Analysis of GSK’s New Business Strategy

Over the past few decades, the pharmaceutical business model has relied on identifying profitable
drugs, promoting them with high sales and marketing, and turning them into blockbusters. GSK's
business model is no exception. Its sales revenue is also driven by Blockbuster. For example, in 2002,
GSK's 8 blockbusters accounted for $ 14.240 million in sales revenue, accounting for 53% of its total
ethical sales (cited by Reuters Business Insight 2003a Forewood et al. 2006). However, this business
model will not suffice in the next few years as the entire pharmaceutical industry will face challenges
such as the expiration of patents on a large number of products and the demand for new and better
drugs.

The purpose of this article is to analyze GSK's new strategy in this context. First, we will discuss the
relationship between GSK's new strategy and issues in the pharmaceutical business model. Second,
it evaluates whether the new strategy will be successful. Finally, a conclusion will be drawn.

In July 2008, Andrew Witty, CEO of GlaxoSmithKline, presented three new strategic priorities:
"Developing a diverse global business, delivering value-added products, simplifying the operating
model" (GSK 2009). The new strategy is a response to problems with GSK's business model.

First, GSK's strategy of diversifying its business reveals that it can no longer rely on its old
blockbuster, and that it seeks to reduce the risk of losing patent protection in the future, linking the
high reliance on blockbuster and patent protection issues. Business model.

Although GSK's ethical drugs, especially blockbusters, made a significant contribution to sales
revenue, this could not last long. A large number of GSK's ethical drugs face the risk of losing their
patent protection, creating more competition from other drug manufacturers launching the generic
version of these drugs. For example, GSK's blockbuster Valtrex's patent expired in 2009, after which
Ranbaxy, India's largest pharmaceutical company, launched a generic version of Valtrex in the
United States (Mathew 2009). Worse, 12 out of GSK's 40 pharmaceutical products in the United
States expired, and the patents of its best-selling drugs, Advair and Avandia, expired in 2010 and
2012 (GSK Annual Report 2008: 20f).

Moreover, even GSK's older blockbusters have a high probability of losing the ability to make big
profits. Their sales may decline in the face of stiff competition. For example, in 2007 Advandia's sales
fell 22% globally due to average competition, especially in the USA (GSK Annual Report 2007: 5). On
the other hand, it demonstrates the importance of patent protection in the pharmaceutical industry,
which guarantees huge profits on ethical drugs and protects these drugs from stiff competition. In
the future, when the patents for these drugs expire, their sales will drop dramatically. Sales of
Zantac, the best-selling drug in history, as well as its patent fell by 44.9% in 1998 after expiration in
1997 (Glaxo Annual Reports and Accounts, cited in various years by Froud et al. 2006).

Compared to this old blockbuster, vaccines and consumer health care have the potential to further
increase GSK's sales revenue. In 2007, the vaccine business generated strong sales growth of 20% to
¡2 billion, while the consumer healthcare business grew by 14% to ¡¡3.5 billion (GSK Annual Report
2007: 5). In 2008, vaccine sales continued to grow to 47 2.47 billion and consumer healthcare sales
to ¡4 billion (GSK Annual Report 2008: 5).

Furthermore, there are other opportunities for growth, such as emerging markets, for example,
growth in both China, India, Russia and Latin America, both population and wealth, leading to higher
demand for drugs and the availability of more expensive drugs. Emerging market sales increased by
12% in 2008 to ¡2.3 (GSK Annual Report 2008: 5). In contrast, GSK's main market in the USA, sales fell
by 11% in 2008 (GSK Annual Report 2008: 38). Therefore, it is wise for GSK to expand its business in
emerging markets.

GSK's diversification strategy is to seize these opportunities and sustain growth, as Blockbuster's
business model, which relies on a small number, is very risky and difficult to sustain as mentioned
above. Diversification can reduce the dependence on blockbusters and patent protection through
segregation of lucrative potential in various sectors and markets, especially vaccines, consumer
healthcare and emerging markets.