IMS : Financial Analysis of Pharmaceutical Industry of Pakistan

pharma report

pharma report

IMS : Financial Analysis of Pharmaceutical Industry of Pakistan



As per results of IMS compiled at the end of quarter 1,1999, the industry recorded a growth of 8.6%, while last year for the same period, growth of only 1.2% was recorded.

At the end of 1997, the average return on investment figures was 9.5%.


The total number of registered products available in the market is about 20,000, which is a gain of 20% over the last year.  As of December 1997, the total Pharmaceutical market in Pakistan is worth Rs. 35, 269, 648. In 1997 it had a market growth rate of 4.5%. The total estimated Pharmaceutical market in Pakistan is of US $ 759 million, which represents only 0.32 % of the estimated world market of US $ 233billion.




Latin America

Asia Pacific 22

North America

Europe/Middle East & Africa 40




Rest of the World
Pakistan’s share 0.32





Value (Rs. 000s)

Total market sales value in 1997 was 35,269,648
A: Sales to retailers were (87.4% of the total market) 30,825,672
B: Sales to institutions were (12.6% of the total market) 4,443,976


1980 11.9
1980-85 15.1
1985-90 16.2
1990-95 19.4
1995-97 21.2







Factors affecting the demand for Pharmaceutical products are:

  • A high urbanization rate leading to the awareness of medicine.
  • The sales of medicines without prescription.
  • The government campaign of “Health for all by 2010”.
  • Better efforts towards health education.




It is estimated that the industry supply will not grow as fast as demand and so Pakistan will have to increasingly rely on pharmaceutical imports of cover the growing short fall. The industry has been operating at 80% capacity, thus leading to imports to cover the remaining 20%. It is due to price regulation that squeeze margins, that companies who have the capacity to produce certain products locally, internationally do not do so, and let commercial importer import them.




Pakistan spends only 2% of its GNP on health as compared with the WHO recommendation of 7%. The average per capita expenditure on medicines in 1994 was approximately Rs. 270.10 per person, per annum, or Rs. 22.50 per month.


This existing nation wide network of medical consists of: 865 hospitals, 4573 dispensaries, 5121 basic health centers, 863 maternity and child health center, 262 tuberculosis centers and 513 rural health centers. There is 1 doctor for 1734 persons, 1 dentist for 42823 persons and one nurse for 5681 persons in Pakistan.


There are an estimated total of 39,070 retail outlets throughout the country, stocking and selling pharmaceutical products, which are distributed as follows:



Upto 1995 Upto 1996 Upto 1997

Registered Doctors

69,691 74,229 78,470
Registered Dentist 2,751 2,938 3,159
Registered Nurses 22,299 22,810 24,776
Population per Doctor 1,837 1,773 1,724
Population per Dentist 46,532 44,803 42,823
Population per Nurse 5,740 5,771 5,460




SINDH 14,942
PUNJAB 16,966
NWFP 5,690





(FEDERAL PLUS PROVINCIAL)                              (Million Rs.)


Development Expenditure Current Expenditure Total Expenditure Change(%) As % of GNP
1995-96 5,741 10,614 16,355 35.3 0.76
1996-97 6,485 11,857 18,342 12.1 0.77
1997-98 6,077 13,587 19,664 7.2 0.72



This is a very competitive and fragmented market. No Company has a share bigger than 5.92% of total sales. The hundred leading individual companies’ shares range from .072% to 5.92% of the total market. There are a total of 304-government license manufacturing units, out of which 33 are multinational and the rest are national. However, it is estimated that apart from the 33 MNC’s units, only 120 or so national units are currently manufacturing.

In the past MNC’s were dictating terms and were commanding a share of 90% of the Pharmaceutical market, which has now declined to 60.88%. Currently there are 271 national companies in Pakistan engaged in making generic products (i.e. unbranded drugs).



Value (Rs. 000s)

1997 (%)
Share of Multinationals 60.88%
Share of Nationals 39.12%







PUNJAB 155 5 160
SINDH 75 26 101
NWFP 32 32
TOTAL 271 33 304



There are currently 33 research based pharmaceutical multinational companies operating in Pakistan, representing the single largest collective multinational investment in Pakistan.



Approximately 65% of the country’s demand are met from local production (both national and MNC’s) and approximately 35% are imported mostly in finished form. Out of the total 13,558 registered formulation, approximately 1,950 or 14% are imported, while the rest are locally manufactured. The retail consumption of local and imported drugs is about Rs.31 billion annually.


Out of 1,917 registered products 731 are in the “Controlled” category (essential drugs) and the remaining 1,186 products are in the “Decontrolled” category (non-essential drugs).

There was a downward trend in 1995 (the number of units sold in that year was 1% less than in 1994. The overall earnings increased by Rs. 6.34 billion) as the government deregulated the Decontrolled category of drugs, causing a price increase of upto 15%, this led to an increase in the sales of generics, and the decrease in the sales of branded drugs. Transfer pricing and liberal regulations given by the government to the Pakistani local generic companies are also seen as possible reasons for this trend.






Year/Period Cost increases experienced during the period Retail price increases awarded Shortfall in price increases
1971 to 1990 10% on average per annum No across the board increases 10%
1991(May) 10% on average per annum 9.5%
1992 11.5% on average per annum Nil 11.5%
1993(June) 14% on average per annum 5% 9%
1994(November) 15.8% on average per annum 7.5% 8.3%
1995(November) 16% on average per annum 6.5% w.e.f. 1-1-96 9.5%
1996(November 1) 21.73% on average per annum 6.0% 15.73%
1997(November 1) 22.26% on average per annum Nil 22.26%





Year/Period Cost increases experienced during the period Retail price increases awarded Shortfall in price increases
1971 to 1990 10% on average per annum No across the board changes 10%
1991(May) 10% on average per annum 9.5%
1992 11.5% on average per annum Nil 11.5%
1993(June) 14% on average per annum Upto 50%
1994(November) 15.8% on average per annum Nil 15.8%
1995(November) 16% on average per annum 15% 1%
1996(November 1) 21.73% on average per annum 12% 9.73%
1997(November 1) 22.26% on average per annum Nil 22.26%






The retail prices of Pakistan are amongst the lowest in the world. In most cases they are lower than neighboring countries including India.




Basic manufacturing, which includes the production of drugs by synthesis, (fermentation or extraction from naturally occurring materials), is very limited in Pakistan. 24 compounds, out of the total 1,100, are manufactured entirely in Pakistan. Although there are approximately 16,415 registered medicines, the number of basic compounds registered is just under 3,500.





Formulation and packaging involve the composition of medicines from semi finished products and their packaging.


This process is undertaken in Pakistan due to the low cost to set up a formulation and packaging plant. The low cost of formulation of packaging and the less time required for the products to research the market.






148 15 1 164
SINDH 73 7 80
NWFP 32 1 33
TOTAL 261 24 1 286


PUNJAB 3 4 7
SINDH 25 9 34
TOTAL 30 13 43







Until a decades ago the Pharmaceutical industry in Pakistan was at its prime in every respect. It was the largest corporate taxpayer and tax paid by the sector was more than the tax paid by the entire textile industry. Medicines produced were of the highest standard, second to none.

The Pharmaceutical industry in Pakistan is involved in the formulation (mainly mixing of raw materials according to a given formula), packaging and marketing of prescription and non-prescription drugs. The Ministry of Health (MoH) regulates the industry so that the quality and prices of drugs are controlled and monitored.



In order to insure perfect quality control, testing and analysis and full disclosure of the details of specification have to be provided by the companies at the time of registration.



After the grant of the manufacturing license, all the Manufacturing Factories are inspected by the various panels of specialist at regular intervals to check necessary compliance of the internal specification, batch record and the overall capability of the manufacturer to produce the quality drugs.



The Pharmaceutical Industry continues to be regulated in the interest of public health inspite of the overall government policy of deregulation and liberalization. The basic law is the Drugs Act 1976 and the rules made there under which cover all aspects of the deregulatory regime that has been laid down in the overall interest of public health.




Another basic requirement of the law in Pakistan is that the sales of drugs are back with warranty/ this measure has been designed to ensure that only license sources are used for the supply of drugs. Any drug, which is not backed by the requisite warranty from the manufacturer, is not allowed for sale.



Similarly, the retail outlets are under an obligation under the Drugs to maintain complete record of sales. Thus, both Federal ensures the stringent enforcement of the legal compliance and Provincial Government Agencies at all the three levels that is manufacturing, wholesale distribution and retail outlets.



To regulate the sales of medicines at retail outlets and to ensure their qualities, shelf life and effectiveness on a continuos bases, each province has a Quality Control Board which includes experts from the medical and Pharmaceutical fields. This Board decides on the action to be taken in the cases of contravention of rules and regulations.


This strict enforcement of all the provinces of the Drugs Act and the Rules doesn’t ensure that the quality and efficacy of the locally manufactured drugs are maintained according to the high standards, which are in vogue in any other advanced and developed country in the world.



There are basically 3 types of distribution set up employed by different Pharmaceutical companies depending upon their resources, size and marketing policies.



This involves the setting up of depots situated in various parts of the country. The manufacturers operated these depots themselves and from there the medicines are supplied to various wholesaler who ultimately supply these to hospitals, doctors or retailers. Wellcome, Hoechst and Glaxo utilized this channel.



With this channel, the manufacturer employs a national distributor who has a distribution network spread all over the country. Such arrangements often relieve manufacturers from the problem involved in establishing and maintaining depots. Roche presently uses this type of arrangements.



Here, the manufacturer employs stockiest or wholesalers, each are allocated a specific region for the distribution of medicines to pharmacies, doctor and / or hospitals in the area. Examples include Pfizer, Parke-Davis.






One of the main problems the pharmaceutical industry is presently facing is the high cost of imports. In addition to this, the devaluation of rupee (approximately 17% during 1995-96) has increased the cost of raw materials needed by various pharmaceutical companies for manufacturing.

Pakistan produces less than 1% of basic pharmaceutical raw material and that too not from stage one but by importing intermediaries.


The price controls put on the pharmaceutical industry has also put a great deal of pressure on the industry.



Due to the world Trade Order Agreement to be implemented in the year 2002, some 40 drugs with a sale volume of $ 16 billion are set to loose their patent rights.



Apart from about 65-70 quality manufacturers out of a total of 330, the remaining are operating at less than one-third of their capacity, and therefore only fulfilling 80% of the total demand.



Local manufacturers find it difficult to export their surplus output to other markets because of low prices in countries like China, India, Taiwan, Eastern Europe and Korea.


The government rigid cost controls have also resulted in shortages and mushrooming of fake spurious medicines flooding the market.



Generic companies are also on the rise. Generic companies offer medicines of inferior qualities at a lower cost, in comparison to the branded medicine.


The law and order situation over the past year lead to a great deal of losses for the industry, due to loss in productivity as well as problems in distribution.



There is a great deal of bureaucratic red tape involved in the registry of the new product.





Most of the raw materials are imported because of the limited basic manufacturing. The total annual cost of imported finished goods sold was rupees 1,340million. At present only 35% of the total demand is met through imports while the remaining 65% is met in local production. The imports increased from Rs. 7,882 million in 1997 to Rs. 7,982 million in 1998.


IMPORTS 1997 (Rs. Mn) 1998 (Rs.Mn)
CHEMICALS 31,497 37,408



The export of pharmaceutical products has increased from Rs. 1,095 million in 1997 to Rs. 1,179 million. Medicines valued at Rs. 395 million were exported during the period of July 1997 to June 1998, which is 1.6% of the total net sales of the industry.


EXPORTS 1997 (Rs. Mn) 1998 (Rs.Mn)
DRUGS 1,095 1,179





Between 1970 and 1990, MNC’s and national companies repeatedly applied to the federal ministry of health for an upward revision of maximum retail prices of those registered products which attained a negative gross profit margins, (i.e. products were actually making losses due to inflation and devaluation).


In 1991 the government decided to introduce a retail pricing formula for drugs to suggest measures to increase local production, and review the over all drug registration system. Since then the prices have increased by more than 40% to 50 % in many cases.


In July 1993, the Nawaz government partially deregulated the industry into Life Saving and Non-Essential drugs. The government continued control over 3000 medicines, which were considered to be essential. The total increase was 5% in 1993.


After the Benazir government was inducted, the leading manufacturers were summoned and long negotiations on the freeze of drug pricing were agreed upon, but this was not implemented. The prices of the drugs were increased by 7.5%.


During 1995, the devaluation of the Pak rupee, imposition of a 5% regulatory duty, and 13 % inflation led to a increase in prices by 6.5% starting from January 1996.


The prices of non-essential drug, which were controlled in June 1993, were frozen in 1994. Since then, only one increase of 15% has been allowed in July 1995.


In July 1996, a further price increase of 12% and 6% on de-controlled and controlled items respectively was allowed.

  • On August 14, 1997, the government on the de-controlled category of drugs re-imposed a price increase restriction of 12%. Previously, the pricing restrictions were limited to only essential drugs.
  • Since then there has been no price increase in the industry.




Following no increases in the prices of drugs for the past two years, the Ministry of Health (MoH) recently surprised the industry by reducing the prices of 46 drugs of different manufacturers by 10%. Any concession in taxes or any relief did not accompany the reduction in prices to the industry.



The per capita spending on medicines in Pakistan is Rs 270 or just 75 paisas  per person per day. A 10% reduction in drug prices, even if it covers limited numbers of formulations, thus can only be hailed as a big relief to the consumers.


The Chairman of PCDA has said that the national companies, which are selling their products at a much lower competitive prices will not be affected by the notification as they are already selling their products much below the maximum prices re-fixed by the government.


There are apprehensions that the price reduction will benefit the national pharmaceutical companies in a y way for two reasons primarily:

They are already selling their products at much lower prices as compared MNC’s whose best selling and the highest priced products were chosen as model for the leader price.


Though the emergence of a number of quality national companies and the increasing prescription by the e doctors of their products the medical practitioners as well as the patients nation wide, chose to prefer prescribing and buying products of MNC’s.

However, the ministry of health’s notification to slash prices by 10% on 22 generic medicines, representing 46- dose forms, is seen by many as doom for local manufacturers. In spite of increasing collective share to 39% the local pharmaceutical companies still lag far behind 61% share enjoyed by 23 MNC’s. It is believed that while the MNC’s would be able to absorb the price cut with comparative ease, it is feared to cause an irreparable damage to the local manufacturers who are marketing the same generic products at as low as one-tenth of the price.



The industry has protested against this move citing the disparity between cost and profit which has emerged due to stable prices since December 1996 against an unstable Rupee. As a result of this anomaly a US pharmaceutical company specializing in ophthalmic solutions has already pulled out of Pakistan. In addition, most products with marginal profits have also started to disappear from the markets.



SRO 1038(I)/94 dated October 16, 1994 promised to the pharmaceutical industry an indexation of medicine prices, which were pledged to increase by the same percentage as the cost of input. The formula defined by the said SRO was hence forth never used faithfully. The result is a short fall of 40% in price adjustments. In other words: inputs cost have through devaluation, inflation, custom duty increased by 40% more than medicine prices.


Imposition of ten- percent customs duty on all pharmaceutical imports (raw and packaging material as well finished goods) with out any compensation in the prices.


Imposition, withdrawal, increase, reintroduction and sudden suspension of sales tax on locally manufactured medicines from time to time in such a manner that pharma companies have been left holding the bill without proper adjustment or refund, thereby causing substantial financial losses to companies with out any compensation.


Pakistani medicine prices are still among the lowest in the world. Research data shows that out of the current top 128 selling medicines in Pakistan, the retail prices of 84 products (65.62%) are higher in India as compare to Pakistan, and 44 products (34.38%) are lower in India.



The problems as listed by the pharmaceutical industry relate to lack of consistent, clear cut and long-term government policies, inordinate delays in price increase, sudden imposition of import duties and taxes, strict price control, long delays in registration of new medicines and constant changes in drug rules. According to pharmaceutical industry sources, the overseas investors cannot plan properly even over one year period, let alone for log-term. Now investment mood of this group is at its lowest ebb.


According to a survey conducted by the industry itself, the companies in this sector have cut their original investment plans for the year 1997 through 2000 by the least Rs. 1.5 billion. The reason is that the multinational as well as local companies have been shaken by inconsistent government policies. In recent years, pharmaceutical industry in Pakistan has been subjected to cost increases of more than 60 per cent through devaluation of Pak rupee, local inflation and introduction of government levies. All this has happened during the last four years. Multinational pharmaceutical industry in Pakistan also claims that the prices of many drugs in Pakistan are cheaper than those prevailing in India.





The multinational pharmaceutical industry faces decline in its ability to continue to:

  1. Maintain its high quality standards
  2. Maintain high employment of highly skilled personnel.
  3. Maintain its contribution to federal tax revenues.
  4. Develop its high technology base.
  5. Provide reasonable returns to its foreign shareholders.
  6. Introduce new therapeutic agents to Pakistan.


Keith Watson, Chairman of the P.R. Sub Committee of the Pharma Bureau, said that due to high cost involved in the manufacture of medicines, it would not be possible for them to maintain high quality under the present price formula. He said that the increase in the prices of drugs was due in November last. He expressed his concern that multinational companies could no more continue manufacturing operations in Pakistan due to less attractive investment in the pharma sector.

Since the ECC refused permission to the companies to raise the prices of their products. Keith apprehended that the market would be flooded with the sub-standard medicines manufactured by mushroom local companies, which could not afford to maintain the quality due to the high cost involved in the manufacture of drugs.


Transfer pricing is a practice carried out by MNC companies whereby the parent companies charged a considerable mark-up on raw materials supplies to their subsidiaries.


The basis of transfer pricing could be:

  1. Cost + mark-up
  2. Market price
  3. Percentage of market price
  4. Percentage of labor cost
  5. Cost of finish less cost of initial products


Almost all of multinational subsidiaries buy from their parents. These price differentials range between 50 and 5000 percent over the lowest priced drug.

While importing the basic raw materials from the parent companies at inflated prices MNC’s defend their positions by the arguments that the profit earned this way goes to the Research and Development of new products.


According to the health Action organization, a consumer watch organization, MNC’s reportedly transferred out of $ 6,648,000 out of Pakistan in 1994 as a result of transfer pricing. Currently it is estimated that 500 million dollars will be transferred out this way.


Multinationals pay on average 88% more for their raw material than their national counterparts. The company can justify higher selling prices for the active substances of raw materials for bigger tax- deductible expenses for tax return purposes.


An evidence of the suppliers bargaining powers in the pharmaceutical industry is the adoption of the transfer pricing options by most of them. This has led to inflated cost of inputs, which erodes profit and give the firms tax advantages. Below are a few examples of inflated costs due to transfer pricing.


  1. Pfizer paid $ 1700 per kg for doxycycline though the same material was available from Italy at $ 334 per kg and from China for $ 200 per kg. However, they agreed to bring the prices down to $ 850 per kg, after 1992.


  1. Wellcome charged $ 239 per kg for trimethropin when the international price was $ 38. They agreed to establish a plant at Karachi when the issue became public.


  1. Ciba-Geigy charged $ 750 per kg for anti-TB rifampricin available from Italy for $350 and from China for $ 130. Though the company agreed to buy from Italy at $ 300, it is obvious that it could have acquired the material from china at a better rate still.





Though the Pharma market is growing at a rate of 255 in terms o f sales value, it has increased only 3% in terms of units of medicines, while in 1995, it sold 698 million units, a cumulative increase of 19%. In 1995, there was negative trend, As number of unit sold in that year was 1 % less than in 1994. The overall earnings increased by Rs. 6.34 billion owing to transfer pricing.




Though the investment planned by MNC’s for 1997-2000 was cut by Rs. 1.5 billion due to inconsistent policies, the immediate future is by no means bleak for the industry, a sit is expected that the government will allow an increase in prices by as much as the rate of inflation. Further more, there are constant negotiation between the industry and the government, which may lead to a breakthrough sometime in the future.



Some 40 drugs with the sales volumes of $ 16 billion are said to loose their patent rights by 2002. Most have a copy right period of 15 years thus, local generic companies will have tremendous opportunity in the future the main strategy being used by the most MNC’s is to introduce their own line of branded generics. After the World Trade Order is implemented in year 2002 all new drugs introduced will be given a patent protection that will last for 16 years.



In Pakistan, multinational companies were dictating terms and were commanding market share of 80%. However, for the past few years, the MNC witnessed declining trends compare to local generic companies. The present market share of MNC is 59% and the local Companies have the remaining 41%. Multinational will fare better in the future due to high quality products, the brand names and the big advertising budgets.




The increase in cost of utilities such as water, gas and electricity will drag up the cost.



The government is especially vulnerable to price adjustment, import duties and sales tax. The previous governments have been unable to make clear, consistent and equitable regulations for the industry.



Pharmaceutical industry say that good or bad policy are not the real concern but in Pakistan inconsistency and poor implementation of Policies does not allow them to make long term plans.



There will be a steady rise in the demand for Pharmaceutical drugs due to a high rate of urbanization. A high population growth rate, increase in per capita income, one of the lowest per capita expenditures on health in the world, and privilege given to the retailer to sell drugs without prescriptions.



There is tendency among the practitioners to prescribe at least five products compared with three recommended by the WHO.




OUR VISION at Warner Lambert is to be the best by offering the most innovative, highest quality products to advance the health and well being of people around the world. Towards this vision we will provide an environment where people can innovate and excel. To achieve this vision, we make these commitments to those whose lives we touch.




We commit ourselves to anticipating customer needs and responding first with superior products and services. We are committed to continued investment in the discovery of save and valuable products to enhance people’s lives.



We commit ourselves to providing fair and attractive economic returns to our shareholders. We are prepared to take prudent risks to achieve sustainable long-term corporate growth.



We commit ourselves to attracting and retaining excellent people, and providing them with an open and participative work environment marked by equal opportunity for personal growth. Performance will be evaluated candidly on the basis of fair and objective standards, creativity, speed of action, and openness to change will be priced and rewarded. Colleagues will be treated with dignity and respect. They will have the shared responsibility for continuously improving the performance of the company and the quality of the work life.



We commit ourselves to dealing with suppliers and other business partners, fairly and equitably, recognizing our mutual interests.



We commit ourselves to being responsible corporate citizens, actively initiating and supporting efforts concerning the health of the society and stewardship of the environment. We will work to improve the vitality of the worldwide committee in which we operate.


ABOVE all, our dealings with these constituencies will be conducted with the utmost integrity, adhering to the highest standards of ethical and just conduct.







PARKE-DAVIS, one of the largest manufacturers of pharmaceutical and biological preparations in the world was established in USA in 1866. Early from its inception, emphasis on the best in quality and reliability has earned the company, a leading position in the pharmaceutical industry all over the world.


The company is part of the Warner-Lambert world-wide group which conducts its business in more than 140 countries, employs approximately 45,000 people, operates more than 100 manufacturing facilities and maintains four major research centers.


Parke-Davis was incorporated in Pakistan as a Private Limited Company in 1960. In 1963, the Company constructed its ultra modern centrally air-conditioned Plant at Karachi, where a wide range of Parke-Davis world-renowned products, previously imported are now being manufactured. It employs over 400 people and the plant is equipped with modern facilities to maintain the same standard and quality of products, as those produced anywhere else in the world.


In June 1983, the company offered its share for public subscription and was converted into a public limited company, The company also acquired the shares of its associated companies, Warner Lambert (Pakistan) Limited and the merger of the two companies was completed in 1984.


The company amongst the top 25 Companies declared by Karachi Stock Exchange for the three consecutive years i.e., 1984, 1985 and1986.


It was also awarded Excellence Certificate for 1987 and the coveted Corporate Excellence Award for the year 1994, 1995 and 1996 by the Management Association of Pakistan.


Apart from historical achievements made in pharmaceutical discovery and development, introduction of the principle of standardization of medical products is a contribution Parke-Davis has made to the profession of medicine and pharmacy. This concept ensures that every bottle or package of every lot produced has the same strength or potency as every other unit. The entire industry subsequently adopted this concept of standardization.


Research at Parke-Davis is a never-ending process with the ultimate objective of fulfilling the needs for today as well as tomorrow.


In the last five years it has invested Rs. 278 millions for improving productivity, enhancing GMP, safety and environment and bringing in the latest MIS solutions. It’s integrated IT software “Prism” is the only one of its type in Pakistan.


GMP, Safety & Environment Compliance is the foremost criteria of performance and the waste management program implemented whereby all types of industrial waste is either recycled or incinerated is worth emulating by other companies.

Parke-Davis success can be attributed to its implementation of MVP (Management Value Practices) which can be summarized as under: –

  • Prize Creativity
  • Be fast and first to opportunity
  • Focus on what is important
  • Be open and candid
  • Reward true success
The people at PARKE-DAVIS are following the motto
“We are making the world feel better”





Parke-Davis, a division of Warner-Lambert since1970, has been in existence for more than 130 years. The company has played a significant role in the development of both pharmacy and medicine since 1866.


Below is the history of Parke-Davis and its research-based endeavors. The company has a rich heritage and has over the years continued to make successful traditions.

1866-Parke, Davis & Company was established.

1879-Introduced a pure liquid extract of ergot, exemplifying the company’s pioneering efforts in developing the principle of chemical standardization of drugs.

1894-Established the first commercial biological laboratory in the United States and marketed antidiphtheria serum.

1897-Developed the principle of physiological standardization and introduced physiologically standardized preparations.

1901-Introduced a pure form of adrenaline __ the first hormone to be isolated in pure form. Established the first organized, systematic program of clinical, pre-marketing testing of drugs, completing the chemical-physiological-clinical trial of medicinal Standardization.

1902-Built and moved into the first industry-constructed US building to be devoted to scientific research.

1903-Was issued US License No. 1 for manufacture of biological.

1907-Marketed the first Parke-Davis bacterial vaccine.

1908-Introduced the first water-soluble extract of pituitary hormones for use in surgery and obstetrics.

1916-Pioneered research efforts on vitamins.

1927-Isolated two pituitary hormones __ one a uterine stimulant, the other an antidiuretic.  Introduced both separately for use in obstetrics and diabetes.

1930-Introduced a new estrogen hormone used chiefly for treating menopausal symptoms.

1938-Introduced a breakthrough anticonvulsant for the treatment of grand mal epilepsy, still widely used today.

1941-Introduced an oil-based pituitary hormone for treatment of diabetes insipidus.

1944-Introduced a topical coagulant to control surgical bleeding.

1945-Released a new influenza virus vaccine for use in the armed forces.

1946Introduced the first effective antihistamine for treating allergic conditions, still widely used today.

1949-Introduced the first synthetic broad-spectrum antibiotic reproducible on a grand scale.

1952-Marketed a potent new aminoquinoline (for treatment of malaria) and an ultra-short-acting intravenous anesthetic.

1953-Released the first succinimide anticonvulsant for treatment of absence (petit mal) epilepsy.

1954-First manufacturer to produce poliomyelitis vaccine for nationwide field trials.

1957-Released an oral progestational agent for treatment of menstrual disorders.

1959-Opened new medical research center in Ann Arbor, Michigan.

1960-Introduced a new treatment for pinworm infections. Introduced an enzyme product to facilitate skin and mucous membrane lesions. Introduced a selective agent for treatment of absence (petit mal) epilepsy. Introduced a new antimicrobial agent for bacterial infections and intestinal amebiasis.

1961-Marketed a newly developed progestational agent.

1964-Introduced an estrogen/progestin-based oral contraceptive.

1967-Introduced a new oral nonsteroidal anti-inflammatory agent with analgesic/antipyretic activity.

1969-Marketed a new subvirion influenza virus vaccine.

1970Became a division of Warner-Lambert Company. Introduced a unique non-barbiturate, a rapid-acting anesthetic.

1971-Developed a new film-coated hematinic tablet for treatment of iron-deficiency anemia.

1972-Released a stabilized nitroglycerin formula providing uniform tablet potency and predictable dosage.

1973-Introduced a line of oral contraceptives with low-estrogen content in combination with a progestogen.

1974-Began marketing a pre-moistened hemorrhoidal/vaginal pad.

1975-Marketed a gamma globulin product to prevent erythroblastosis fetalis in newborns.

1976-Introduced the first antiviral ophthalmic ointment.

1978-Released a parenteral antiviral agent for treatment of herpes simplex encephalitis.

1979-Introduced a new benzodiazepine for treatment of anxiety.

1980-Introduced a sustained-release antiarrhythmic agent for treatment of life-threatening cardiac arrhythmias. Marketed a new nonsteroidal anti-inflammatory agent for steoarthritis and rheumatoid arthritis.

1981-Introduced a unique dosage form of enteric-coated pellets of erythromycin. Marketed an enteric-coated form of aspirin.

1982-Released a new lipid-regulating agent for treatment of hyperlipidemia.

1984– Developed and marketed a convenient new method for topical application of thrombin.

1986-Introduced a unique enteric-coated, pelletized dosage form of doxycycline. Introduced a sustained-release transmucosal delivery system for nitroglycerin.

1987Announced the results of the Helsinki Heart Study, a five-year landmark investigation that established the lipid-regulating value of the company’s lipid-regulating agent. The study demonstrated the drug’s significant reduction of the incidence of fatal and nonfatal heart attacks and sudden cardiac deaths.

1991-Introduced a new angiotensin-converting enzyme (ACE) inhibitor to control high blood pressure. Introduced an antineoplastic agent for use in the treatment of hairy cell leukemia.

1993-Introduced the first drug indicated for mild to moderate dementia of the Alzheimer’s type. Received approval for congestive heart failure indication for an ACE inhibitor. Introduced a new agent for adjunctive treatment of partial seizures with and without secondary generalization.

1996-Introduced a new extended-release agent for treatment of life-threatening cardiac arrhythmias.

1997-Introduced the first station specifically indicated for lowering both triglyceride and LDL (low-density lipoprotein) cholesterol levels in-patients with high cholesterol. Introduced an oral anti-diabetic that targets insulin resistance, an underlying cause of type 2 diabetes. Introduced a new low-dose estrogen patch for treatment of menopausal symptoms. Introduced a new agent for the control of acute, generalized epileptic convulsions and for prevention and treatment of seizures that can occur during neuro surgery. Developed and marketed an estrophasic birth control pill.

1998-Released a new and potent broad-spectrum cephalosporin antibiotic. Entered into a co-promotion agreement with Forest Laboratories and launched a new SSRI (selective serotonin reuptake inhibitor) citalopram HBr, for treatment of depression.





  1. Pfizer and Warner Lambert merger will form the second largest global company with the international market share of 6.5%.
  2. Board of directors and Management teams will be from both companies with William C.Steere, Jr. as chairman and Chief Executive Officer and Dr.Henry Mc Kinnell as President and Chief Operating Officer.
  3. Pfizer shareholders will own 61% of the newly created & 90 billion organizations and Warner Lambert shareholders will own 39%.
  4. Warner-Lambert shareholders to receive 2.75 Pfizer shares for each Warner-Lambert share, valued at $98.31 per share
  5. Compounded three-year annual earnings growth of 25% forecast with $1.6 billion in cost savings by 2002; Companies to realize operational and sales benefits, increase annual research and development expenditures to $4.7 billion in 2000
  6. Leadership in therapeutic areas includes cardiovascular, lipid lowering, central nervous system and infectious diseases; 138 compounds in development in complementary pipelines
  7. New company to be named Pfizer Inc, will integrate “In a Spirit of Partnership and Mutual Respect”
  8. The merger will be completed by mid of this year.
  9. The merger between Warner Lambert and American Home Products has been terminated.
  10. The combined company will have annual revenues of approximately $28 billion, including $21 billion in prescription pharmaceutical sales, and will have a market capitalization in excess of $230 billion.
  11. Compounded annual revenue and earnings growth is expected to be 13 percent and 25 percent, respectively, through 2002. The transaction will be accretive in the first full year of operations and will use pooling of interests accounting.
  12. The two organizations, having worked together for several years to achieve the unprecedented success of Lipitor, will bring the same energy and intensity to achieving the most rapid and seamless integration of the two companies.”
  13. Unprecedented depth and breadth of products including seven billion-dollar products: Norvasc, Lipitor, Zoloft, Zithromax, Diflucan, Celebrex and Viagra. The Parke-Davis trade name will be preserved and represented through the product portfolio, a dedicated sale forces and researches organization.
  14. Parke-Davis brings to Pfizer valuable expertise in this area and a sales force that has extensive experience in calling on mental health professionals.
  15. Excellent opportunities for additional earnings growth based on anticipated cost savings and efficiencies totaling $1.6 billion. Two hundred million dollars of these savings are expected to be achieved by year-end 2000, $1 billion by year-end 2001, and $1.6 billion by year-end 2002.



Four Industry wise global market trends:

  1. A slow down in market growth.
  2. A number of key patents due to expire.
  3. Research and Development costs are rising significantly.
  4. E-Commerce is changing the way we do business.

We need to rebalance our product portfolio, reducing our reliance on a small number of core products and we need to speed up our pipeline.



  1. The Parke-Davis name is one of the oldest and most respected names in pharmaceuticals. Our name will continue to be represented through the combine product portfolio and through dedicated sales force.
  2. We will have more opportunities to create new markets with our existing products and share the success of our unrivalled combined portfolio. No other company will cover the range of therapeutic areas with so many market-leading products.
  3. More opportunities to launch and support new products with R&D function of over 12,000 people and annual budget of $ 4.7 billion much more than any of the competitors.
  4. Strong international presence with access to global markets including Japan and confidence that comes from being a top player in each.
  5. Combined consumer product sale of more than $ 3.5 billion, giving us a significance stake in the consumer health care market.






  1. Our goal remains to complete the merger agreement by July. There are a number of statutory and regulatory hurdles we need to clear over the course of next few weeks. This includes the 30 days review period by security exchange council in USA to give ruling on the financial structure of the merger.
  2. In the mean time we have set up a joint transition steering committee led by Tony Wild and Hank Mc Kinnel to identify the best way forward for integration and to set out a clear path to make it happen. Putting the merger into action will be the responsibility of our operational line managers who will drive the transition at the local levels.
  3. Our aim is to build an organization that harnesses the very best from our people, our practices and our facilities. We will be asking for your ideas and contributions across the organization to help shape the new company and create the structure, system and process that will help us deliver the goal. We will keep u informed of the progress and upto date with the challenges and situations we will undoubtedly face in the upcoming weeks. All the feed back will be collated and summarized at the affiliate level and forwarded to the European management.


Parke Davis has the latest plant and production facilities as disclosed by the management. They prize quality above all and dedicate all efforts to attaining it. It has been the efficiency of their effort that even though there is no increase in the prices of their products they have increased their profit margin by cutting down on the cost of production.



The company is capital intensive as huge costs are incurred to set up the plants. Even out of the cost of goods sold a major portion is allocated to the raw materials and very little is allocated to the labor expenses.




The outgoing fiscal year 1998-1999 has been the most difficult and challenging year for the Pakistan’s economy. They year witnessed the full impact of economic sanctions on domestic economy as well as the continuation of deepening global economic recession. The world real GDP, which grew by 4.2% in 1997, decelerated sharply to 2.5% and 2.3% in 1999. Pakistan’s real GDP growth slowed down from 4.2% last year to 3.1% currently.


Like any other pharmaceutical company, Parke Davis is sensitive to its environment. Any slow down in the economy effects the sale of its products. It is generally believe that the pharma industry has inelastic demand but that is not so as disclosed by the Parke Davis management.

There major selling product or “Cash Cow” is Ponstan and this medicine cannot be classified as a necessity. In the words of the Marketing Director “ if you are short of money you can skip a Ponstan and put up with a headache”.




80% of the raw materials used by the company are imported from the international markets. The prices in the international markets have remained stable over the years but due to fall in rupee value (depreciation and devaluation of the currency) the cost of raw material has been constantly increasing. There is a direct co-relation between the devaluation and the increasing cost because of the company’s dependence on the imported raw materials.



The company may not be sensitive to technological changes but its sales are greatly effected due to introduction of new products in the market. As disclosed by the management their Chloromycetin, which has been selling since 1947 faces a decline due to safer antibiotic with lesser side effects, are being introduced in the country.



The company is also sensitive to the marketing efforts done by the competitors. In the pharma industry medicines are marketed through the “push marketing strategy”. The medicines are first introduced to the doctors who then prescribe them to the patients. The doctors are given a number of incentives to prescribe the medicines for example free samples and gifts. Hence any major marketing campaign launch by the competitors can seriously effect the sales of the company.




Parke Davis has concentrated its efforts on two products basically. This has increased the risk as 63% of the revenue is generated through the sales of Ponstan and Chloromycetin. Any blow or setback to these products would seriously damage the profitability of the firm.




Alternate substitute are readily available in the market hence the customer don’t wait if Parke-Davis medicine is not available they shift to some other product.



No increase in prices of pharmaceutical products from November 1996 and with increasing cost of production the company has been squeezed into a corner. Their profit margin has been continuously declining from 1996 when it was 19.5% to 15.2% in 1997 and to 10% in 1998 and according to half-yearly statements it is 12.5%.



The smuggling of medicines does not effect Parke Davis as Pakistan has cheaper medicine as compared to the neighboring countries. Hence very few medicines are smuggled into the country. The low prices of medicines encourages smuggling out of the country, which in turn effects the sale of the parent company or its subsidiaries in the other regions. An example of this quoted by the management is narrated below.

Lopid, a medicine, was available at Rs.3/- in Pakistani market was smuggled to Far Eastern countries where it was sold at approximately a US $1. This caused a loss in sale of parent company and hence the product had to be closed in Pakistan on a large scale.



Over the last six years to 70%  (Rs. 31 to Rs. 52 a dollar) devaluation in the currency has imposed a rising cost expenditure on the firm. Its cost of imported raw material has increased by 56% in this time period.



The slow down in the economy has seriously effected the purchasing power of the population. The decline in GDP growth rate has a spill over declining effect in the sales of a company.




Parke Davis pays a 10% regulatory duty on imports of raw materials.



The government regulates price standards in the industry and fixes a price of the medicines. As disclosed by the management Parke Davis used to send a cost structure to the government and asked for a specific contribution margin and Ministry of Health sets a price. Price negotiations with government are still in process.



There are no licensing requirements. No import licenses are needed to bring in raw materials. There are no restrictions on opening a new company but there are certain parameters such as environmental control, quality assurance and drug control. Hence there are no barriers to entry in the market if the company has the capital to invest.



This is a very competitive and fragmented market. No Company has larger share of total sales value market of more than 5.92 %. The hundred leading individual companies share range from .072 to 5.92 of the total market. The total pharmaceutical market value is Rs. 38 billion. Parke-Davis ranks 10th in terms of value sales and 5th in terms of units sold. It has a market share of 2.35%, which is equal to Rs. 8.93 million.



Ponstan was launched in 1966. Ponstan is the highest selling product with Rs. 55 crore of sales volume, which is 63% of the sales. Ponstan has shown a growth of 50%.  It should be in its decline stage but it is stretching its maturity phase at present. Chloromycetin was launched in 1947 and has still shown growth though now it is suffering from a few problems. Safer antibiotics with lesser side effects are now available in the market and doctors prefer to prescribe those in place of Chloromycetin. The company is considering either to “Harvest or Divest” this product.

Lipitor will be launched in Pakistan soon. It turned out to be a great success worldwide. It is meant to reduce Cholesterol levels. As people become more health conscious sales of such products are bound to increase.



Parke- Davis had a choice to locate at either Landhi or SITE. Location at SITE is advantageous to the company, as it is closer to the port.



The management of the Parke Davis followed a conservative approach. They are very conservative and flexible in setting their targets for the year. They almost achieved their set targets in every department.




The Company’s holding company is Parke Davis & Company, which is a subsidiary of Warner and Lambert Company; both companies are incorporated in USA.



M.Raziuddin Ansari, Chairman, Chief Executive and Managing Director

Ramesh T. Thadani (Alternate: Monawwer Ghani)

Fabio Bernal (Alternate: Islam-ul-Haq Siddiqui)

Irtiza Husain

Badaruddin F. Vellani

S.Khalid Hussain








A.F.Ferguson & Co.



American ExpressBank Ltd.


Bank of America NT & SA

Standard Chartered Bank

Muslim Commercial Bank Ltd.

National Bank of Pakistan.


Categories of shareholders Number Shares Held Percentage
Individuals 158 88,930 4.54
Investment Companies 2 285,570 14.58
Insurance Companies 1 75,000 3.83
Joint Stock Companies 5 1,506,700 76.93
Financial Institution 1 2,000 0.1
Mudaraba Companies 1 100 0.01
Co-operative Societies 1 100 0.01


169 1,958,400 100.0




01      Chemical

02      Tablets & Capsules

03      General Pharma

04      Blister Packing

05      Liquid Packaing

06      Packaging Dry

07      Plant Manager

08      Plant Administration

09      Maintenance

10     Quality Control

11      Cost Account

12      Material Mangement

13      Accupancy

14      Cafeteria

15      Transport & Security

31      Marketing Administration

40      Direct Selling

41      Selling Administration

50      Distribution

61      MD’s Office

62      Finance

63      Human Resources






This can be explained with the help of a flow chart as follows:



Issue Requisition




Invoices Received (For products sold)



(Finished Goods)



(For liquids)




Creating our future articulates our vision of where we are going as a group. We aim to be the best in the world in our business of fighting disease and improving health—I am confident that we have the people, the resources and the commitment to succeed in this.


We must shape our own destiny in a world of rapid change—building on strengths and seizing new opportunities. Everybody in the company has a role to play in these efforts, though their energy, their creativity and their innovative spirit.



Glaxo Wellcome Pakistan Limited is a subsidiary of Glaxo Wellcome plc 9 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 Limited is to be an ethical, enterprising and aggressive company seeking long term business opportunities.




Mr. Alan R. Eldridge, Chairman & Managing Director

Mr. A.U.Khawaja, No-Executive Director

Mr. Rafique Khan, Non-Executive Director

Mr. S.Riaz Ahmad,

Mr. Masood ahmad

Dr. Muzaffar Iqbal

Mr. Shahid Mustafa Qureshi, Secretary




Mr. Alan R. Eldridge, Chairman & Managing Director

Mr. S.Riaz Ahmad, Commercial Director

Mr. Masood ahmad, Finance director

Dr. Muzaffar Iqbal, Technical Diretcor

Mr. Shahid Mustafa Qureshi, Human Resource & Corporate Affairs director/

Company Secretary




ANZ Grindlays Bank Limited


American Express Bank Limited

Bank Of America

Credit Agricole Indosuez

Emirates Bank International PJSC

Habib Bank Limited

Standard Chartered Bank

The Hongkong and Shanghai Banking Corporation

The Bank of Tokyo-Mitsubishi Limited

United Bank Limited




Coopers & Lybrand



INDIVIDUALS 2,977 3,276,832 9.77
INVESTMENT COMPANIES 12 3,988,530 11.89
INSURANCE COMPANIES 10 2,424,395 7.23
FOREIGN COMPANIES 3 138,525 0.41
ASSOCIATED COMPANY 1 23,371,456 69.66
OTHERS 6 68,277 0.20
TOTAL 3,045 33,550,686 100.00




Glaxo Wellcome Inc., based in Research Triangle Park, N.C., is one of the nation’s leading research-based pharmaceutical firms. A subsidiary of London-based Glaxo Wellcome plc, the company is committed to fighting disease by bringing innovative medicines and services to patients and to the healthcare providers who serve them.

Glaxo Wellcome plc was formed in 1995 as a result of the merger of Glaxo plc and Wellcome plc, both of which were respected leaders in innovative pharmaceutical research and development. Glaxo Inc. was established in the U.S. in 1977, with the purchase of Meyer Laboratories of Fort Lauderdale, Fla., and relocated to the Research Triangle Park in 1983. Burroughs Wellcome Co. was established in the U.S. in 1906 and relocated to RTP in 1970. The company employs approximately 9,156 people across the U.S. and operates a manufacturing facility in Zebulon, N.C.

Robert A. Ingram is Chief Executive, Glaxo Wellcome plc. Today, as one of the world’s largest pharmaceutical research firms, Glaxo Wellcome plc is an integrated, research-based group of companies whose primary corporate purpose is to discover, develop, manufacture and market throughout the world safe, effective, high-quality medicines. These medicines benefit patients through improved health, longevity and/or quality of life, and benefit society in general by reducing health care or societal costs. True to that mission, Glaxo Wellcome scientists and other employees around the world are searching for new and better treatments for a variety of diseases. In 1998, Glaxo Wellcome spent nearly $2 billion in research and development. In particular, Glaxo Wellcome is known as a leader in respiratory, anti-viral (including AIDS/HIV), and central nervous system research. Other therapeutic research areas include cardiovascular, oncology, critical care, and metabolic diseases such as diabetes.

Glaxo Wellcome Inc. sales for 1998 were $5.6 billion. Glaxo Wellcome plc global sales totaled £7.983 billion ($13.25 billion at $1.66 exchange rate). As a responsible corporate citizen, the company has established a policy of giving back a portion of its earnings to the communities and countries in which it operates. As a result of its good corporate citizenship, Glaxo Wellcome Inc. is recognized as a major contributor to charities and educational institutions in North Carolina and across the United States.



The Glaxo Wellcome Group constitutes a major global pharmaceutical group engaged in the creation and discovery, development, manufacture and marketing of prescription and non-prescription medicines. It ranks 4th in terms of sales and has a market share of 3.4% which is Rs. 1.29 billion. It’s principal executive offices and a number of its basic research and development (R&D) and production facilities are located in the UK. It has operating companies in some 57 countries. Its products are currently manufactured in some 33 countries and sold in approximately 150 countries. The major markets for the Group’s products are the US, Japan, the UK, France, Italy and Germany.

During 1998, Glaxo Wellcome had an average number of approximately 54,350 employees including some 19,600 in sales and marketing and approximately 9,200 in research and





The Boards of Glaxo Wellcome and SmithKline Beecham announce that they have unanimously agreed the terms of a proposed merger of equals to form Glaxo SmithKline, the world’s leading research-based pharmaceutical company.

The merger will create:

  1. A group with combined sales from continuing businesses of approximately £15.0 billion ($24.9 billion), and an estimated 7.3 per cent share of the global pharmaceutical market
  2. A powerful R&D capability combining both companies’ expertise and technology with a current annual R&D budget of approximately £2.4 billion ($4.0 billion)
  3. An enhanced platform to discover and develop new medicines more effectively and efficiently
  4. One of the most extensive development pipelines in the pharmaceutical industry, with a total of 30 new chemical entities (NCEs) and 19 vaccines in clinical development (phase II / III), of which 13 NCEs and 10 vaccines are in late-stage development (phase III)
  5. A market leader in four of the five largest therapeutic categories in the pharmaceutical industry: anti-infectives, CNS, respiratory and alimentary & metabolic; a leading position in the vaccines market and a strong position in consumer healthcare and over-the-counter medicines
  6. An industry-leading sales and marketing force of approximately 40,000 employees globally, including over 7,200 sales representatives in the US, providing Glaxo SmithKline with global marketing strength
  7. £1.0 billion ($1.7 billion) in annual pre-tax cost savings from the third anniversary of completion of which £250 million ($415 million) is expected to be reinvested in R&D
  8. A truly global organization with wide geographic spread and strong presence in the important US market

Glaxo SmithKline would have a combined market capitalization of approximately £114 billion ($189 billion) (based on the London Stock Exchange closing market prices for the two companies as at 14 January 2000) and would be one of Europe’s largest companies by market capitalization.

The terms of the merger are based on the recent relative equity market capitalization of the two companies. Upon completion of the merger, Glaxo Wellcome shareholders will hold approximately 58.75 per cent and SmithKline Beecham shareholders will hold approximately 41.25 per cent of the share capital of Glaxo SmithKline.

Sir Richard Sykes will be Non-Executive Chairman, Jean-Pierre Garnier will be Chief Executive Officer, John Coombe will be Chief Financial Officer and Sir Roger Hurn and Sir Peter Walters will be Non-Executive Deputy Chairmen. The Board of Directors will be drawn equally from the existing Glaxo Wellcome and SmithKline Beecham Boards.

Robert Ingram will be Chief Operating Officer and President, Pharmaceutical Operations, James Niedel will be Chief Science and Technology Officer and Tadataka Yamada will be Chairman, Research and Development.

This merger we are bringing together two world-class organizations with complementary technologies and scientific knowledge. The new organization, led by one of the sector’s most talented and experienced management teams, will be at the forefront of an industry, which will continue to undergo rapid scientific and economic change.”


The proposed merger is expected to become effective in the summer of 2000.

Glaxo SmithKline will be domiciled in the United Kingdom with corporate headquarters in London. Operational headquarters will be established in a new location in the US. It is intended that Glaxo SmithKline will be listed on the London and New York Stock Exchanges.



Such as the ability of Glaxo Wellcome and SmithKline Beecham to integrate their large and complex businesses and realize synergies and achieve cost savings, difficulties of obtaining governmental approvals for new products, delays in new product launches, exposure to fluctuations in exchange rates for foreign currencies, the risk that R&D will not yield new products that achieve commercial success, the risk of substantial product liability claims, exposure to environmental liability, the impact of competition, price controls and price reductions and inflation, adverse economic conditions, interruptions in production, inability of Glaxo SmithKline to market existing and new products effectively and the risk of loss or expiration of patents and trademarks.

Under the terms of the merger and on the basis of the current issued share capital of each company

  1. Glaxo Wellcome shareholders will receive approximately 58.75% of the issued ordinary share capital of Glaxo SmithKline and
  2. SmithKline Beecham shareholders will receive approximately 41.25% of the issued ordinary share capital of Glaxo SmithKline.


The current rate of progress in science and technology is expected to have a profound impact in the area of medical practice, and radically transform it over the next twenty years. This transformation is expected to create significant potential for improving the health and quality of life of people throughout the world.

Rapidly evolving technologies and advances in the understanding of the underlying causes of disease are leading to fundamental changes in the pharmaceutical industry, and in turn presenting new challenges and opportunities for pharmaceutical companies. Glaxo Wellcome and SmithKline Beecham believe that significant scale and resources will be required in order to sustain investment in the skills, technology and expertise necessary to discover, develop and deliver new and better medicines to patients in a faster and more efficient way.

Glaxo Wellcome and SmithKline Beecham believe that the combination of the skills and resources of the two groups will create the leading research-based Pharmaceuticals Company in the world. The proposed merger will improve the two groups’ ability to generate sustainable long-term growth and enhance shareholder value in an increasingly competitive environment. This will derive from:

  1. Global leadership and scale in the pharmaceutical industry
  2. R&D strength to deliver long-term growth
  3. Improved sales and marketing infrastructure to maximize sales opportunities in core therapeutic categories
  4. Complementary portfolio fit with strong new product momentum
  5. Synergies and cost savings



Based on September 1999 moving annual total (MAT) market estimates of pharmaceutical industry sales, Glaxo SmithKline would have been ranked the largest pharmaceutical company in the world, the United States and in Europe.

Source: Estimates based on IMS data


Based on combined 1998 pharmaceutical sales, Glaxo SmithKline would have derived approximately 45 per cent of revenues from the United States, approximately 33 per cent from Europe and approximately 22 per cent from the rest of the world.



The merged company will have a powerful R&D capability combining both companies’ expertise and technology with a current annual R&D budget of approximately £2.4 billion ($4.0 billion). This will create an enhanced platform to discover and develop new medicines more effectively and efficiently.

Glaxo Wellcome and SmithKline Beecham share similar R&D philosophies and strategies and the merger will bring together their complementary skills, technologies and alliances. This combination will help Glaxo SmithKline to become the most productive research organization in the pharmaceutical industry, creating more drugs candidates and reducing time to market through the integration of technologies to:

  1. Find new targets based upon fundamental understanding of disease mechanisms
  2. Identify “best-in-class” compounds by accessing an extensive and intelligently designed chemical library and novel predictive screening technologies

Glaxo SmithKline aims to be the most efficient development organization in the pharmaceutical industry, with the size and expertise required to conduct a broad array of clinical studies on a global scale and to demonstrate the value of its medicines.

Glaxo SmithKline will have one of the most extensive development pipelines in the pharmaceutical industry, with a total of 30 NCEs and 19 vaccines in clinical development (phase II / III) of which 13 NCEs and 10 vaccines are in full development (phase III).




With one of the largest sales forces and marketing resources in the global pharmaceutical industry, Glaxo SmithKline will have increased share of voice with physicians and opinion leaders in the healthcare industry, which will allow the company to maximize the potential of its existing products and future pipeline.

As pharmaceutical product marketing becomes increasingly targeted directly to the consumer, SmithKline Beech’s strong consumer healthcare and over-the-counter medicine businesses will provide Glaxo SmithKline with enhanced expertise in consumer-oriented marketing strategies, which should benefit sales of prescription pharmaceutical products.


In addition to having a broad portfolio of products, Glaxo SmithKline will be a leader in four of the five largest therapeutic areas, which together represent approximately 50% of the global pharmaceutical market. This is complemented by a leading position in the vaccines market.



The merger is expected to generate substantial operational synergies. Management of the two companies estimate that annual pre-tax cost savings of £1.0 billion ($1.7 billion) are achievable from the third anniversary of completion of the merger. It is expected that £250 million ($415 million) of these savings will be derived from combining the two R&D organizations and will be reinvested in R&D. The other cost savings of £750 million ($1.2 billion) are expected to come from reducing the overlap in administration, selling and marketing and manufacturing facilities.

The £1.0 billion ($1.7 billion) savings from the merger are in addition to the previously announced estimated cost savings totaling £570 million ($946 million) expected to arise from the implementation of the two companies’ existing manufacturing rationalization programs.

Total costs of achieving the cost savings from the merger are expected to be approximately £1.1 billion ($1.8 billion), of which approximately two thirds would be cash expenditures, and one third accounting write downs. These costs are expected to be charged as exceptional operating items in Glaxo SmithKline’s accounts over the three years following completion.



Sir Richard Sykes and Jean-Pierre Garnier will co-chair the integration-planning committee, which will operate until the earlier of three months after the completion of the merger and 31 December 2000.

Glaxo SmithKline will be domiciled in the United Kingdom with corporate headquarters in London. Operational headquarters will be established in a new location in the US. It is expected that, in most countries, the merged group’s operations will be consolidated. However, it is anticipated that in the US SmithKline Beecham’s pharmaceutical business based in Philadelphia, its consumer healthcare business based in Pittsburgh, and Glaxo Wellcome’s business based in Research Triangle Park, North Carolina will retain their current locations. There is no intention to close any major R&D site of either company worldwide.



SmithKline Beecham currently has approximately 47,000 employees and Glaxo Wellcome has approximately 60,000 employees. Glaxo Wellcome and SmithKline Beecham will inform and consult with relevant employee organizations and representatives about the consequences of the merger, in accordance with applicable legal requirements.

It is inevitable that redundancies will arise as a result of bringing the two companies together. However, it is difficult at this stage to be specific about the numbers involved or how particular locations will be affected. The process will take place over a period of years and wherever possible efforts will be made to reduce the impact of job losses by, for instance, introducing early retirement schemes. Communication and consultation with employees will form an integral part of the management’s plans and there will be a clear, equitable and transparent process for selection of people for jobs.

Existing employment rights, including pension rights, of employees of both groups will be fully safeguarded.



Glaxo SmithKline had 1998 pro forma pharmaceutical sales of £12.6 billion ($20.9 billion), total sales from continuing businesses of £15.0 billion ($24.9 billion) and profit before tax from continuing businesses of £4.1 billion ($6.8 billion). Pro forma combined information on the enlarged group is set out in Appendix 4.

Glaxo SmithKline will account for the merger using merger accounting under UK GAAP. Glaxo SmithKline will report its results on a quarterly basis, with respect to financial periods beginning on and after 1 January 2001.

Summary financial information on SmithKline Beecham and Glaxo Wellcome is set out in Appendices 2 and 3, respectively. The information in relation to Glaxo Wellcome and SmithKline Beecham has been derived from the audited accounts of each company for the year ended 31 December 1998.



In the recent past Glaxo Wellcome has had a higher payout ratio than SmithKline Beecham. It is envisaged that Glaxo SmithKline will pay an initial dividend in line with Glaxo Wellcome’s 1999 dividend. Subsequently, it is currently expected that the new company will at least maintain this level of payment, whilst building dividend cover towards the industry average. It is expected that the first dividend paid by Glaxo SmithKline will be in respect of the period from the completion of the merger to 31 December 2000, and thereafter dividends will be paid quarterly.

Glaxo Wellcome intends, in the absence of unforeseen circumstances, to declare a final dividend for the year ended 31 December 1999 and an interim dividend in respect of the first half of the current financial year, in line with its existing dividend policy.

SmithKline Beecham intends, in the absence of unforeseen circumstances, to declare a fourth quarter dividend for the quarter ended 31 December 1999 and subsequent quarterly dividends for the first half of the current financial year, in line with its existing dividend policy.

If completion of the merger does not occur by 30 June 2000, each of Glaxo Wellcome and SmithKline Beecham intends to pay its shareholders prorated dividends for the period from 1 July 2000 until completion but in all other respects such dividends will be of an amount in accordance with the relevant company’s existing dividend policy.



The terms of the merger are based on the recent relative equity market capitalizations of the two companies.

The merger is expected to be effected by way of scheme of arrangement (the “Scheme”) of Glaxo Wellcome and SmithKline Beecham under section 425 of the Companies Act of 1985. Under the Scheme, Glaxo Wellcome shareholders and SmithKline Beecham shareholders will receive shares in a new holding company, Glaxo SmithKline, on the following basis

  • For each Glaxo Wellcome share, 1.0 new Glaxo SmithKline share
  • For each SmithKline Beecham share, 0.4552 new Glaxo SmithKline shares

In addition, Glaxo Wellcome ADR holders and SmithKline Beecham ADR holders will receive Glaxo SmithKline ADRs on the following basis

  • For each Glaxo Wellcome ADR, 1.0 new Glaxo SmithKline ADR
  • For each SmithKline Beecham ADR, 1.138 new Glaxo SmithKline ADRs

The merger is subject to the conditions set out in Appendix 1, including the approval of the merger by shareholders of both Glaxo Wellcome and SmithKline Beecham, the sanction of the Scheme by the High Court and satisfaction of certain regulatory conditions.

The Scheme will require approval by a special resolution of the holders of Glaxo Wellcome shares to be proposed at an extraordinary general meeting of Glaxo Wellcome. The Scheme will also require approval separately by holders of Glaxo Wellcome shares at a meeting to be convened by direction of the High Court. The Scheme will require similar approvals by the holders of SmithKline Beecham shares. The approval at each of the Court-convened meetings is a majority in number representing 75 per cent in value of those holders who vote at the meeting. In addition, the Scheme is required to be sanctioned by the High Court.

It is intended that the formal documentation relating to the merger will be sent to shareholders, and the extraordinary general meetings and the Court meetings of Glaxo Wellcome shareholders and SmithKline Beecham shareholders will be convened, once the pre-conditions set out in paragraph 1 of Appendix 1 (clearance by the European Commission and the US Federal Trade Commission) are satisfied or waived. In the event that the European Commission does not initiate Phase II proceedings, clearance should be received in the spring of 2000. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), the merger may not be completed unless certain waiting period requirements have been satisfied. The HSR Act provides for an initial waiting period of 30 days following an effective filing, which may be extended in the event that additional information is requested.

The Scheme can only become effective if all conditions to the merger have been satisfied or waived, including receipt of all shareholder approvals, sanction by the Court and all other regulatory clearances. The Scheme would become effective upon the delivery to the Registrar of Companies by each of Glaxo Wellcome and SmithKline Beecham of a copy of the order of the High Court sanctioning the Scheme and registration by each of them of such order. This is expected to take place two to three months after posting of the formal documentation to shareholders.

Glaxo Wellcome and SmithKline Beecham have been advised that the Glaxo SmithKline shares to be issued to holders of Glaxo Wellcome and SmithKline Beecham shares under the Scheme are exempt from the registration requirements of the US Securities Act of 1933 and, as a consequence, the Glaxo SmithKline shares to be issued pursuant to the Scheme will not be registered thereunder.



The merger will affect the incentive awards granted under Glaxo Wellcome and SmithKline Beecham’s share plans. Options will become exercisable and rollover of those options into options in Glaxo SmithKline will be encouraged. It is expected that awards under long-term and mid-term incentive plans will vest on completion of the merger subject, in certain cases, to relevant approvals being given. Prior to completion of the merger, each company will continue to grant options and awards in the ordinary course.

As a leading worldwide pharmaceutical company, Glaxo SmithKline intends to retain, motivate and recruit the very best employee talent available. To achieve this aim, it is intended that the Glaxo SmithKline remuneration and incentive schemes will be structured to reflect fully the international nature of both the business and the industry in which they operate.


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