

As asserted by Eldridge, Glaxo-Wellcome is in business for pharmaceutical products only and operates pharmaceutical and animal health division.

Pharmaceuticals

Glaxo-Wellcome has a broad and well-balanced product portfolio with six major product lines in gastro-intestinal, respiratory, dermatological, antibiotics, non-narcotic analgesics and vitamins.

  • The antibiotic segment has the largest market value of Rs 8663 million (22.33% of total pharma market) with a CAGR of 7%. This segment can be further divided into cephalosporins, and cotrimoxazoles. Three of Glaxo-Wellcome’s top 10 revenue generating products belong to this segment. The top products being Septran (cotrimoxazoles market) with annual sales value of Rs 313 mn, and Ceporex (cephalosporins market) with a annual sales value of Rs. 185 millon.. The antibiotic segment faces intense competition between both national and multinational brands, with the MNC’s having a 69%[8] share of the market as against a 31% share of local brands.
  • The anti-ulcerants market is valued at Rs. 1221 mn, with a compound growth of 29% over last 5 years. This segment has 101 companies having 143 different brands. Almost every month a number of new brands or line extentions are introduced in this segment, which is predominated by local pharma companies. In ’99 Glaxo-Wellcome achieved a sales value of Rs. 173.4 mn in this segment. The star product of the segment is Zantac contributing a revenue of Rs. 142 million.
  • The anti-rheumatic market is valued at Rs. 2143 million. There are about 23 companies in the segment and 6 are MNC’s, offering 63 brands and 80 packs. For  the year 1999, 29 million prescriptions were generated for cough preparations, in addition to this the O.T.C market is estimated at 15-20% of the segments’s sales. A number of local herbal and combinations products also compete in this segment. Two of Glaxo-Wellcome’s top ten products are from this segment, one star product is Actified P Cold generating Rs. 90.5 million (for the year ’99).
PRODUCTCOMPANYSEGMENTVALUE (06 ’99) Rs. In million
AugmentinSmith Kline BeechamAntibiotics520.9
VelosefBristol Myers SquibAntibiotics426.9
AmoxilSmith Kline BeechamAntibiotics429.2
PonstanParke DavisNon-Narcotic Analgesic375.5
SeptranGlaxo-WellcomeAntibiotics313
NeurobionMerck MarkerVitamins245.5
BrufenKnollNon-Narcotic Analgesic250.1
AmplicloxSmith Kline BeechamAntibiotics277.5
LexotanilRocheTranquilizer228.4
Others3,5481
Total  38547.6

 

  • The dermatological segment is worth Rs. 1237 million and is growing at a rate of 7% p.a. there are about 27 companies in this segment five of which are MNC’s. Three of the top 10 products of Glaxo-Wellcome are form this segment. The product portfolio for this segment includes established brands as Betnovate launched in 1964 and still generating a yearly revenue of Rs. 28 million (’99)

 

  • The Non-narcotic market is Rs. 1600 million which is 5% of total pharma market. This segment is growing at a rate of 9%. The segment faces the highest generic competition in the pharma industry, there are about 231 products with majority being generic Paracetamols. Each year competition expands by numerous products mostly belonging to local companies, with the sole aim to reap profits from an already established therapeutic segment. Parke Davis is the leader with a 22% share and Rs. 342 millon in sales. Glaxo-Wellcome is the fourth major company with a 10% share and –11% growth, its star product for the segment being Calpol with sales ranging about Rs. 114 million.
  • The vitamin market is the second largest segment of pharma market after antibiotics. It is worth Rs. 2208 million having a growth rate of 8%. Vitamin market is divided in to many sub-segments Glaxo-Wellcome has a number of products in the plain Vitamin B Complex segment and the Vitamin D segment. Glaxo-Wellcome’s Uniplex has a sales value 8 million, and a compound growth of 27% over the last 5 years.

Animal Health Division

  • Agrivet Farm Care is a veterinary activity of Glaxo-Wellcome Pakistan, which markets high quality, safe & effective medicines & feed supplements for cattle, poultry & fisheries. This segment can be further categorized according to the product categories offered by Glaxo Wellcome. These categories are Animal Healthcare Pharmaceuticals, Feed supplements, Hormone and Disinfectants.

 

Functional Demarcations

Operations & Facilities

In Pakistan, the manufacturing and administrative facilities of Glaxo Wellcome are located at four different sites in two major cities – three at Karachi and one at Lahore, which employ over 3,600 people. The head office and F/268 factory is situated at SITE, Karachi and is named ‘Salim Habib House’ as a tribute to the services of Dr. M S Habib, the last local chairman to have held the post till 1995 and the present Deputy Chairman of Glaxo Wellcome Pakistan Ltd. The Karachi Chemical Manufacturing Plant of trimethoprim, which is one of the basic ingredients of the anti-bacterial (Septran) is located at Salim Habib House. The factories at D/43 SITE and in West Wharf also undertakes the secondary manufacturing activities.

The secondary manufacturing activities carried out at the three Karachi sites include: storage of raw materials, granulation, tablet compression, coating, blister packing, capsules filling, ointment and cream manufacuring, bulk manufacturing and filling of sterile products including injectibles, oral liquid manufacturing (10,000 litre batch sizes), and filling and packing on automatic fast lines. Beside this, filling of topical ointments, optic drops, nasal drops, and aerosols is also carried out on fast machines.

The Lahore factory undertakes the basic manufacturing of Dextrose from locally grown maize; Salbutamol, the active ingredient of one of the leading anti-asthmatic drugs, Ventolin; Steriods such as Betamethasone Alcohol, used in the Betnelan tablets, Betamethasone Valerate, used in the Betnovate creams, Betamethasone DSP, used in the Betnesol tablet and Clobetesol, used in the Dermovate, Cephalexin, for oral Cephalosporins, and Ranitidine, the active ingredient of the largest selling anti-ulcerant, Zantac.

Apart from the basic manufacturing (chemical) plants Glaxo Wellcome Pakistan also has the exclusive facility of a Fermentation Plant, which is currently in use for the manufacturing of Griseofulvin. It also has a dedicated facility for secondary manufacturing of cephalosporins (oral and injectable) at Lahore.

 

 

Under the Technical Directorate

  • The Production Control Department ensures timely availability of finished products in accordance with the sales demand and forecast. This involves utilization of latest planning concepts of MRP II. It serves as a link between the marketing and production functions by scheduling production runs in order to meet marketing demands.
  • The Procurement function is also a function of this demand determination exercise. The unit is involved in the purchase of raw materials such as glucose, glycerin and sugar, along with certain packaging materials, that are to meet specified quality requirements and to be used in product formulations (improved and new) using the most efficient engineering and production processes. As far as packaging material goes, 20% is imported (aluminum foil, PVC film, components of inhalers etc.) while 80% is procured locally (boxes, tubes, ampoules, glass bottles etc.)[9].
  • The company employs batch method of It has a flexible manufacturing setup for its Strategic Business Units for producing and packaging different volumes of medicines with minimal adjustments. For instance, all types of injections can be produced on one equipment setup and the setup can also be adapted for producing different milliliter (volume) requirements with minimal adjustments. Injections of one milliliter and five-milliliter can thus, be made on the same equipment setup. It works usually works for two shifts of eight hours each. There are breaks after every two hours for tea and lunch. The company is striving to minimize over-time and rescheduling through efficient scheduling, building up finished goods stock, minimum rework in order to reduce costs.

The company cannot adhere to the JIT system as lack of real-time reporting can sometimes result in greater demand than expected. It currently keeps a four-week stock of finished medicines on hand as determined by the marketing department and is aiming towards an eight-week level to eliminate possibility of low market supply.

  • The company’s manufacturing procedures and environmental controls not only meet the requirements of the code of Good Manufacturing Practices (GMP), but also strictly adhere to the quality standards set by the Glaxo Wellcome Group. The production facilities and the production processes as well as the resultant products maintain a quality level much above that specified by the ISO 9000 and ISO 14000. Quality is built into the product and not merely inspected at the final stage. For this purpose, representatives from the Quality Assurance Department monitor operations on periodically on daily basis as well as conduct surprise checks.

§  The Research & Development Function: Glaxo Pakistan is today collaborating in a small, but increasing manner, with its parent company in terms of custom synthesis of new molecules and building blocks for new compounds. Laboratories are associated with the country’s premier research institutions e.g. The Aga Khan University Hospital, Karachi University, H.E.J. Institute of Chemistry, Pakistan Council of Scientific & Industrial Research and other institutions to enhance mutual scientific knowledge. Research work conducted here is published in national and international journals.

The Research & Development laboratories of Glaxo Wellcome Pakistan are recognized and registered by the University of Karachi for conducting research work leading to M. Phil & Ph.D degrees in Pharmaceutical Chemistry.

The Cat Force In Action

The Lions, Leopards, Tigers, Panthers, and Jaguars, all had gathered to sharpen their claws for the next attack in the remaining two sales cycle for the year. The sales force itself is a niche player in the marketing set-up and sets the tone in achieving growth targets for the company.

Alan Eldridge reiterated every chance that he got that change was exciting. It meant that seizure of opportunities and facing and overcoming the challenge of threats. Most importantly, it meant realistically analyzing, accepting, and adapting to change.

Glaxo Wellcome Pakistan is one of the top 5 companies in Pakistan, with the other four being Smithkline and Beecham, Wyeth, Cynamide, Hoechst Marion Rousell and Novartis. Its market share is 7%, about Rs. 2.8 billion in the local pharma market. At present, the goal is to consolidate and maintain the position of the existing portfolio and new products.

 

 

Planning & Sales Initiate Cost Saving CampaignUndertaking a fresh resolution, the marketing and sales division formally started their cost-saving campaign on August 25, 1997. The words imprinted on a banner resound in the work ethic of the marketing personnel at Glaxo Wellcome Pakistan: “MARKETING IS ON A PAPER SAVING SPREE.”Their resolution includes:§  Reduce Utility Expenses§  Use fax instead of lengthy long-distance calls§  Do not use hard copy by courier§  Use courier when absolutely necessary§  Put the lights off when leaving the room§  Cut down stationery usage

§  Use less paper/toner, take out print-outs only once.

§  Finish your jobs within working hours, preferably on day-to-day basis.

 

The company relies extensively on market research to successfully introduce new products into the market. A major source of information about the players in the market is the IMS, (Information Medical Statistics). The IMS gives volume sales, value, market shares and growth rates of products on a company-wise basis. The Product Managers work with the medical sales representatives to get feedback to see that strategies are being implemented and check any deviations between the expected and the actual results.

The Advertising and Sales Promotion department has the facilities of an in-house graphic design studio and desk top publishing unit involved in the designing of all publishing materials like promotional literature, calendars, greeting cards, in-house journals, brochures, annual reports, work diaries, etc. Promotional techniques include conducting clinical meetings with 8-10 doctors at a time, where the functioning of the product(s) is discussed extensively. The company also arranges symposiums in which 200-300 doctors take part. Both local and foreign speakers impart lectures. These symposiums generate goodwill and enhance the corporate image. The coverage of doctors is one of the largest in the country since the sales force per quarter calls upon about 20-25,000 doctors. Brand loyalty is encouraged by giving reminders to doctors through the field force like gifts, product literature, etc.

In the pharmaceutical industry, the timely introduction of new products is what provides a competitive edge in the form of quick response to market demand. Glaxo-Wellcome is the only company in Pakistan, along with Abbot, which introduces 4-5 new products into the market every year versus the industry norm of only 2-3 products per year. An example of product development is the fact that in 1998, Pakistan became the fixed country in which Glaxo Wellcome introduced tablets for the treatment of Hepatitis B as opposed to vaccines that are produced by companies like Smithkline & Beecham. At Glaxo Wellcome, new product development over the course of the 1998 – 1999 period has seen both the development and launch of the following: Wellcodox injection, Floxy infusia, Calpol Plus tablets and `Dicofen Emulgel. In an attempt to achieve greater market penetration, some products now have a broadened indication base and the company has developed new uses for the some products like Zantac, which is used for both ulcer and dyspepsia.

It takes nearly 4-5 years for the Research & Development function to develop a product. It takes an additional 2-3 years to launch it in Pakistan since they have to be registered with the Ministry of Health. In 1997, GlaxoWellcome launched Floxy, but had it been launched in 1995, the sales would have been larger since there was a growing demand in the market. As far as the legal requirements are concerned, the government has no regular health policy. The Pakistani economy is largely undocumented and the information available on the patterns of demand is not always reliable.

GlaxoWellcome deals with the potential entry of competitors through benchmarking, whereby it compares itself with the competition and sees how it can improve. Differentiation of the products is also used whereby the unique selling proposition of a new drug is highlighted. For example, one differentiating strategy employed by the company is that antibiotics are promoted by asserting that they are to be taken twice daily instead of the normal three times a day.

Distribution

GlaxoWellcome has nine sales and distribution stations, strategically located throughout Pakistan. There are forty-five distributors in the major towns and its sales force comprises of 600 members. Through them, the company reaches 27,000 chemists all over the country. In spite of this, the company does suffer at times since companies like Novartis has its own distributors, Lasani, with a 51% stake in the company.

The company is currently trying to cut down cost by eliminating waste. They are also trying to improve their forecasting system which is not very accurate at the moment. The forecasting system functions on a Continuous Improvement (C.I.) system and the company is introducing better tools used for forecasting such as MRP 2 concept.

The Sales Department comprises of different divisions. These divisions are assigned to teams which for purposes of classification are called Jaguar, Tiger, Leopard, Lion and Panther. Salesmen in each division are trained for specific Glaxo-Wellcome products. The total strength of the department comprises of 397 Medical Representatives, 50 Area Managers, 6 Division Sales Managers: five for pharma and one for animal health, 2 General Sales Managers and a Unit Head.

There are three basic types of products namely Prescriptional, Bonus and Over-the Counter drugs categorized as A, B and C respectively. The A category products are the ones prescribed by doctors and they contributes 86% of total market share of the company. The B category products, for example, Calpol offer discounts and bonuses to push sales and contribute 2% towards the market share. Category C consists of products for example multivitamins that provide after sales service to achieve incremental sales. Out of the total, 3% of market share is derived from imported products example Tracrium injection which is used in anesthesia.

The company provides first class training for its sales force. The marketing department, alongwith the medical department is also responsible for planning and conducting training and development courses for the sales force. During the training period that lasts for about six months, monthly expenditure of Rs. 50,000 is incurred on each trainee. Their job is to establish brand identity by highlighting a drug as a quality drug available at an economical price (considering the benefits). The sales trainees are trained through courses on product knowledge, interpersonal skills, complaint handling, approaching and qualifying prospects, etc.

 

HEALTH CARE IN PAKISTAN

The existing national network of health services in the public sector consists of 865 hospitals, 4,253 dispensaries, 5,121basic health care centres (BHUs), 853 maternity & child health care centres (MCH), 513 rural health centres (RHCs) and 262 tuberculosis (TB) centres

 

Health manpower and population per health staff

 Upto 1995Upto 1996Upto 1997
Registered Doctors69,69174,22978,470
Registered Dentists2,7512,9383,159
Registered Nurses22,29922,81024,776
Population per Doctor1,8371,7731,724
Population per Dentist46,53244,80342,823
Population per Nurse5,7405,7715,460

Source: Federal Ministry of Health

Private Health Care Sector:

It accounts for nearly two-thirds of all health expenditure in the country. Private sector facilities are of varying quality and largely urban based and curative. The regulation of the private sector is rather weak. Moreover, there are many non-profit private institutions run by ethnic and religious communities or philanthropic associations and foundations. The non profit sub sector is mostly restricted to urban areas, but also provides some primary health care services in rural areas. There are large, medium and small sized Non Government Organizations (NGOs) in the social sector that provide significant health care and other social services to the public.

 

Health and Nutrition Expenditure

                                                 Public Sector Expenditure                                                Million Rs.
YearDevelopmentExpenditureCurrentExpenditureTotalExpenditureChange(%)As % of GNP
1995-965,74110,61416,35535.30.76
1996-976,48511,85718,34212.10.77
1997-986,07713,58719,6647.20.72

Source: Pharma Bureau

Health watch has never been a priority in Pakistan. The current state of health facilities and expenditure on health leaves much to be desired. Health outlays in government policies have been much below the desired level. Total proposed government outlay (federal plus provincial) on health in FY 1997-98 is Rs. 19.7 billion, which is a paltry 0.72% of the total GNP. WHO recommends that 7% of the GNP should be spent on health. Per capita expenditure on health works out to Rs. 141 per annum.

 

 

FINANCIAL RESULTS

The true results of Glaxo-Wellcome’s strategy are yet to be seen. In the three years after merger sales have shown a cumulative growth of 165.5%. However, since the pricing regulation imposed by the Government, profits have not displayed such a clear trend. Financial results for selected post merger years are shown in Exhibit &*%#%^.

A significant part of assets and income controlled by Glaxo-Wellcome is not shown in the company’s regular financial statements. On average 18% of Glaxo-Wellcome’s net income before tax comes from the “other income” account, details of which are reported only in the notes to the financial statements. The major sub-head of this account is the “interest on short term deposits”.

Glaxo-Wellcome is making substantial progress in establishing the credentials of Glaxo-Wellcome as a possible supplier of world class products from this country. The exports of Betnovates, Ranitidine, and Griseofulvin. Since the merger, the exports have been growing at a steady annual rate of above 30%. However, in ’99 exports faced a sharp decline due to temporary discontinuation of Ranitidine exports, which have stopped due to the closure of the BMP facilities at Lahore.

 

GLAXO-WELLCOME PAKISTAN

BALANCE SHEET                                             (In Rs. 000)
1999*19981997*19971996
ASSETS     
Current assets18570271979843150631317391721454534
Tangible Fixed Assets756283686799693514695191713018
LT Deposits loans2116612969217982136714522
Total Assets26344762679611222162524574262182074
Sharesholders Equity & Liab     
Equity     
Paid up capital335507335507335507335507335507
Surplus on revaluation2127021270212702127021270
Reserves14615871461587123908712412021116202
Unappropriated profit12166810902115106
TOTAL SHE19400321818473159586416000941473085
Liabilities     
LT loans688688688688688
Deffered Liabilities8962099369105813102267109457
Current Liabilities604136761081519260754377598844
Total Liabilities694444861138625761857332708989
Total liab & Sk holder Eqt26344762679611222162524574262182074

 

Glaxo-Wellcome Pakistan
INCOME STATEMENT                                  ( in Rs. 000)
1999*19981997*19971996
Sales1,546,4883,295,5391,241,2962,838,7471904627
CGS1,017,4152,502,866920,3901,914,7411239228
GP529,073792,673320,906924,006665399
Operating expenses     
S&A251,732666,671243,783552,996458457
Operating profit277,341126,00277,123371,010206942
Other Income46,04447,4985,89837,13929116
323,385173,50083,021408,149236058
Other Charges     
Financial7,90520,58110,38913,8463908
Others2,94019,1074,11810,19010333
WPPF15,6276,6913,42619,25111136
WWF5,5353,1541,7268,2465120
32,00749,53319,65951,53330497
PBT291,378123,96763,362356,616205561
Taxation102,71830,05515,570113,87648953
PAT188,66093,91247,792242,740156608
Extraordianry item gain on divestment262,900
Net profit188,660356,81247,792242,740156608

 

  • Financial Results for six months

 

 

RECENT DEVELOPMENTS & STRATEGY:

The follow up to the merger meant cutting down on employees, severing duplicate facilities in both organizations, streamlining operations and distribution channels. Since the merger, Glaxo Wellcome Pakistan has spent Rs. 397 million in capital expenditure. This includes expenditure on streamlining of manufacturing facilities as well as investment for improving its information technology capabilities. The company is aiming towards reducing its number of factories in Pakistan to two. Product line is being pruned to eliminate similar products from the combined portfolio. Some loss-making products, such as Zantac, are being phased out. It is also investing in technology and to link its various factories and sales offices with each other in order to support real time reporting which would help in manufacturing and marketing decisions. The head office already has a direct connection with the Group Head Office in Singapore.

The company was also into the food business in the period after the merger, with Glaxose-D of Glaxo as the sole product in the business. However, on December 29, 1998, this business was disinvested to m/c CPC Rafhan Ltd and m/s Rafhan Best Foods Ltd. Glaxose-D, at that time, contributed to 11% of total operating income and employed 10% of the total assets of the company. The sales proceeds from this decision totaled Rs. 329.5 million as against the net book value of 28.8 million of the assets transferred.

Ghostbusting the Millenium Bug

It is also building up raw material inventory and a three-month stock of medicine supply for next year to account for any unprecedented breakdowns due to the Y2K problem. Steps have also been taken to guard against disruptions in the production process due to power or communication breakdown by building up supplies of fuel, and acquiring additional number of generators and mobile phones among other things.

 

GLAXO WELLCOME PLC & GLAXO WELLCOME PAKISTAN LTD: OUR FUTURE TOGETHER

Glaxo Wellcome plc had, last year, an annual research expenditure of 15% of its world-wide sales – Pounds 1.2 billion or Rs. 8400 crores. Just the research budget of one company is thus equivalent to two thirds of the total turnover of the entire pharmaceutical industry in Pakistan. Glaxo and Wellcome Pakistan has some of the oldest and best brands in Pakistan and the question is how long will it be able to maintain this position? They have the largest market share at the present time and they need to be continuously developing their brand in the years ahead. It is clear that growth, product development and brand building will be the pillars on which a future strategy must be based. Some of the developments currently in the pipeline with special reference to Pakistan and the developing world:

  • Asthma and COPD (Chronic Obstructive Pulmonary Disease) now reflect one of the company’s largest therapeutic segments. There are 100 million sufferers of asthma in the world and rising numbers in the developing world. The long-term hope for asthmatics could lie in their genes. The unique work being done by Glaxo Wellcome on the genetic basis of the disease could result in, novel treatments in the years ahead. COPD accounts for 3 million deaths a year of which 67% are in developing countries. New combination treatments in this field have produced remarkable results.
  • TB has become the leading cause of death among infectious diseases. It is certainly the number one killer disease in Pakistan. On World TB Day, Glaxo Wellcome plc announced additional funding of 10 million pounds for “Action TB”, a multi-centre research project aimed at finding new treatments for the disease. AIDS is a major world killer. Wellcome’s pioneering discovery of zidovudine has become the central pillar of AIDS therapies the world over. Combinations of zidovudine with newer drugs such as lamivudine, ambacavir and amprenavir have reduced the AIDS virus to undetectable levels allowing some sufferers to lead near normal lives. These drugs are also helping people to return to work and reducing the need for hospitalization.
  • Malaria kills more than a million people annually with children especially at risk. Glaxo Wellcome’s Malarone is perhaps yet another example of a remarkable combination to treat malaria, particularly plasmodium falciparum.
  • The Hepatitis B virus resides in nearly 350 million people. In addition to lamivudine which is now registered for its treatment in several countries, Glaxo Wellcome have the exclusive rights to develop and market a Hepatitis B DNA vaccine delivered by the PowderJect system.
  • Other areas in which Glaxo Wellcome research has produced path-breaking discoveries are influenza, epilepsy and migraine. This record should put to rest the widely held belief that little or no research is being done on the diseases of the third world.

As well as medicines, Glaxo Wellcome is developing innovative vaccines and diagnostics. Fighting disease is not restricted to the developed world. Glaxo Wellcome has Action TB, an international programme to find new medicines and vaccines against multi-drug resistant tuberculosis, and the Malarone Donation Programme, which controls the use of our new anti-malarial in order to combat the problem of drug-resistant malaria. There are also programmes to make anti-HIV medicines available in poorer countries.

Eldridge felt a tug on his arm and turned to look into his wife’s eyes. He could see the world in his eyes… a world where there was a cure – an accessible cure for any kind of disease. One of the prime reasons for his success with the company had been his genuine concern for the welfare of mankind.

It was in fact, she who had helped him write the conclusion to his well-received address:

“We must move beyond this in the years ahead. We can only survive if we are world class and a leader in the fields we have chosen to focus our attention. Environments change – they become better and worse – but a truly global and focussed company should be able to internalise these swings in the business cycle – to expect them and to ride above them. With the enormous strides being made in research and product development – some of which I have outlined – we in Pakistan will need to use these resources and network very closely with our parent company with respect to global developments. Our own markets will have to be understood better so that we can effectively expand market share while at the same time save lives through the introduction and dissemination of truly life saving capabilities.”

 

INDUSTRY

In 1997, total sales of pharmaceutical companies in Pakistan amounted to Rs. 34.6 billion with a compound growth rate of 23.7% over the period 1993-97. Pakistan’s explosive population growth rate (3% p.a.) and rapid urbanization (5% p.a.) ensure a rising marketing demand for pharmaceutical products. Presently, domestic production is only 75% sufficient for demand. Capacity utilization in the industry is between 65% – 70% due to the unrestricted imports of drugs and medicine and lack of facilities to produce certain drugs.

 

Traditionally, Pakistani pharmaceutical industry has been a highly fragmented industry where 609 companies currently vie for the total market. The industry can be classified into Multinational Pharmaceutical Companies and the pioneering National Pharmaceutical Companies. When Pakistan came into existence the country was completely dependent on imports. The number of local companies currently operating in the country is 573. Of the 150 local companies having licenses to manufacture pharmaceutical products only 54 companies are actively manufacturing. The rest of local companies have licenses to import pharmaceutical products. Pakistani pharmaceutical products also have large export potential. The share of pharmaceutical exports is rising gradually in the economy. Pakistani pharmaceutical products have a huge export potential in African Central Asian states.

The multinational and transnational corporations have always dominated the pharmaceutical industry in Pakistan. Currently there are 36 Multinational pharmaceutical companies in Pakistan. The top ten companies by sales value (which are all MNCs) control 39% of the total sales of the industry and are substantially backed by their parent companies through extension of research and development capabilities and financial help.

 

Fourteen pharmaceutical companies are listed on the stock exchange with listed capital of Rs.1.46 billion. Twelve of these fourteen listed companies are multinationals closely held by their parent organizations. Companies in the industry have very low operating asset base and very low paid-up capital. Almost 55% of the total assets consist of Current assets of which inventories comprise the largest portion. This is due to imports of raw materials as well as finished products.

The raw materials constitute almost 80%-90% of the cost of goods manufactured. Inventories for upto four months production have to be kept since raw materials need to be imported. The combined effect of regulatory duty on imported raw materials and packaging materials, continuous devaluation of the Pak rupee and inflation in the country, has been eroding the profit margins of Pakistan operations for the last few years. Local companies opt to import raw materials from destinations where cheaper substitutes are available. The MNCs can justify higher selling prices for the active substances of raw materials through transfer pricing for bigger tax-deductible expenses for tax return purposes. National Drug Policy 1996-97 tries to raise the issue of transfer pricing for the first time. It proposed that raw materials for all the drugs whose patent has expired can not be imported at a higher than 15% of open market prices. However, this issue has not been taken up again.

Glaxo Wellcome is the closest to operate under comprehensive basic manufacturing plants for all its therapeutic categories. Wyeth has also set up semi- basic manufacturing plants for the manufacture of intermediary components of a small number of products Hoechst has recently completed a base-manufacturing unit for Haemaccil (a plasma suspension).

 

Prior to 1970, there were no government regulations regarding the initial fixation or the subsequent increase in the retail prices of pharmaceutical products. In 1972, the Drug Generic Act was introduced under which the selling prices of the drugs were to be fixed by the Ministry of Health. The drug market was divided into ‘essential’ and ‘non-essential’ categories. Essential drugs were placed under price controls, while products falling under category non-essential were decontrolled. Furthermore, the industry gave an undertaking that price increases even for decontrolled drugs would be gradual. In 1977 the import of unregistered drugs was banned. In June 1993, the Nawaz Sharif government attempted to deregulate drug prices, which sky rocketed in no time at all (almost by 300%) in six months. In FY 1994, pharmaceutical industry in Pakistan registered a sales growth of 30% against an average growth rate of 14%. This was due to relentless price increases. By January 1994, regulatory measures were re-enacted.

Since then, the Ministry of Health has not been willing to allow price increases even according to the pricing formulae.

 

 

[1] Summary of Interview with Asad Mohsin Ali.

[2] ‘Pharma firms near collapse due to government lopsided policy,’ recorder report, 18 Oct 97

 

[3] Information Medicine Statistics 1st Qtr. 1998

[4] Interview with Mr. Shahid Qureishi, Company Secretary.

[5] Interview with Mr. Dawar Warriach, Sector Head, Generics.

[6] Information Medicine Statistics 1st Qtr. 1998

[7] Economic survey 1997

[8] PKPI MAT QTR II’ 98

[9] Interview with Mr Haji Hanif, Procurement

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3 Responses

  1. Syed Raza says:

    Who is the author of this report? Please advise. The report is quite good.

  2. Syed Raza says:

    We are doing a research work on pharmaceutical industry in Pakistan with special focus on GlaxoSmithKline. Could you please share some information on financial analysis i.e. Ratio analysis for the period of 2013 to 2015. We need reasons in each case for good or weak performance. Thanks for cooperation.

  3. Ravi Magazine says:

    It’s written by a friend at IBA Karachi.

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